If you have a large mortgage you may have done a comparison between your salary and the interest you pay each month as an affordability check.

The same principle applies to firms that borrow money. Interest cover is the number of times profit before interest covers the annual interest expense. The higher the result, the better, with anything above 4x considered to be reasonably good. The calculation can also be done from a cash flow perspective by comparing cash flow from operating activities to the amount spent on interest.