Interest Coverage Is the Smoke Alarm
Interpret interest coverage as an early warning signal for debt stress.
A covenant can be green while the trend is already amber. Interest coverage isolates carrying-cost pressure Interest coverage compares operating earnings with interest expense. It tells you whether the business can absorb the recurring cost of debt before principal repayment is even considered. The trend matters more than the snapshot A ratio above covenant today can still be deteriorating quickly. Rate resets, shrinking margins, or higher debt balances can turn a comfortable ratio into a lender concern within one or two quarters. Diagnose the driver before picking the move If coverage falls because rates moved, hedging or refinancing may matter…
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