Magic Software Enterprises (MGIC) Financials
Magic Software Enterprises Ltd (MGIC) reported $480.3M in revenue for fiscal year 2021, up 29.4% from the prior fiscal year. This page shows its income statement, balance sheet, cash flow statement, and key financial ratios. View 13 years of annual fundamentals and quarterly data, with year-over-year growth rates and compound annual growth rates (CAGR). All figures are derived from SEC filings.
Rapid growth is increasingly working-capital-heavy: FY2021 revenue expanded, but cash conversion weakened as customer balances rose.
Revenue growth accelerated in FY2021, rising29.4% while operating cash flow fell27.7% , indicating expansion converted less readily into cash. Accounts receivable increased27.2% as free cash flow declined26.6% , pointing to customer balances absorbing cash during the expansion rather than the issue being limited to reported profitability.
Gross margin fell 1.8 percentage points to
Liabilities grew
Financial Health Signals
We are recalculating Magic Software Enterprises Ltd's peer-relative financial health score against the latest fiscal year. It will appear here once the refresh completes. The signals and metrics below are current.
Magic Software Enterprises Ltd passes 5 of 9 financial strength tests. All 4 profitability signals pass (positive income, cash flow, and earnings quality), no leverage/liquidity signals pass (rising debt, declining liquidity, or share dilution), 1 of 2 operating efficiency signals passes.
For every $1 of reported earnings, Magic Software Enterprises Ltd generates $1.29 in operating cash flow ($37.8M OCF vs $29.3M net income). This indicates profits are well-supported by actual cash generation, not accounting adjustments.
Magic Software Enterprises Ltd earns $60.70 in operating income for every $1 of interest expense ($51.2M vs $844K). This wide margin provides strong safety for debt servicing, even if earnings decline temporarily.
Key Financial Metrics
Earnings & Revenue
Magic Software Enterprises Ltd generated $480.3M in revenue in fiscal year 2021. This represents an increase of 29.4% from the prior year.
Magic Software Enterprises Ltd's EBITDA was $66.1M in fiscal year 2021, measuring earnings before interest, taxes, depreciation, and amortization. This represents an increase of 21.2% from the prior year.
Magic Software Enterprises Ltd reported $29.3M in net income in fiscal year 2021. This represents an increase of 16.5% from the prior year.
Not reported for fiscal year 2021.
Cash & Balance Sheet
Magic Software Enterprises Ltd generated $36.4M in free cash flow in fiscal year 2021, representing cash available after capex. This represents a decrease of 26.6% from the prior year.
Magic Software Enterprises Ltd held $88.1M in cash against $32.5M in long-term debt as of fiscal year 2021.
Not reported for fiscal year 2021.
Margins & Returns
Magic Software Enterprises Ltd's gross margin was 27.7% in fiscal year 2021, indicating the percentage of revenue retained after direct costs. This is down 1.8 percentage points from the prior year.
Magic Software Enterprises Ltd's operating margin was 10.7% in fiscal year 2021, reflecting core business profitability. This is down 0.3 percentage points from the prior year.
Magic Software Enterprises Ltd's net profit margin was 6.1% in fiscal year 2021, showing the share of revenue converted to profit. This is down 0.7 percentage points from the prior year.
Magic Software Enterprises Ltd's ROE was 11.1% in fiscal year 2021, measuring profit generated per dollar of shareholder equity. This is up 1.4 percentage points from the prior year.
Capital Allocation
Magic Software Enterprises Ltd invested $9.0M in research and development in fiscal year 2021. This represents an increase of 2.3% from the prior year.
Magic Software Enterprises Ltd invested $1.4M in capex in fiscal year 2021, funding long-term assets and infrastructure. This represents a decrease of 48.1% from the prior year.
Not reported for fiscal year 2021.
