Interest Coverage Ratios: Assessing Vulnerabilities in Nonfinancial Corporate Credit

Posted: 13 Dec 2020

See all articles by Jack McCoy

Jack McCoy

Board of Governors of the Federal Reserve System

Francisco Palomino

Board of Governors of the Federal Reserve System

Ander Perez-Orive

Board of Governors of the Federal Reserve System

Charles Press

Board of Governors of the Federal Reserve System

Gerardo Sanz-Maldonado

Board of Governors of the Federal Reserve System

Date Written: December 3, 2020

Abstract

This note examines whether the ability of nonfinancial corporations to meet their interest expenses out of earnings is a vulnerability for financial stability under current economic conditions. We measure this ability using the interest coverage ratio (ICR)—the ratio of earnings before interest and taxes relative to interest expenses—and project this ratio under different scenarios.

Suggested Citation

McCoy, Jack and Palomino, Francisco and Perez-Orive, Ander and Press, Charles and Sanz-Maldonado, Gerardo, Interest Coverage Ratios: Assessing Vulnerabilities in Nonfinancial Corporate Credit (December 3, 2020). FEDS Notes No. 2020-12-03-1 https://doi.org/10.17016/2380-7172.2779 , Available at SSRN: https://ssrn.com/abstract=3747984

Jack McCoy (Contact Author)

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Francisco Palomino

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Ander Perez-Orive

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Charles Press

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Gerardo Sanz-Maldonado

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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