A financial ratio that measures a company's ability to pay interest expenses on outstanding debt, calculated by dividing earnings before interest and taxes by interest expenses. Higher ratios indicate better financial health and lower default risk.
Combines 'interest' from Latin 'interesse' (to be between, concern) and 'coverage' from Old French 'covrir' (to cover). This analytical concept developed in the 1920s as investors sought ways to assess corporate creditworthiness during market volatility.
Think of interest coverage like your personal budget - if you earn $5000 monthly and your loan payments are $500, you have 10x coverage, which is comfortable. Companies with coverage below 2.5x are like people spending half their income on debt payments - financially stressed!
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