Sana Securities

Interest Coverage Ratio

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Interest Coverage Ratio - measures a company's operating profit (i.e. earnings before other income, interest, tax, depreciation and amortisation) relative to the amount of interest charges which the company pays.

What does the Interest Coverage Ratio indicate?

It indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt.

Higher interest coverage ratio indicates that the company can easily

meet the interest expense pertaining to its debt obligations and vice

versa.

Ashok Leyland

4.6 7.6 7.1 6.4 2.9 3.2 0.9Interest Coverage Ratio

A company's earnings and operating profit fluctuates more than its

interest expenses on a y-o-y or q-o-q basis, therefore it is advisable

to look at previous year's trends in Interest Coverage. (3-5 years)

In our view:

Interest Coverage Ratio of below 1.5 should raise doubts about

the company’s ability to meet the expenses on its borrowings.

Interest Coverage Ratio below 1 indicates that the company is

just not generating enough to service its debt obligations and

that nothing is left for distribution amongst the shareholders.

Kingfisher Airlines