How many times earnings cover interest on debt. Higher = safer.
What is hedging
Interest coverage (Interest Coverage Ratio) divides operating profit by interest expense: how many times over does a year's earnings pay the interest on its debt? Coverage of 8× means earnings can shrink a lot before the company can't service its debt. It is the safety margin between a company and its creditors.
Reading the levels
Above 6×: comfortable, enough to absorb shocks. Between 2× and 4×: the margin is thinning and the company is sensitive to any downturn or a refinancing at a higher rate. Below 1.5×: the danger zone that often comes before a rating downgrade and liquidity crises. Interest eats the profit before shareholders see any.
Why it comes to the front in tightening cycles
When money is cheap, borrowers' weakness hides behind tiny interest bills. Once debt is refinanced at new market rates, the real coverage shows. That is why it is read next to the debt maturity schedule: comfortable coverage on debt due tomorrow is not comfortable.
Hypothetical example
A company with 3× coverage and debt half of which matures within two years, in an environment where rates have doubled: refinancing would cut coverage to about 1.7× on paper. The market prices this in before it happens, which often explains a "cheap" stock that looks cheap for no reason.
Common mistake
Trusting a sector average without looking at the distribution. A sector with a comfortable average can hide a heavily indebted tail, and blowups come from the tail, not the middle.
Why it is the first thing to check in debt
Because it separates a company that carries debt from a company carried by its debt. A ratio below 1 means operating profit does not cover interest alone, before any repayment of principal, so survival depends on continuous refinancing. That is why it is read with the maturity schedule: a weak ratio with distant maturities buys time, and with near maturities in a high-rate environment it is a warning.
Where to see it on the platform
Sector comparisons show it among the solvency ratios from SEC filings, so each sector's weak tail is clearly visible.
The sector comparison module calculates it from official filings, and the distressed-company scanner builds its verdict on it.
