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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 MatchesTimes interest earned ratioTimes interest earned ratioEarnings before interest and tax, divided by interest payments. Any interest dateAny interest dateA call provision in a municipal bond indenture that establishes the right of redemption for the issuer on any interest payment due date. Compound interestCompound interestThe process by which interest earned on an investment is added back to the amount invested, so increasing the amount of 'principal' on which further interest will be earned in future years.Compounding is sometimes described as the miracle of investing. The fact is that if you reinvest income in your portfolio, you will end up with a much larger amount than if you spend the income as you go along because of the effect of compounding. But to allow compounding to work its magic, you have to start young.Albert Einstein, when asked what he considered to be mankind's greatest invention, replied 'Compound interest!' Covered interest arbitrageCovered interest arbitrageOccurs when a portfolio manager invests dollars in an instrument denominated in a foreign currency and hedges the resulting foreign exchange risk by selling the proceeds of the investment forward for dollars. Equilibrium rate of interestEquilibrium rate of interestThe interest rate that clears the market. Also called the trade-clearing interest rate. Further SuggestionsApplied or nominal interest rateForward interest rate Interest rate parity line (IRP) Interest Open interest Noninterest bearing note interest Interest rate floor Minority interest gross interest stepped interest debenture stocks Deferred interest bond Interest accrual rate Interest sensitive stock Ordinary interest Gross interest Daily interest open interest Interest rate futures contract Interest tax shield Uncovered interest parity Earnings before interest and, taxes (EBIT) Add on interest Effective annual interest rate Assumed interest rate |
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