Interest Coverage Ratio (Investments & Retirement) - Definition, Examples, Advice | Bolder Money

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Definition

A measure of a company’s ability to pay interest on its debt, calculated by dividing earnings by interest expenses.

What to consider

Examine the payment schedule to understand the long-term costs.
Consider how the payment structure fits your cash flow.
Review the overall cost compared to paying upfront.

Real world scenarios

Before approving a business loan, the bank reviewed the company’s interest coverage ratio to ensure it could comfortably meet its interest payments.

Related terms

Investments & Retirement

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