MGIC Income Statement
Figures in USD, abbreviated K (thousand), M (million), B (billion), T (trillion). Negative values carry a minus sign and red type. Each change compares the year with the year before it, and each quarter with the same quarter a year earlier.
| Metric | FY21 | FY20 | FY19 | FY18 | FY17 | FY16 | FY15 | FY14 | FY13 | FY12 | FY11 | FY10 | FY09 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue | $480.3M+29.4% | $371.2M+14.0% | $325.6M+14.5% | $284.4M+10.2% | $258.1M+28.0% | $201.6M+14.6% | $176.0M+7.1% | $164.3M+13.3% | $145.0M+14.7% | $126.4M+11.5% | $113.3M+27.9% | $88.6M+60.0% | $55.4M |
| Cost of Revenue | $347.3M+32.8% | $261.6M+17.0% | $223.5M+14.3% | $195.6M+11.6% | $175.2M+31.3% | $133.4M+17.8% | $113.2M+13.5% | $99.7M+16.1% | $85.9M+17.0% | $73.4M+9.1% | $67.3M+30.7% | $51.4M+95.9% | $26.3M |
| Gross Profit | $133.0M+21.4% | $109.6M+7.3% | $102.1M+15.0% | $88.8M+7.0% | $83.0M+21.6% | $68.3M+8.7% | $62.8M-2.7% | $64.6M+9.3% | $59.1M+11.5% | $53.0M+15.0% | $46.1M+24.1% | $37.1M+27.7% | $29.1M |
| R&D Expenses | $9.0M+2.3% | $8.8M+6.7% | $8.2M+44.6% | $5.7M-17.9% | $6.9M+18.9% | $5.8M+19.5% | $4.9M+2.9% | $4.8M0.0% | $4.8M+61.2% | $2.9M+44.0% | $2.0M-1.2% | $2.1M+58.2% | $1.3M |
| SG&A Expenses | $32.1M+14.8% | $28.0M-5.3% | $29.5M+21.7% | $24.3M+6.3% | $22.8M+30.0% | $17.6M+30.8% | $13.4M-7.5% | $14.5M+10.3% | $13.2M+23.7% | $10.6M+16.2% | $9.2M+11.8% | $8.2M-0.2% | $8.2M |
| Operating Income | $51.2M+26.2% | $40.6M+20.6% | $33.7M+6.2% | $31.7M+22.1% | $26.0M+23.1% | $21.1M-1.6% | $21.4M+3.4% | $20.7M+8.4% | $19.1M+16.6% | $16.4M+11.5% | $14.7M+57.6% | $9.3M+49.9% | $6.2M |
| EBITDA | $66.1M+21.2% | $54.5M+14.4% | $47.7M+7.7% | $44.3M+11.9% | $39.6M+21.0% | $32.7M+4.4% | $31.3M+6.6% | $29.4M+6.8% | $27.5M+15.3% | $23.9M+20.7% | $19.8M+42.1% | $13.9M | N/A |
| Interest Expense | -$844Kn/m | -$614Kn/m | -$374Kn/m | -$986Kn/m | -$1.1Mn/m | -$199K-410.9% | $64Kn/m | $0n/m | $0-100.0% | $48K-87.9% | $397K+1554.2% | $24K | N/A |
| Income Tax | $10.4M+42.2% | $7.3M+6.0% | $6.9M-2.8% | $7.1M+11.7% | $6.3M+60.3% | $3.9M+7.3% | $3.7M+59.6% | $2.3M+46.5% | $1.6M+1575.5% | $94Kn/m | -$203Kn/m | -$102K-130.5% | $334K |
| Net Income | $29.3M+16.5% | $25.2M+24.3% | $20.3M+1.9% | $19.9M+28.8% | $15.4M+9.0% | $14.2M-12.5% | $16.2M+4.4% | $15.5M-2.3% | $15.9M-1.9% | $16.2M+7.6% | $15.0M+60.5% | $9.4M+51.8% | $6.2M |
| EPS (Basic) | $0.52+6.1% | $0.49+88.5% | $0.26 | N/A | $0.35+29.6% | $0.27-27.0% | $0.37+2.8% | $0.36-16.3% | $0.43 | N/A | $0.41 | $0.29+52.6% | $0.19 |
| EPS (Diluted) | N/A | N/A | N/A | N/A | $0.35+29.6% | $0.27-25.0% | $0.360.0% | $0.36-16.3% | $0.43 | N/A | $0.41 | $0.29+52.6% | $0.19 |
| Diluted Shares (Avg) | 49M+0.1% | 49M+0.1% | 49M+4.7% | 47M+4.9% | 45M+0.2% | 45M+0.1% | 44M+2.6% | 43M+16.1% | 37M+0.5% | 37M+0.2% | 37M | 33M | N/A |
MGIC Balance Sheet
Figures in USD, abbreviated K (thousand), M (million), B (billion), T (trillion). Negative values carry a minus sign and red type. Each change compares the year with the year before it, and each quarter with the same quarter a year earlier.
