Interest Coverage

What it is\nEBIT divided by interest expense. An interest coverage of 12× means the company's operating profit covers its interest 12 times — even a 90% drop in earnings would still leave enough to pay debtholders.\n\n## Why it's the most underrated leverage metric\nDebt/Equity tells you how leveraged a company is at a static point in time. Interest coverage tells you whether the company can actually afford the debt. A high D/E with high interest coverage is fine. A modest D/E with low interest coverage is fragile.\n\n## What "good" looks like\n- > 15×: fortress — debt is essentially riskless\n- 5–15×: comfortable — most healthy businesses\n- 3–5×: tight — recession would be uncomfortable\n- < 3×: warning — a normal business cycle dip could cause distress\n- < 1×: actively losing money on debt service. Acute risk.\n\n## Pair with debt maturity\nA company with high coverage but $5B due next year and $100M of cash is in trouble even if its income statement looks healthy. Always look at the debt maturity schedule alongside coverage.