Interest coverage ratio (or debt service ratio)
Meaning: this ratio establishes a relationship among net profits before interest and taxes and interest on long debt.
Objective: the objective of computing this ratio is to calculate the debt servicing capacity of a firm so far as fixed interest on long term debt is concerned.
Components: there are two component by dividing the net profits before interest and taxes by interest on long term debt. This ratio is usually expressed as x number of times. In the form of a formula this ratio may be expressed.