Coverage ratio, Financial Management

Assignment Help:

Coverage ratios give the relationship between the financial charges of a firm and its ability to service them. The four most commonly used coverage ratios are:

  • EBIT interest coverage ratio

  • EBITDA interest coverage ratio

  • Funds from operations/total debt ratio

  • Free operating cash flow/ total debt ratio.

EBIT stands for "Earnings Before Interest and Taxs". EBIT interest coverage ratio is nothing but EBIT divided by the annual interest expenses.

EBITDA stands for "Earnings Before Interest, Taxes, Depreciation, and Amortization." The EBITDA interest coverage ratio is got by dividing EBITDA with annual interest expense.

Funds from operations includes net income plus the following: depreciation, amortization, deferred income taxes, and other non-cash items. Free operating cash flows are different from rating agency to rating agency.


Related Discussions:- Coverage ratio

Explain the methods used to treat the obsolete stock, Explain the methods u...

Explain the methods used to treat the obsolete stock Review Inventory for obsolete items Make materials review board Include an obsolescence review in the closing p

Purchasing and discounting of bills, Purchasing and discounting of bills is...

Purchasing and discounting of bills is the most important, from in which a bank lends without any collateral security. Present day commerce is build upon credit. The seller draws a

Accounting principle, Accounting Principle Accounting principles are t...

Accounting Principle Accounting principles are the primary assumptions, rules of operation, and necessary features that make up the framework for the construction of accountin

Business organization, what business organization do you preffer ? service ...

what business organization do you preffer ? service concern,trading concern or manufacturing concern

Explain the working of insurance companies, Insurance companies The pri...

Insurance companies The primary purpose of insurance companies is to protect individuals and firms known as policy-holders from adverse events. Insurance companies receive prem

Illustrate the method of appraising capital investments, Q. Illustrate the ...

Q. Illustrate the method of appraising capital investments? One of the potency of internal rate of return (IRR) as a method of appraising capital investments is that it is a di

Explain should a firm hedge and why or why not, Should a firm hedge?  Why o...

Should a firm hedge?  Why or why not? Answer:  Firms may not need to hedge exchange risk in a perfect capital market. But firms can add to their value by hedging if markets are

Define which is lower cost of debt or cost of equity, Which is lower for a ...

Which is lower for a given company:  the cost of debt or the cost of equity?  Explain: Ignore taxes in your answer . The cost of debt is all the time less as compared to the cost

Financial projections, A total of $426,000 seed-funding would be ideal to s...

A total of $426,000 seed-funding would be ideal to start the project on a local basis. The cost analysis done above is for the material required to perform the work, and as the wor

Incremental cost, Incremental Cost The measured change in a firm's cos...

Incremental Cost The measured change in a firm's cost of production due to an additional activity pursued by the firm. Incremental costs can be measured by the cost difference

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd