Interest Coverage Ratio (ICR)

Interest Coverage Ratio (ICR)

The interest coverage ratio (ICR) represents the multiple of a company’s earnings (typically its Earnings Before Interest and Taxation or EBIT) relative to the interest expense on its debt i.e. how many times earnings cover interest. It is an important ratio for lenders and debt investors as a low and/or declining ICR could be a harbinger of debt sustainabilty issues. Equity investors track ICR to get a handle on the extent to which companies can cover debt service without impacting future profits.

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