By VestAI Research | Last updated: March 2026
Interest Coverage Ratio: Meaning, Definition & Indian Stock Market Examples
EBIT divided by interest expense — shows ability to service debt.
What is Interest Coverage Ratio?
Interest Coverage Ratio = EBIT ÷ Interest Expense. It measures how many times a company's operating earnings can cover its interest payments. A ratio below 1 means the company cannot cover interest from operations, a severe warning sign.
Interest Coverage Ratio — Indian Stock Market Example
Infosys and TCS have extremely high interest coverage (50x+) since they carry minimal debt. Highly leveraged infrastructure companies may have interest coverage of 1.5–3x, close to the danger zone. During stress periods, Vodafone Idea's interest coverage turned negative, contributing to its debt crisis.
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Analyse with OrionFrequently Asked Questions about Interest Coverage Ratio
What is a safe interest coverage ratio?
Generally, above 3x is considered safe — earnings can cover interest three times over. Between 1.5–3x is cautious territory. Below 1.5x is a significant red flag, especially in cyclical industries where earnings can drop suddenly.
How does interest coverage relate to credit ratings?
Rating agencies like CRISIL and ICRA heavily weigh interest coverage in their credit ratings. A company with consistently high coverage gets investment-grade ratings and cheaper debt. Low coverage often precedes credit downgrades, which then raise borrowing costs — a dangerous spiral.
Related Terms
Debt-to-Equity Ratio
Total debt divided by shareholder equity — measures financial leverage.
EBITDA
Earnings before interest, tax, depreciation and amortisation — proxy for operating cash flow.
Free Cash Flow
Operating cash flow minus capex — actual cash available after maintaining business.
Return on Capital Employed
EBIT as a percentage of capital employed — measures total capital efficiency including debt.
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