Investopedia

Continue to Site »

EBITDA-To-Interest Coverage Ratio

Filed Under » ,
Dictionary Says

Definition of 'EBITDA-To-Interest Coverage Ratio'

A ratio that is used to assess a company's financial durability by examining whether it is at least profitably enough to pay off its interest expenses. A ratio greater than 1 indicates that the company has more than enough interest coverage to pay off its interest expenses.

The ratio is calculated as follows:

EBITDA-To-Interest Coverage Ratio


Also known as EBITDA Coverage.
Investopedia Says

Investopedia explains 'EBITDA-To-Interest Coverage Ratio'

This ratio was first widely used by leveraged buyout bankers, who would use it as a first screen to determine whether a newly restructured company would be able to service its short-term debt obligations.

While this ratio is a very easy way to assess whether a company can cover its interest-related expenses, the applications of this ratio are also limited by the relevance of using EBITDA as a proxy for various financial figures.

For example, suppose that a company has an EBITDA-to-interest coverage ratio of 1.25; this may not mean that it would be able to cover its interest payments, because the company might need to spend a large portion of its profits on replacing old equipment. Because EBITDA does not account for depreciation-related expenses, a ratio of 1.25 might not be a definitive indicator of financial durability.

Articles Of Interest

  1.

    Mergers And Acquisitions: Understanding Takeovers

    In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game.

  2. A Clear Look At EBITDA

    This measure has its benefits, but it can also present earnings through rose-colored glasses.

  3. EBITDA: Challenging The Calculation

    This measure has a bad rap, but it's still a valuable tool when used appropriately.

  4. Liquidity Vs. Solvency

    Learn about the differences between these two words and how each one is used in the stock market.

  5. Analyze Cash Flow The Easy Way

    Find out how to analyze the way a company spends its money to determine whether there will be any money left for investors.

  6. Analyze Investments Quickly With Ratios

    Make informed decisions about your investments with these easy equations.

  7. Interest Coverage Ratio

    Debt in an important factor to remember when analyzing a company's financial health. The interest coverage ratio serves to determine how easily a company can pay interest on outstanding debt. ...

  8. The Debt To Equity Ratio

    The debt to equity ratio identifies companies that are highly leveraged and therefore a higher risk for investors. Find out how this ratio is calculated and how you can use it to evaluate a stock.

  9. Free Cash Flow: Free, But Not Always Easy

    Free cash flow is a great gauge of corporate health, but it's not immune to accounting trickery.

  10. Uncovering Hidden Debt

    Understand how financing through operating leases, synthetic leases, and securitizations affects companies' image of performance.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.

  2. Icarus Factor

    The term Icarus factor describes a situation where managers or executives initiate an overly ambitious project which then fails. Fueled by excitement for the project, the executives are unable to reign in their misguided enthusiasm before it is too late to avoid the failure.

  3. Angelina Jolie Stock Index

    An index made up of a selection of stocks from companies associated with actress Angela Jolie.

  4. Consequential Loss

    The amount of loss incurred as a result of being unable to use business property or equipment.

  5. Lease To Own

    An arrangement where an individual enters into a lease agreement with an owner with the inclusion of a clause that typically gives the individual the right, but not the obligation, to purchase the item leased at a predefined price and time.

  6. Failed Break

    A price movement through an identified level of support or resistance that does not have enough momentum to maintain its direction.
Trading Center