Chartered Financial Analyst (CFA) Level 1 Practice Exam 2026 - Free CFA Level 1 Practice Questions and Study Guide

EBITDA interest coverage is a financial metric that assesses a company's ability to meet its interest obligations from earnings before interest, taxes, depreciation, and amortization (EBITDA). This calculation helps to understand how easily a company can pay interest on its outstanding debt, without being influenced by non-cash charges or tax obligations that could skew the view of available earnings.

A higher EBITDA interest coverage ratio indicates that a company has a comfortable margin to cover its interest expenses, reflecting a lower risk of financial distress regarding its debt obligations. Conversely, a lower ratio may signal potential issues in meeting interest payments, which can be a red flag for investors and creditors.

This metric is particularly focused on the relationship between earnings and interest expenses, rather than overall profitability, short-term liquidity, or investment strategy. Therefore, it is specifically aimed at evaluating a firm's financial health in terms of its capacity to manage interest payments effectively.