Interest coverage ratio of 6 indicates
Answers
Answer:
a good interest coverage varies not only between industries but also between companies in the same industry. 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. In contrast, a coverage ratio below one (1) indicates a company cannot meet its current interest payment obligations and, therefore, is not in good financial health.
Explanation:
Answer:
If the interest coverage ratio is 6, this means the ability to pay the interest on the debt 6 times in an accounting year.
Explanation:
- Interest coverage ratio is the ratio of debt to profitability that determines how much interest a company pays for its outstanding debt.
- To obtain the interest coverage ratio, divide the interest and pre-tax profit (EBIT) of the company by the interest expense for a specific period.
- Interest Interested (TIE) ratio is another name for interest coverage ratio.
- This method is commonly used by lenders, investors and creditors to assess corporate risks associated with current debt and potential borrowing.
- A solid interest coverage ratio would be a positive indicator of the situation and possibly a pointer to the company's ability to pay off its debt.
- When a corporation pays off the interest expense on its debt commitments to creditors, it has a good interest coverage ratio.
- A ratio of less than one indicates that the corporation is having difficulty raising enough cash to pay off its interest debts.
- A ratio of less than 1.5 suggests that the corporation may be unable to pay its loan interest.
Hence, If the interest coverage ratio is 6, this implies that the company can pay the debts in 6 terms.
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