Interest Coverage Ratio
Helps You Identify If
Liquidity is a means of understanding a company’s susceptibility to either current of future financial distress. It also helps build a risk profile of the business. But remember though that a single “safe” liquidity measure does not exist across all industries. Likewise, some industries traditionally and successfully trade at low liquidity levels, whereas for others, the same figure is a sign of distress. One indicator of liquidity is understanding your company’s ability to cover its debt servicing. But, what is my interest coverage?
How do you get your finance coverage ratio? Your ratio is the amount of times that finance interest is covered by net operating income plus depreciation (ie free cash)