Interest Coverage Ratio: formula and how to read it

How easily profits cover interest payments. Trailing operating income divided by interest expense, capped at ±100×. A company that pays no interest and holds more cash than debt gets the top value, 100×+.

Stock Meadow groups it under Financial health, and shows it in tables as Int. cover.

Interest coverage = operating income over the trailing twelve months ÷ interest expense, capped at ±100×

A company with $60 million of operating income and $10 million of interest expense has an interest coverage of 6×. The numbers are made up for illustration.

A higher ratio means interest is easily covered. A ratio near 1× leaves little room if profits fall. A company that pays no interest and holds more cash than debt gets the top value, 100×+.

When Stock Meadow ranks stocks, a higher figure scores better.

• It uses operating income, not cash, so it can overstate comfort for capital-hungry businesses.
• A cap at 100× means very high figures are not distinguished from each other.
• Blank when a company reports no interest expense but owes more than it holds in cash, and not calculated for banks and insurers.

How Stock Meadow handles gaps. Usually blank when the company reports no interest expense but owes more than it holds in cash, so its interest can't be measured. Extreme values are capped at 100×+.

Treat any single metric as one clue, and read the company's financial statements before drawing a conclusion. Stock Meadow's figures are research tools based on reported data, not investment advice.

Fixed-recipe models that score it: Low volatility.

In Weighted ranking, Z-score composite and Balanced (no weak link), you choose the metrics and weights yourself, so you can include it in a custom score.

Read about every scoring model on the scoring models page.

• Net Debt to EBITDA: years of earnings needed to pay off debt.
• Altman Z-Score: bankruptcy risk; above 3 is safe, below 1.8 is distressed.
• Operating Margin: share of sales left after running the business.

What is a good interest coverage ratio?

Higher is safer. A ratio near 1× leaves little margin if profits dip, while figures well above that give comfort. Stable businesses can carry lower coverage than volatile ones.

Is a higher or lower Int. cover better?

When Stock Meadow ranks stocks, a higher figure scores better. That is a ranking convention, so read Int. cover alongside other measures and compare similar companies.

Why is Int. cover blank for some stocks?

It is usually blank when the company reports no interest expense but owes more than it holds in cash, so its interest can't be measured. Stock Meadow leaves the figure blank rather than guessing it.