Definition of EBIT / Interest
- Posted on November 19, 2019
- Financial Terms
- By admin admin
EBIT / Interest (sometimes known as the Interest Coverage ratio) is one of the key financial ratios used in assessing the creditworthiness of a corporation both by rating agencies and in debt-financed takeovers. It shows the ratio of pre-interest earnings to the charges required on any debt, so essentially shows the capability of the company to service its debt.
The calculation for EBIT / Interest is:
- EBIT / Interest Expense
An EBIT / Interest ratio of below 1.5 is considered to be unsustainable in the long term, whilst a ratio of less than 1 will require immediate attention.
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