EBITDA / Net Interest (Interest Cover)

EBITDA / Net Interest, also known as the Interest Coverage Ratio, is a crucial financial metric that assesses an MSME's ability to meet its interest obligations from its operating profits. It calculates how many times a company's earnings before interest, taxes, depreciation, and amortization (EBITDA) can cover its net interest expenses. For MSME lenders, this ratio is a primary indicator of financial health and repayment capacity. A higher ratio suggests that the business generates sufficient operational cash flow to comfortably service its debt interest, reducing the risk of default. Conversely, a low ratio signals potential financial strain, making the MSME a higher credit risk. Lenders use this to gauge the safety margin an MSME has before its operating profits fall below the level needed to pay interest.