Definition of EBIT / Interest

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.