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Finance Glossary

Just call us Bond. Amortized bond.

Over 700 finance terms, Shmooped to perfection.

Interest Coverage

Definition:

If a company borrows money, how easily can it pay the interest on the loans?

To answer that question, you have to figure out the interest coverage, which means using this handy equation: 

Earnings Before Interest Taxes / Annual Interest Expense

If you're investing in a company, you want the number to be high, which would mean the company can handle its interest payments easily.