| Metric | FY21 | FY20 | FY19 | FY18 | FY17 | FY16 | FY15 | FY14 | FY13 | FY12 | FY11 | FY10 | FY09 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total Assets | $492.0M+10.0% | $447.4M+10.6% | $404.6M+11.7% | $362.3M+5.8% | $342.5M+8.3% | $316.4M+31.9% | $239.8M+7.0% | $224.2M+34.2% | $167.0M+9.2% | $153.0M+12.5% | $136.0M+21.5% | $112.0M | N/A |
| Current Assets | $246.8M+16.8% | $211.2M+3.0% | $205.1M-2.9% | $211.2M+16.3% | $181.6M+14.7% | $158.4M+17.0% | $135.3M+5.5% | $128.2M+75.2% | $73.2M-0.7% | $73.7M+16.1% | $63.5M-7.2% | $68.4M | N/A |
| Cash & Equivalents | $88.1M0.0% | $88.1M+7.6% | $81.9M-6.0% | $87.1M+14.5% | $76.1M+1.0% | $75.3M+21.1% | $62.2M-14.2% | $72.5M+106.4% | $35.1M-6.9% | $37.7M+31.5% | $28.7M | N/A | N/A |
| Accounts Receivable | $117.0M+27.2% | $92.0M-4.9% | $96.7M+7.1% | $90.3M+10.0% | $82.1M+32.2% | $62.0M+18.5% | $52.4M+29.8% | $40.4M+26.2% | $32.0M+12.7% | $28.4M+13.7% | $24.9M+40.1% | $17.8M | N/A |
| Goodwill | $146.8M+8.2% | $135.7M+15.2% | $117.7M+23.9% | $95.0M-3.2% | $98.2M+7.9% | $91.0M+43.7% | $63.3M+14.1% | $55.5M+0.3% | $55.3M+23.8% | $44.7M+14.8% | $38.9M+58.0% | $24.6M | N/A |
| Total Liabilities | $226.8M+21.3% | $187.0M+19.3% | $156.8M+32.5% | $118.3M-10.5% | $132.3M+10.0% | $120.2M+146.1% | $48.8M+24.8% | $39.1M+0.7% | $38.9M+10.5% | $35.2M+14.1% | $30.8M+33.5% | $23.1M | N/A |
| Current Liabilities | $108.3M+27.6% | $84.8M+26.8% | $66.9M+26.4% | $52.9M-10.7% | $59.2M+32.6% | $44.7M+57.6% | $28.4M+12.7% | $25.2M-10.2% | $28.0M-5.1% | $29.5M+8.6% | $27.2M+38.9% | $19.6M | N/A |
| Non-Current Liabilities | $77.7M+13.3% | $68.6M+34.2% | $51.1M+51.4% | $33.8M-23.1% | $43.9M-10.5% | $49.1M+288.3% | $12.6M+117.5% | $5.8M-1.1% | $5.9M+202.5% | $1.9M+161.0% | $744K+37100.0% | $2K | N/A |
| Long-Term Debt | $32.5M+37.8% | $23.6M+12.1% | $21.1M-18.0% | $25.7M-25.7% | $34.6M+1.1% | $34.2M+950.5% | $3.3M+564.7% | $490K-78.5% | $2.3M+18850.0% | $12K | N/A | N/A | N/A |
| Total Equity | $265.2M+1.8% | $260.4M+5.1% | $247.8M+1.6% | $244.0M+16.0% | $210.3M+7.2% | $196.2M+2.7% | $191.0M+3.2% | $185.1M+44.4% | $128.1M+8.8% | $117.8M+12.0% | $105.2M+18.3% | $88.9M+55.4% | $57.2M |
| Retained Earnings | $43.2M+8.9% | $39.7M+40.1% | $28.4M-7.1% | $30.5M+18.7% | $25.7M+29.7% | $19.8M+26.4% | $15.7M+115.7% | $7.3M+1590.5% | $430Kn/m | -$7.7Mn/m | -$20.2Mn/m | -$35.3M | N/A |
Not reported in any period shown, so not listed: Short-Term Investments, Inventory, Long-Term Investments.
