0
This ratio is used to determine how easily a company can repay the interest outstanding on its debt commitments. The lower the ratio, the more the company is burdened by debt commitments. When a company's interest coverage ratio is 1.5 or lower, its ability to meet its interest expenses becomes questionable. An interest coverage ratio of < 1 indicates that the company is not generating sufficient revenue to satisfy its interest expenses. Formula:
ICR = EBIT / Interest Expenses
EBIT - Earnings Before Interest and Taxes
Still curious? Ask our experts.
Chat with our AI personalities
Devin
Rene
LaoAdd your answer:
Earn +20 pts
What is cash coverage ratio?
The cash coverage ratio is useful for determining the amount of cash available to pay for interest, and is expressed as a ratio of the cash available to the amount of interest to be paid.To calculate the cash coverage ratio, take the earnings before interest and taxes (EBIT) from the income statement, add back to it all non-cash expenses included in EBIT (such as depreciation and amortization), and divide by the interest expense. The formula is: Earnings Before Interest and Taxes + Non-Cash Expenses Interest Expense.
What is the formula for calculating interest coverage ratio?
operating income vefore interest and income taxes / annual interest expense
Why are lease payments included in numerator of fixed charge coverage ratio?
because lease payment is deducted as expenses in profit and loss statement. So while calculating this ratio again we have to add it to earnings before interest and tax
Define non performing assets coverage ratio?
The ratio of provision against total NPA
What advantage does fixed charge coverage ratio offer using times interest earned?
This is a very open ended question that implies one does not understand the purpose of the ratio and I see no advantage to any ratio over another. A ratio simply measures the variables inputted. The Fixed Charge Coverage Ratio ("FCCR") reflects the amount of cash (or EBITDA) left after paying for unfinanced capital expenditures, dividends (or distributions) and cash paid taxes then divided by the "fix charges" or the sum of the past period's cash interest and required payments on long term debt or also know as the current portion long term debt ("CPLTD"). In my opinion to answer the question; the advantage of this ratio over the use of an Uniform Cash Flow Analysis ("UCA") Debt Service Coverage ("DSC") is simply the starting point of EBITDA vs. net income. EBITDA is more commonly used in larger credit facilities as a component of ratios or covenants measurement. Also a very similar ratio is Free Cash Flow ("FCF") divided by Total Debt Service ("TDS") or FCF/TDS.
