Definition
Cash interest coverage measures how many times cash flow can cover cash interest expense.
Formula
Cash interest coverage = operating cash flow / cash interest expense
Example
Operating cash flow $600k and cash interest $120k yields 5.0x.
How to use it
- Use cash interest, not total interest expense, for liquidity testing.
- Stress test coverage using downside revenue scenarios.
Common mistakes
- Ignoring principal payments that also affect solvency.
- Using EBITDA when working capital swings are large.
Measured as
Cash interest coverage = operating cash flow / cash interest expense
Misused when
- Ignoring principal payments that also affect solvency.
- Using EBITDA when working capital swings are large.
Operator takeaway
- Use cash interest, not total interest expense, for liquidity testing.
- Stress test coverage using downside revenue scenarios.
- Tie Cash Interest Coverage to the same balance-sheet date, scenario, and decision memo you are using elsewhere in the model.
- Document which claims, costs, or adjustments your team includes before comparing numbers across forecasts, covenants, or valuation work.
Next decision
- Read Loan amortization: how monthly payments and total interest work if the decision depends on interpretation, policy, or trade-offs beyond the raw formula.
- Decide whether Cash Interest Coverage belongs in cash planning, valuation, or debt monitoring so the number is used in the right model.
Where to use this on MetricKit
Guides
- Loan amortization: how monthly payments and total interest work: A practical guide to loan amortization: monthly payment formula, why interest dominates early, and how term and rate affect total interest.
- Runway and burn: gross vs net burn, working capital, and cash levers: A practical guide to runway: compute net burn, understand why cash differs from profit, and how working capital and collections change runway.