Tuesday, August 5, 2014

Debt Ratios: Interest Coverage Ratio

Series : Ratio Analysis    (14 th Post)

This Ratio helps us to understand the how easily a company can pay its interest on the Outstanding Debt .
The Lower the Ratio,The higher the company’s  debt burden. , A low Interest coverage ratio means less interest are available to meet its interest payments. When a company’s  ratio is less then 1.5 the company is questionable for its ability to pay the interest.
A ratio greater then 1.5 indicates company is in better health and more likey to meet its financial obligations.

Formula:  Interest Coverage Ratio % = Earnings before interest & Expenses (EBIT)  /  Interest Expense

Next Post on Ratio Analysis:  Debt Ratios : Cash Flow To Debt Ratio

In my quest for learning value investing I came acrros this interesting article and thought would like to share this with the community
Comments  / Improvements and points worth considering are welcome

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1 comment:

  1. It is a very important point which must be analyze to conclude how a company is likely to perform. Further experts can help with good recommendations on stock tips to improve your market returns.