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What is meant by the interest coverage ratio?

Anonymous

∙ 11y ago

Updated: 9/23/2023

The interest coverage ratio is the calculation that determines a company's ability to repay debt payments. It is this calculation that determines whether or not companies are able to obtain loans.

Wiki User

∙ 11y ago

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Q: What is meant by the interest coverage ratio?

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How do you calculate debt service coverage ratio of a firm?

Debt Service Coverage Ratio = Interest payable on debt/Net Profit

What advantage does the fixed charge coverage ratio offer over simply using times interest earned?

The fixed charge coverage ratio measures the firm's ability to meet all fixed obligations rather than interest payments alone, on the assumption that failure to meet any financial obligation will endanger the position of the firm

What is spread ratio?

Spread Ratio: Interest Earned / Interest Expense

What ratios are short-term lenders interested in?

I would think liquidity ratios, cash flow, days in receivables, and inventory turns might be a part of their interests. Lender will check following - 1. Leverage (TOL/TNW & TD/TNW) - irrespective of the tenor/type of loan 2. Liquidity Ratio 3. Liquidity Ratios ( current Ratio, inventory turnover ratio, debtors & creditors turnover ratio) 4. Net Working capital - to assess working capital requirement 5. ISCR- Interest service coverage ratio to check capacity to repay interest (in case of CCor OD) 5 DSCR - Debt Service coverage ratio to check capacity to repay interest+ capital (in case of term loan)

What is the formula for times interest earned ratio?

Times Interest Earned = Operating Income/ Interest Expense.

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Related Questions

What is the difference between interest coverage ratio and debt coverage ratio?

Interest coverage ratio, is net operating income + accrual/ interest That is whether the company can cater for the interest portion.

What is interest coverage ratio?

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 ExpensesEBIT - Earnings Before Interest and Taxes

What is meant by DSCR.?

Debt Service Coverage Ratio

How do you calculate debt service coverage ratio of a firm?

Debt Service Coverage Ratio = Interest payable on debt/Net Profit

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

What is the formula of burden coverage?

Burden Coverage Ratio = EBIT/Interest Expense+[Principal Payment*(1-Tax Rate)

How do you find the earnings before interest?

Earnings before Interest and Taxes / Interest Expense-indicates how comfortably the company can handle its interest payments. In general, a higher interest coverage ratio means that the small business is able to take on additional debt. This ratio is closely examined by bankers and other creditors.

What advantage does the fixed charge coverage ratio offer over simply using times interest earned?

The fixed charge coverage ratio measures the firm's ability to meet all fixed obligations rather than interest payments alone, on the assumption that failure to meet any financial obligation will endanger the position of the firm

What is a spread ratio?

Spread Ratio: Interest Earned / Interest Expense

What is spread ratio?

Spread Ratio: Interest Earned / 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

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