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Interest Coverage Ratio ICR being an income statement ratio indicates if the company has earned sufficient earnings so that it can make interest payments on the borrowings.
Interpretation of interest coverage ratio. The interest coverage ratio measures the ability of a company to pay the interest on its outstanding debt. What is the Interest Coverage Ratio. Because a companys failure to meet interest payments usually results in default the interest coverage ratio is of particular interest to lenders and bondholders and acts as a margin of safety.
A higher ratio means that the organization has sufficient buffer even after paying interest. Interest coverage ratio meaning. Of course the higher the ICR the more liquid the REIT is.
This number tells them how safe their investments are and how likely they are to get back principal and interest on time. This measurement is used by creditors lenders and investors to determine the risk of lending funds to a companyA high ratio indicate. In simple words the ratio measures the number of times interest can be paid with the given earnings of the company.
The interest coverage ratio is a solvency check for the organization. More Solvency Ratio Definition. However as with any metric meant to assess a business efficiency the interest coverage ratio is not absolute.
The interest coverage ratio is a number that has a lot of importance for the creditors of the firm. However because the interest coverage ratio is based on current earnings and current expenses it primarily focuses a companys short-term ability to meet interest obligations. An interest coverage ratio explains a companys ability to earn profits to make interest payments on its borrowings.
Interest Coverage Ratio EBIT Interest. Interest Coverage Ratio works effectively with the gearing ratio. The interest coverage ratio is also known as times interest earned Creditors investors and lenders use it to know a companys risk level in terms of its current or future debt.
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