The interest coverage ratio is a financial metric used to assess a company's ability to meet its interest obligations on its outstanding debt. It is calculated by dividing the company's operating income (or earnings before interest and taxes, EBIT) by the interest expenses over a given period. For example, if a company's EBIT is $500,000 and its interest expense is $100,000, the interest coverage ratio would be 5.0, meaning the company earns enough to cover its interest expenses five times over.

A higher interest coverage ratio indicates that a company is well-positioned to meet its obligations without strain, while a lower ratio suggests that the company could face challenges if its earnings decrease or its debt obligations increase. Companies in industries with stable cash flows, like utilities, might have lower interest coverage ratios compared to companies in volatile industries, like technology, because of the differences in earning patterns and operations.

For example, "Our company maintains a strong financial position with an interest coverage ratio of 6.8, ensuring adequate coverage of our interest expenses from our operational income." This demonstrates that the company is financially sound in terms of managing its debt obligations.