What is interest coverage ratio?
Generally, an interest coverage ratio of at least two (2) is considered the minimum acceptable amount for a company that has solid, consistent revenues. Analysts prefer to see a coverage ratio of three (3) or better.
Is a lower interest coverage ratio better?
The lower the interest coverage ratio, the higher the company’s debt burden and the greater the possibility of bankruptcy or default. A higher ratio indicates a better financial health as it means that the company is more capable to meeting its interest obligations from operating earnings.
Is interest coverage ratio a liquidity ratio?
The interest coverage ratio is a financial ratio that measures a company’s ability to make interest payments on its debt in a timely manner. Unlike the debt service coverage ratio, this liquidity ratio really has nothing to do with being able to make principle payments on the debt itself.
What should Ideal interest coverage ratio of banking institution?
A higher interest coverage ratio is ideal. It means the company is financially stable. Ideal interest coverage ratio is 3 and above. Whereas 1.5 is the minimum acceptable ratio.
What is a good Ebitda to interest coverage ratio?
Understanding the EBITDA-to-Interest Coverage Ratio A ratio greater than 1 indicates that the company has more than enough interest coverage to pay off its interest expenses. Because EBITDA does not account for depreciation-related expenses, a ratio of 1.25 might not be a definitive indicator of financial durability.
Is a higher interest coverage ratio better?
The interest coverage ratio is used to measure how well a firm can pay the interest due on outstanding debt. Generally, a higher coverage ratio is better, although the ideal ratio may vary by industry.
What is interest coverage Class 12?
(d) Interest Coverage Ratio: It is a ratio which deals with the servicing of interest on loan. It is a measure of security of interest payable on long-term debts. It expresses the relationship between profits available for payment of interest and the amount of interest payable.