IntegrityDSO#76
Interest Coverage Ratio expresses the reliability of reported earnings versus underlying cash flow.
By Javier Sanz, Founder & Lead AnalystEditorially reviewed
Last updated: Reviewed by: Javier Sanz
Formula
(Accounts Receivable / Revenue) x 365
Description
Measures the average number of days it takes to collect payment after a sale. Lower DSO means faster cash collection. Rising DSO can indicate deteriorating credit quality of customers or aggressive revenue recognition practices.
Interpretation
Below 45 days is generally strong. Above 90 days warrants investigation. Compare to industry norms, as B2B businesses naturally have higher DSO than B2C. A sudden spike in DSO is a classic earnings quality red flag.
Related metrics: Debt-to-Equity Ratio (D/E), Debt-to-Assets Ratio. (Updated 2026)
Further Reading
- SEC EDGAR primary filings on Interest Coverage Ratio- Primary source filings used to calculate Interest Coverage Ratio.
FAQ
How is Interest Coverage Ratio calculated?+
Interest Coverage Ratio uses the formula: (Accounts Receivable / Revenue) x 365. Below 3x is a stress signal; investment-grade companies typically above 5x. ValueMarkers refreshes the calculation within 24 hours of each new SEC filing using SEC EDGAR 10-K cash-flow reconciliation + footnote disclosures.
What is a good Interest Coverage Ratio value by sector?+
There is no single 'good' value for Interest Coverage Ratio — context is sector-driven. Below 3x is a stress signal; investment-grade companies typically above 5x. The /screener exposes sector-relative percentiles for Interest Coverage Ratio on every ticker, so you can compare against the sector median rather than the broad-market median.
Which investors use Interest Coverage Ratio?+
James Chanos, Carson Block, forensic-accounting analysts cite Interest Coverage Ratio as a key input to to detect earnings manipulation and accruals inflation. The academic anchor is Beneish (1999) and Sloan (1996) accruals research. ValueMarkers weights this within the Integrity pillar of the VMCI score (15% of total).
What are the limitations of Interest Coverage Ratio?+
Interest Coverage Ratio can mislead in false positives in fast-growing or restructuring companies. Pair Interest Coverage Ratio with at least two cross-checks from other VMCI pillars — for example, free cash flow trend, balance-sheet quality, and earnings consistency — before drawing a single-metric conclusion.
Where can I see live Interest Coverage Ratio data?+
Visit any /stock/[ticker] page on ValueMarkers to see live Interest Coverage Ratio data, sector percentiles, and the VMCI composite score that integrates Interest Coverage Ratio with 119 other indicators across 100,000+ stocks. The free /screener exposes Interest Coverage Ratio as a filterable column.
Used in these guides
Related Integrity Indicators
Debt-to-Equity Ratio (D/E)OCF/Debt
Debt-to-Equity Ratio expresses the reliability of reported earnings versus underlying cash flow.
Debt-to-Assets RatioFCF Conv
Debt-to-Assets Ratio measures the reliability of reported earnings versus underlying cash flow.
Net Debt to EBITDA (Net Debt/EBITDA)Accrual
Net Debt to EBITDA expresses the reliability of reported earnings versus underlying cash flow.
Current RatioCapEx/Rev
Current Ratio measures the reliability of reported earnings versus underlying cash flow.
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