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Interest cover |
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Interest coverInterest cover measures the amount of interest paid by a company on its borrowings against its operating profit in the same period.The ratio shows the impact of gearing on a company's profit and loss account. If the figure is low, a small reduction in operating profits, or a rise in the cost of borrowing, can wipe out pre-tax profits. To calculate interest cover, divide the operating profits by the interest paid.Example: a company which has profits of £4m and which pays net interest of £1m, has interest cover of 4.Similar MatchesEarnings before interest, taxes, depreciation, and amortization (EBITDA)Earnings before interest, taxes, depreciation, and amortization (EBITDA)A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and nonoperating profit before the deduction of interest and income taxes. Depreciation and amortization expenses are not included in the costs. Interest rate futures contractInterest rate futures contractA futures contract based on an interbank deposit rate or an underlying debt security. The value of the contract rises and falls inversely to changes in interest rates. Interest sensitive stockInterest sensitive stockStocks whose earnings are dependent upon and change with the interest rate, e.g., bank stocks. Variable Interest RateVariable Interest RateAn interest rate which fluctuates as the prevailing rate moves up or down. In mortgages there are usually maximums as to the frequency and amount of fluctuation. Also called "flexible interest rate." Interest parityInterest parityEquality of returns on otherwise identical financial assets denominated in different currencies. May be uncovered, with returns including expected changes in exchange rates, or covered, with returns including the forward premium or discount. Also called interest rate parity. Further SuggestionsAssumed interest ratesimple interest Interest sensitive insurance policy High withholding tax interest income Interest Cap Unearned interest Interest rate parity line (IRP) Interest in Arrears Interest payments Add on interest interest rate interest payable Incidence of interest calculation Term structure of interest rates Wild Interest Cash flow after interest and taxes Exact interest mortgage interest deduction compound interest interest in possession Matured noninterest bearing debt Earnings before interest, taxes, and depreciation (EBITD) Effective Interest Rate gross interest Forward interest rate |
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