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Which ratio may indicate that the firm will not be able to meet interest obligations due on outstanding debt?
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What is spread ratio?
Spread Ratio: Interest Earned / Interest Expense
What advantage does the fixed charge coverage ratio offer over simply using times interest earned?
The fixed charge coverage ratio measures the firm's ability to meet all fixed obligations rather than interest payments alone, on the assumption that failure to meet any financial obligation will endanger the position of the firm
What is debt service cover ratio?
Debt Service Coverage Ratio is a financial ratio used to indicate a company (or properties) ability to repay a proposed debt.For a rental property, it is typically calculated by dividing the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) by the total annual required debt service of the company. Most lenders look for a minimum of anywhere from 1.20x to 1.50x.DSCR is similar to the other debt ratios. This is a measure of the amount of cash flow available with the company to meet its annual interest and principal payments on its debt obligations. A DSCR of less than 1 means a negative cash flow. i.e., the company is not generating enough cash flow to meet its debt obligations. Company's try to keep their DSCR to be a value much higher than 1.Formula:DSCR = Net Operating Income / Total Debt Service
Would you expect net income to be a good measure of a company's liquidity?
Generally I would not use Net Income as a measure of liquidity. Net Income is a good measure of profitability, but it does not indicate a company's ability to meet short-term obligations. Some good measures of liquidity include working capital, the current ratio, and the quick ratio.
What is the formula for times interest earned ratio?
Times Interest Earned = Operating Income/ Interest Expense.
What does a times interest earned ratio indicate?
the margin of safety provided to creditors
What is times burden covered ratio?
The times interest earned ratio is a financial metric that indicates a company's ability to meet its interest obligations with its operating income. It is calculated by dividing earnings before interest and taxes (EBIT) by interest expense. A higher ratio indicates a company is better able to cover its interest payments.
What is interest coverage ratio?
This ratio is used to determine how easily a company can repay the interest outstanding on its debt commitments. The lower the ratio, the more the company is burdened by debt commitments. When a company's interest coverage ratio is 1.5 or lower, its ability to meet its interest expenses becomes questionable. An interest coverage ratio of < 1 indicates that the company is not generating sufficient revenue to satisfy its interest expenses. Formula:ICR = EBIT / Interest ExpensesEBIT - Earnings Before Interest and Taxes
Why calculate times interest charges earned?
A metric used to measure a company's ability to meet its debt obligations. It is calculated by taking a company's earnings before interest and taxes (EBIT) and dividing it by the total interest payable on bonds and other contractual debt. It is usually quoted as a ratio and indicates how many times a company can cover its interest charges on a pretax basis. Failing to meet these obligations could force a company into bankruptcy. Also referred to as "interest coverage ratio" and "fixed-charged coverage." Investopedia explains 'Times Interest Earned - TIE' Ensuring interest payments to debt holders and preventing bankruptcy depends mainly on a company's ability to sustain earnings. However, a high ratio can indicate that a company has an undesirable lack of debt or is paying down too much debt with earnings that could be used for other projects. The rationale is that a company would yield greater returns by investing its earnings into other projects and borrowing at a lower cost of capital than what it is currently paying to meet its debt obligations.
What is a spread ratio?
Spread Ratio: Interest Earned / Interest Expense
What is spread ratio?
Spread Ratio: Interest Earned / Interest Expense
What advantage does the fixed charge coverage ratio offer over simply using times interest earned?
The fixed charge coverage ratio measures the firm's ability to meet all fixed obligations rather than interest payments alone, on the assumption that failure to meet any financial obligation will endanger the position of the firm
Does a ratio indicate division?
A ratio can indicate division. If you have a ratio, x:y, then it can be thought of as x/y.
What is the difference between interest coverage ratio and debt coverage ratio?
Interest coverage ratio, is net operating income + accrual/ interest That is whether the company can cater for the interest portion.
Does a fraction indicate a ratio?
Sometimes
When does a fraction indicate a ratio?
Always.
Can a fraction indicate a ratio?
Yes.
