Interest Coverage Ratio
Interest Coverage Ratio is a ratio used to decide how easily a company can pay interest on outstanding debt. The interest coverage ratio is calculated by dividing a company’s earnings before interest and taxes (EBIT) of one period by the company’s interest expenses of the same period.
As the name indicates interest coverage ratio is the ratio that depicts the ability of a company to cover its interest expense. This is the ratio that shows whether a company has an ability of paying interest that is accumulated over the outstanding debt
It is the ratio between the EBIT and the total interest paid by the company. The ratio shows the total interest expense of the company that is subtracted from its total earnings before interest and taxes. It is a financial tool that helps in
Debt Service Ratio or Interest Coverage Ratio: Definition: Interest coverage ratio is also known as debt service ratio or debt service coverage ratio. This ratio relates the fixed interest charges to the income earned by the business. It indicates whether the business has earned