If you were a banker and offered 10% interest on a loan to a company with 2x interest coverage what interest would you offer a company with 4x interest coverage?


1 Answer(s)


Interest Coverage basically means how much of the company's profits are used to pay off its interest expense. Its give by the formula EBIT / Interest Expense.

Higher the ratio it indicates that interest expense is a small % of the company's profits. Lower the ratio it indicates that interest expense is a larger % of the company's profits.

So for example in your question about, a company with a higher interest coverage will have a lesser loan interest rate than a company with lower interest coverage.