Operating income ÷ interest expense: how many times profit covers the interest bill. XYZ: 250 ÷ 25 = 10.
Example
Suppose XYZ borrows heavily, so its interest expense doubles from $25 million to $50 million, and a weak year then cuts operating income from $250 million to $150 million. Coverage falls from 10 to 150 ÷ 50 = 3, so profit now covers interest only three times over, leaving far less room if business slips further.
Hypothetical numbers, for illustration only.
A waterfall chart: a green revenue bar of 1,000, a red cost of revenue step of −400, a green gross profit bar of 600 (60%), a red operating expenses step of −350, a green operating income bar of 250 (25%), a red interest and taxes step of −70 and a green net income bar of 180 (18%), with a note reading margin = profit ÷ revenue.
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