EBIT to Interest Expense

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Definition

EBIT to Interest Expense is a measurement of how much a company is earning (EBIT) over its interest payments. A ratio of five means that a company is making five times its interest payment expense.

Companies may have quarters where its EBIT coverage is not significantly higher (or lower) than its interest expense, however, reserve cash can help cover during non-profitable periods. Companies that consistently have an EBIT less than interest expense eventually face solvency issues (inability to make interest payments results in default).

In general, the higher this ratio is, the better the financial health of the company. If a company has constant periods where this ratio is less than one, the company may be in poor financial health.

Formula

YCharts calculates this formula by EBIT (Quarterly) / (Operating and Non-Operating Expense - Operating and Non-Operating Interest Income). For periods with a negative denominator, ie. where the sum of operating and non-operating interest income is greater than operating and non-operating expense, we do not display the values.

The denominator is not just Operating and Non-Operating Expense because companies that have Operating and Non-Operating Interest Income can use these funds to immediately pay off Operating and Non-Operating Expense.

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