Profit is the story. Coverage is the survival test.
01
Read operating profit against the interest bill, not just the bottom line. Times interest earned is EBIT divided by interest, and it tells you how many bad quarters a company can absorb before it cannot pay its lender. A green P and L can still be one dip from trouble.
02
Coverage is a cushion, and cushions get thin fast. Five times over is room to breathe. Under two times, an ordinary bad year can push operating profit below the interest bill. The lender gets paid before you do.
03
Lenders watch this line too. Loan agreements often demand coverage stay above a set level. Slip under it and a company can be in default before it has missed a single payment. The covenant breaks before the cash does.
A profit tells you the business made money this year. Interest coverage tells you whether it survives the year it does not. Read the second number before you trust the first.