The Interest Coverage Ratio measures a company's ability to cover its interest expenses with its operating income. It is calculated by dividing EBIT (Earnings Before Interest and Taxes) by interest expenses. A high ratio indicates financial stability and the ability to comfortably meet interest payments. Conversely, a low ratio suggests potential difficulties in servicing debt, increasing risk for creditors.
Under the Standardised Credit Risk Approach (SCRA) as defined by CRR III, the Interest Coverage Ratio is a crucial metric for assessing a company’s risk profile. Companies with a solid ratio are deemed less susceptible to financial distress. FinAPU provides tools to monitor this metric and evaluate it in conjunction with ESG criteria.
