Income cover is also known as interest cover. It is something you will have come across in Subject CT2. Interest cover on an issue of loan capital is defined to be profit on ordinary activities before interest and taxation divided by the annual interest payments due on that issue of the loan capital and on all prior ranking loan capital. Crudely, it measures the number of times that the company could pay its interest out of profit before tax and interest. The higher this multiple, the less likely that the company will run into difficulty.