MGIC Cash Flow Statement
Figures in USD, abbreviated K (thousand), M (million), B (billion), T (trillion). Negative values carry a minus sign and red type. Each change compares the year with the year before it, and each quarter with the same quarter a year earlier.
| Metric | FY21 | FY20 | FY19 | FY18 | FY17 | FY16 | FY15 | FY14 | FY13 | FY12 | FY11 | FY10 | FY09 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Operating Cash Flow | $37.8M-27.7% | $52.3M+13.8% | $45.9M+91.1% | $24.1M-5.7% | $25.5M-8.8% | $28.0M+42.5% | $19.6M+7.8% | $18.2M-18.3% | $22.3M-2.9% | $22.9M+50.6% | $15.2M+5.8% | $14.4M+91.1% | $7.5M |
| Depreciation & Amortization | $14.9M+6.5% | $13.9M-0.6% | $14.0M+11.6% | $12.6M-7.7% | $13.6M+17.3% | $11.6M+17.4% | $9.9M+14.1% | $8.7M+3.3% | $8.4M+12.6% | $7.4M+47.7% | $5.0M+10.4% | $4.6M | N/A |
| Stock-Based Compensation | $956Kn/m | $0-100.0% | $74K-61.9% | $194K+148.7% | $78K-48.7% | $152K-35.0% | $234K-85.0% | $1.6M+379.1% | $325K-36.9% | $515K-18.6% | $633K+111.0% | $300K+130.8% | $130K |
| Capital Expenditures | $1.4M-48.1% | $2.8M+101.0% | $1.4M+59.8% | $863K-38.4% | $1.4M+75.2% | $799K-28.0% | $1.1M+11.7% | $993K+99.8% | $497K-2.5% | $510K+2.6% | $497K-14.8% | $583K+0.5% | $580K |
| Free Cash Flow | $36.4M-26.6% | $49.5M+11.1% | $44.6M+92.2% | $23.2M-3.8% | $24.1M-11.2% | $27.2M+46.7% | $18.5M+7.6% | $17.2M-21.0% | $21.8M-2.9% | $22.4M+52.2% | $14.7M+6.7% | $13.8M+98.6% | $7.0M |
| Investing Cash Flow | -$16.9Mn/m | -$9.6Mn/m | -$15.4Mn/m | -$19.6Mn/m | -$7.3Mn/m | -$34.2Mn/m | -$16.6M | N/A | N/A | -$10.4Mn/m | -$29.8Mn/m | -$391Kn/m | -$10.4M |
| Financing Cash Flow | -$20.7Mn/m | -$39.6Mn/m | -$37.0M-538.9% | $8.4Mn/m | -$19.4M-195.1% | $20.4Mn/m | -$11.9M | N/A | N/A | -$3.4Mn/m | -$503K-110.2% | $4.9Mn/m | -$62K |
| Dividends Paid | $21.8M+74.2% | $12.5M-16.4% | $15.0M+10.5% | $13.5M+44.7% | $9.4M+20.6% | $7.8M-0.3% | $7.8M-10.3% | $8.7M+11.5% | $7.8M+112.7% | $3.7Mn/m | $0-100.0% | $16.0M | N/A |
Not reported in any period shown, so not listed: Share Buybacks.
MGIC Financial Ratios
Margins and returns are percentages; the remaining ratios are unitless multiples. Each change compares the year with the year before it, and each quarter with the same quarter a year earlier.
| Metric | FY21 | FY20 | FY19 | FY18 | FY17 | FY16 | FY15 | FY14 | FY13 | FY12 | FY11 | FY10 | FY09 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gross Margin | 27.7%-1.8pp | 29.5%-1.8pp | 31.4%+0.1pp | 31.2%-0.9pp | 32.1%-1.7pp | 33.9%-1.8pp | 35.7%-3.6pp | 39.3%-1.4pp | 40.8%-1.2pp | 41.9%+1.3pp | 40.6%-1.3pp | 41.9%-10.6pp | 52.5% |
| Operating Margin | 10.7%-0.3pp | 10.9%+0.6pp | 10.3%-0.8pp | 11.2%+1.1pp | 10.1%-0.4pp | 10.5%-1.7pp | 12.2%-0.4pp | 12.6%-0.6pp | 13.2%+0.2pp | 13.0%0.0pp | 13.0%+2.4pp | 10.5%-0.7pp | 11.3% |
| Net Margin | 6.1%-0.7pp | 6.8%+0.6pp | 6.2%-0.8pp | 7.0%+1.0pp | 6.0%-1.1pp | 7.0%-2.2pp | 9.2%-0.3pp | 9.4%-1.5pp | 10.9%-1.9pp | 12.8%-0.5pp | 13.3%+2.7pp | 10.6%-0.6pp | 11.2% |
| Return on Equity | 11.1%+1.4pp | 9.7%+1.5pp | 8.2%0.0pp | 8.2%+0.8pp | 7.3%+0.1pp | 7.2%-1.3pp | 8.5%+0.1pp | 8.4%-4.0pp | 12.4%-1.3pp | 13.7%-0.6pp | 14.3%+3.8pp | 10.5%-0.3pp | 10.8% |
| Return on Assets | 6.0%+0.3pp | 5.6%+0.6pp | 5.0%-0.5pp | 5.5%+1.0pp | 4.5%0.0pp | 4.5%-2.3pp | 6.8%-0.2pp | 6.9%-2.6pp | 9.5%-1.1pp | 10.6%-0.5pp | 11.1%+2.7pp | 8.4% | N/A |
| Current Ratio | 2.28-0.2x | 2.49-0.6x | 3.07-0.9x | 3.99+0.9x | 3.07-0.5x | 3.54-1.2x | 4.77-0.3x | 5.10+2.5x | 2.61+0.1x | 2.50+0.2x | 2.34-1.2x | 3.50 | N/A |
| Debt-to-Equity | 0.120.0x | 0.090.0x | 0.090.0x | 0.11-0.1x | 0.160.0x | 0.17+0.2x | 0.020.0x | 0.000.0x | 0.020.0x | 0.00 | N/A | N/A | N/A |
| Liabilities-to-Equity | 0.86+0.1x | 0.72+0.1x | 0.63+0.1x | 0.49-0.1x | 0.630.0x | 0.61+0.4x | 0.260.0x | 0.21-0.1x | 0.300.0x | 0.300.0x | 0.290.0x | 0.26 | N/A |
| Asset Turnover | 0.98+0.1x | 0.830.0x | 0.800.0x | 0.780.0x | 0.75+0.1x | 0.64-0.1x | 0.730.0x | 0.73-0.1x | 0.870.0x | 0.830.0x | 0.830.0x | 0.79 | N/A |
| FCF Margin | 7.6%-5.8pp | 13.3%-0.4pp | 13.7%+5.5pp | 8.2%-1.2pp | 9.3%-4.1pp | 13.5%+3.0pp | 10.5%0.0pp | 10.5%-4.6pp | 15.0%-2.7pp | 17.8%+4.7pp | 13.0%-2.6pp | 15.6%+3.0pp | 12.6% |
Similar Companies
Newest fiscal year on record for each company. The health score is the peer-relative Financial Health Score for that year; a dash means no score is published for it. Market cap is stated at each company's latest close.
| Company | Fiscal year | Revenue | Net income | Net margin | Market cap | Health score |
|---|---|---|---|---|---|---|
| Magic Software Enterprises Ltd MGIC | FY2021 | $480.3M | $29.3M | 6.1% | N/A | — |
| Formula Systems 1985 Ltd FORTY | FY2025 | $2.6B | $606.5M | 23.1% | $1.7B | 62/100 |
| Innodata Inc. INOD | FY2025 | $251.7M | $32.2M | 12.8% | $1.3B | 70/100 |
| Accenture plc ACN | FY2026 | $74.2B | $8.4B | 11.3% | $153.9B | 73/100 |
| CDW Corporation CDW | FY2025 | $22.4B | $1.1B | 4.8% | $19.8B | 51/100 |
| Ingram Micro Holding Corporation INGM | FY2025 | $52.6B | $327.9M | 0.6% | $5.6B | 50/100 |
Where Magic Software Enterprises Ltd Ranks
Frequently Asked Questions
Magic Software Enterprises Ltd (MGIC) reported $480.3M in total revenue for fiscal year 2021. This represents a 29.4% change compared to the previous fiscal year. Revenue measures the total income earned from the company's primary business operations before any expenses are deducted.
