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Finance Dictionary and Glossary of Investment Terms
Interest Coverage
Definition 1.
The latest 12 months'' earnings before interest and taxes (EBIT) divided by the latest 12 months'' interest expense (all taken from the income statement). Interest coverage is a measure of a company''s ability to handle debt service, and tells investors whether the company is overburdened with debt. EBIT should be several times annual interest expenses, but the higher this ratio the better.
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