- A “bad” interest coverage ratio is any number less than one.
- It means that the business’s earnings are not sufficiently high enough to serve their outstanding debts.
- Although it may be possible for companies that have difficulties servicing their debt to stay in business.
- A low or negative interest coverage ratio is usually a major red flag for investors.
- In many cases, it indicates that the firm is at risk of bankruptcy in the future.
Further Readings –