Interest coverage measures a company's ability to meet its debt obligations. It is calculated by dividing EBIT by interest expense. The higher number means that you will have an easier time servicing your loans or bonds because there are more resources available in order for them not to go into default which would result from failure on repayment terms like many other companies when they couldn't make ends meet due to their financial struggles. Maintaining high levels of solvency can help give stability during times when cash flow may be scarce.
The formula is: Interest coverage = EBIT / Interest expense
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