Interest Coverage Ratio (Formula, Examples) | Calculate Interest Coverage Ratio

In this video on the Interest Coverage Ratio, we discuss interest coverage formula with examples. Here we also learn to calculate Interest coverage ratio of Colgate along with other industry examples.

What is Interest Coverage Ratio?
Interest Coverage Ratio is the ratio of EBITDA to the interest expense. It is basically a solvency ratio that tells us how the company is placed with respect to its interest payments.

How to calculate Interest coverage ratio?

Calculation of Interest Coverage Ratio can be done using the formula below -

Interest Coverage Ratio Formula = EBITDA ÷ Total Interest Payable in the given period

or

Interest Coverage Ratio Formula = (EBIT for the period + Non-cash expenses) ÷ Total Interest Payable in the given period

Interpretation of Interest Coverage Ratio -
Higher ratio means the company has greater power to pay interest
Lower ratio means that the company may default on its loans.

In this video, we also discuss the Colgate Interest coverage ratio example and limitations.

You may also have a look at this detailed article here -
https://www.wallstreetmojo.com/intere...

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