What is the interest?
Interest coverage is a ratio that can be used as a financial indicator. It communicates the ability of the company to cover the costs of interest on its debts in a given period. This ratio is often used by investors who try to decide on the purchase or sale of shares and are expressed as a number. The lower the number, the greater the risk is associated with the company. The 1.5 ratio is recommended as a good minimum standard. This is a fee that is rated for loans and interest coverage is a sign of the company's ability to cover these costs. This ratio is one of the factors that some investors are considering determining whether to buy or sell shares of the company. Investors often hesitate to put money in companies that seem to have difficulty in fulfilling their financial obligations. The interest of interest duties for the same period. This most common method of determining interest interest is often referred to as EBIT, which provides earnings before interest and taxes. EBIT is the same as clean earnings and serves as a numerator in the equation. The amount of interestIt serves as a denominator and the result is an ratio that informs the investor of the company's ability to make interest payments.
The number made from this equation tells how many times the company can pay its interest obligations from available earnings. Interest coverage is often expressed as a one -digit number. For example, two would indicate that the company could make interest payments twice of its current income. The negative number suggests that the company cannot cover these obligations and probably has financial problems.
Low interest coverage for a certain period can be a reliable hint of the company's financial capacity or the risk that the investor faces. As earnings fluctuate, they can also fluctuate interest coverage, which will cause many individuals to assess the ability of society to pay interest for time. The investor can look back months or years, depending on his strategy. It is important thatNew investors have understood that this ratio is rarely used as the only factor on which it is based on a stock decision. Financial experts also strongly recommend to own shares that are interested in less than 1.5.