Most investors know the interest coverage ratio: EBIT divided by interest expense. But what they often miss is how the same ratio behaves — and means — differently across sectors.

In an era of tightening credit and rising rates, that nuance matters more than ever.

What Is Interest Coverage, Really?

On the surface, it’s a measure of how easily a company can meet its debt payments. But dig deeper, and it becomes a window into a firm’s operational buffer, financial strategy, and risk exposure — all at once.

For capital-light tech firms, high coverage ratios may simply reflect minimal debt and strong margins. In capital-intensive sectors like Industrials or Energy, lower ratios aren’t necessarily alarming — they may reflect cyclical cash flows or heavy investment phases.

Sector Sensitivity to Interest Rates

Here’s where things get more interesting. When rates rise:

• Industrials may struggle if margins are squeezed and refinancing becomes more expensive.
• Utilities with regulated returns may absorb higher debt costs more predictably.
• Consumer Discretionary names can suffer as leverage collides with falling demand.

One Ratio, Multiple Implications

Consider this:

The Bottom Line

Interest coverage is more than a credit metric. It’s a proxy for pricing power, margin resilience, and capital discipline. When used through a sectoral lens, it becomes a predictive tool — helping investors gauge which industries are built to weather monetary tightening and which may falter.

Don’t just compare companies. Compare the business models behind them.