You've just been assigned to prepare a interest coverage ratio analysis showing your company's ability to pay interest on its debts from its operating income.
A debt and profitability measure called the interest coverage ratio is used to assess how easily a business can pay the interest on its existing debt. Divided by interest expense during a specific time period, a company's earnings before interest and taxes (EBIT) yields the interest coverage ratio.
The times interest earned (TIE) ratio is another name for the interest coverage ratio. This method is frequently used by lenders, investors, and creditors to assess a company's riskiness in relation to its present debt or for potential future borrowing.
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