Magic Software Enterprises Ltd (MGIC) revenue grew by 29.4% year-over-year, from $371.2M to $480.3M in fiscal year 2021.
Yes, Magic Software Enterprises Ltd (MGIC) reported a net income of $29.3M in fiscal year 2021, with a net profit margin of 6.1%.
Magic Software Enterprises Ltd (MGIC) had EBITDA of $66.1M in fiscal year 2021, measuring earnings before interest, taxes, depreciation, and amortization.
As of fiscal year 2021, Magic Software Enterprises Ltd (MGIC) had $88.1M in cash and equivalents against $32.5M in long-term debt.
Magic Software Enterprises Ltd (MGIC) had a gross margin of 27.7% in fiscal year 2021, indicating the percentage of revenue retained after direct costs of goods sold.
Magic Software Enterprises Ltd (MGIC) had an operating margin of 10.7% in fiscal year 2021, reflecting the profitability of core business operations before interest and taxes.
Magic Software Enterprises Ltd (MGIC) had a net profit margin of 6.1% in fiscal year 2021, representing the share of revenue converted into profit after all expenses.
Magic Software Enterprises Ltd (MGIC) has a return on equity of 11.1% for fiscal year 2021, measuring how efficiently the company generates profit from shareholder equity.
Magic Software Enterprises Ltd (MGIC) generated $36.4M in free cash flow during fiscal year 2021. This represents a -26.6% change compared to the previous fiscal year. Free cash flow represents the cash a company generates after accounting for capital expenditures, and is widely used to assess financial flexibility and shareholder value.
Magic Software Enterprises Ltd (MGIC) generated $37.8M in operating cash flow during fiscal year 2021, representing cash generated from core business activities.
Magic Software Enterprises Ltd (MGIC) had $492.0M in total assets as of fiscal year 2021, including both current and long-term assets.
Magic Software Enterprises Ltd (MGIC) invested $1.4M in capital expenditures during fiscal year 2021, funding long-term assets and infrastructure.
Magic Software Enterprises Ltd (MGIC) invested $9.0M in research and development during fiscal year 2021.
Magic Software Enterprises Ltd (MGIC) had a current ratio of 2.28 as of fiscal year 2021, which is generally considered healthy.
Magic Software Enterprises Ltd (MGIC) had a debt-to-equity ratio of 0.12 as of fiscal year 2021. We compute it as long-term debt divided by total shareholder equity, where long-term debt is the noncurrent part of the company's borrowings, so debt due within the next twelve months is not counted.
Magic Software Enterprises Ltd (MGIC) had a liabilities-to-equity ratio of 0.86 as of fiscal year 2021, which is total liabilities divided by total shareholder equity. Total liabilities counts every obligation on the balance sheet (payables, deposits, insurance reserves and deferred taxes as well as borrowings), so this ratio usually runs well above debt-to-equity.
Magic Software Enterprises Ltd (MGIC) had a return on assets of 6.0% for fiscal year 2021, measuring how efficiently the company uses its assets to generate profit.
Magic Software Enterprises Ltd (MGIC) has a Piotroski F-Score of 5 out of 9, indicating neutral financial health. The F-Score evaluates nine binary signals across profitability (positive ROA, positive cash flow, improving ROA, earnings quality), leverage (decreasing debt, improving liquidity, no share dilution), and operating efficiency (improving gross margin, improving asset turnover). Scores of 7 to 9 indicate strong and improving fundamentals. Learn more in our complete guide to financial health indicators.
Magic Software Enterprises Ltd (MGIC) has an earnings quality ratio of 1.29x, considered cash-backed (high quality). This ratio compares operating cash flow to net income. A ratio above 1.0x means the company generates more cash than its reported earnings, indicating sustainable, cash-backed profits. Ratios below 1.0x suggest earnings rely on accounting accruals rather than actual cash generation. Learn more in our complete guide to financial health indicators.
Magic Software Enterprises Ltd (MGIC) has an interest coverage ratio of 60.70x, meaning it can comfortably cover its interest obligations. This ratio divides operating income by interest expense. Ratios above 5x indicate strong debt-servicing ability, while ratios below 2x suggest the company may face difficulty meeting interest payments if earnings decline. Learn more in our complete guide to financial health indicators.