What does the interest coverage ratio indicate?

The interest coverage ratio is a financial metric used to assess a company's ability to service its debt, specifically its interest obligations. This ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest expenses. A higher interest coverage ratio indicates that the company generates sufficient earnings to cover its interest payments, which implies a lower risk of defaulting on these obligations. This metric is particularly important for creditors and investors as it provides insight into the financial health and operational efficiency of the company.

In contrast, other options reflect different aspects of a company's financial performance. Market share relates to a company's ownership of an industry relative to its competitors, annual revenue growth measures how much a company's sales increase over time, and total debt levels involve the overall borrowing of the company. Each of these elements plays a role in corporate finance but does not specifically equate to the ability of the company to meet its interest payment commitments, which is the focus of the interest coverage ratio. Thus, the definition of this ratio aligns directly with assessing interest payment capabilities, confirming that option B is the correct answer.