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Interest coverage ratio |
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Definition of Interest coverage ratioInterest coverage ratioThe ratio of the earnings before interest and taxes to the annual interest expense. This
Related Terms:Coverage ratiosratios used to test the adequacy of cash flows generated through earnings for purposes of "Soft" Capital RationingCapital rationing that under certain circumstances can be violated or even viewed Acceleration ClauseClause causing repayment of a debt, if specified events occur or are not met. Accelerationist HypothesisBelief that an effort to keep unemployment below its natural rate results in an accelerating inflation. accounts receivable turnover ratioA ratio computed by dividing annual Accrued interestThe accumulated coupon interest earned but not yet paid to the seller of a bond by the Accrued InterestThe amount of interest accumulated on a debt security between Accrued InterestThe amount of interest owing but not paid. Acid-test ratioAlso called the quick ratio, the ratio of current assets minus inventories, accruals, and prepaid ACID-TEST RATIOA ratio that shows how well a company could pay its current debts using only its most liquid or “quick” assets. It’s a more pessimistic—but also realistic—measure of safety than the current ratio, because it ignores sluggish, hard-toliquidate current assets like inventory and notes receivable. Here’s the formula: Acid-test RatioSee quick ratio acid test ratio (also called the quick ratio)The sum of cash, accounts receivable, and short-term marketable Adjusted Cash Flow Provided by Continuing OperationsCash flow provided by operating Amortizing interest rate swapSwap in which the principal or national amount rises (falls) as interest rates Appraisal ratioThe signal-to-noise ratio of an analyst's forecasts. The ratio of alpha to residual standard Articles of incorporationLegal document establishing a corporation and its structure and purpose. Asset activity ratiosratios that measure how effectively the firm is managing its assets. Asset CoverageExtent to which a company's net assets cover a particular debt obligation, class of preferred stock, or equity position. Asset-coverage testA bond indenture restriction that permits additional borrowing on if the ratio of assets to Asset/equity ratioThe ratio of total assets to stockholder equity. asset turnover ratioA broad-gauge ratio computed by dividing annual Base interest rateRelated: Benchmark interest rate. Basic Earnings Power RatioPercentage of earnings relative to total assets; indication of how Benchmark interest rateAlso called the base interest rate, it is the minimum interest rate investors will Benefit Ratio MethodThe proportion of unemployment benefits paid to a company’s Benefit Wage Ratio MethodThe proportion of total taxable wages for laid off Best-interests-of-creditors testThe requirement that a claim holder voting against a plan of reorganization Canadian Deposit Insurance CorporationBetter known as CDIC, this is an organization which insures qualifying deposits and GICs at savings institutions, mainly banks and trust companys, which belong to the CDIC for amounts up to $60,000 and for terms of up to five years. Many types of deposits are not insured, such as mortgage-backed deposits, annuities of duration of more than five years, and mutual funds. Capital rationingPlacing one or more limits on the amount of new investment undertaken by a firm, either capital rationinga condition that exists when there is an capital rationingLimit set on the amount of funds available for investment. Capitalization ratiosAlso called financial leverage ratios, these ratios compare debt to total capitalization Capitalized interestinterest that is not immediately expensed, but rather is considered as an asset and is then Capitalized Interestinterest incurred during the construction period on monies invested in Cash flow after interest and taxesNet income plus depreciation. Cash flow coverage ratioThe number of times that financial obligations (for interest, principal payments, Cash flow from operationsA firm's net cash inflow resulting directly from its regular operations Cash Flow–to–Income Ratio (CFI)Adjusted cash flow provided by continuing operations CASH FLOWS FROM OPERATIONSA section on the cash-flow Stockholders’ equity statement that shows how much cash came into a company and how much went out during the normal course of business. Cash ratioThe proportion of a firm's assets held as cash. Cash Ratioratio of cash and cash equivalents to liabilities; in the case of a bank, the ratio of cash to total deposit liabilities. Common stock ratiosratios that are designed to measure the relative claims of stockholders to earnings Compound interestinterest paid on previously earned interest as well as on the principal. Compound Interestinterest paid on principal and on interest earned in previous compound interesta method of determining interest in which interest that was earned in prior periods is added to the original investment so that, in each successive period, interest is earned on both principal and interest compound interestinterest earned on interest. Compound Interestinterest earned on an investment at periodic intervals and added to principal and previous interest earned. Each time new interest earned is calculated it is on a combined total of principal and previous interest earned. Essentially, interest is paid on top of interest. Concentration accountA single centralized account into which funds collected at regional locations concentration bankingSystem whereby customers make payments to a regional collection center which transfers funds to Concentration servicesMovement of cash from different lockbox locations into a single concentration Configuration auditA review of all engineering documentation used as the basis Configuration controlVerifying that a delivered product matches authorizing contribution margin ratiothe proportion of each revenue dollar remaining after variable costs have been covered; Controlled foreign corporation (CFC)A foreign corporation whose voting stock is more than 50% owned Conversion ratioThe number of shares of common stock that the security holder will receive from CorporationA legal "person" that is separate and distinct from its owners. A corporation is allowed to own CorporationA legal entity, organized under state laws, whose investors purchase corporationBusiness owned by stockholders who are not personally Cost-benefit ratioThe net present value of an investment divided by the investment's initial cost. Also called Covered interest arbitrageA portfolio manager invests dollars in an instrument denominated in a foreign Credit RationingRestriction of loans by lenders so that not all borrowers willing to pay the current interest rate are able to obtain loans. Current ratioIndicator of short-term debt paying ability. Determined by dividing current assets by current Current ratioA ratio that shows how many times a company could pay its current debts if it used its current assets to pay them. The formula: current ratioCalculated to assess the short-term solvency, or debt-paying Current RatioA measure of the ability of a company to use its current assets to Current RatioCurrent assets divided by current liabilities. This ratio indicates the extent to which the claims of short-term creditors are covered by assets expected to be converted to cash in the near future. Customary payout ratiosA range of payout ratios that is typical based on an analysis of comparable firms. Daily Interest AccumulationAccount in which interest is accrued daily and credited to the account at the end of a specified time. Days' sales in inventory ratioThe average number of days' worth of sales that is held in inventory. Debt/equity ratioIndicator of financial leverage. Compares assets provided by creditors to assets provided Debt/Equity RatioA comparison of debt to equity in a company's capital structure. Debt ratioTotal debt divided by total assets. Debt RatioThe percentage of debt that is used in the total capitalization of a Debt-service coverage ratioEarnings before interest and income taxes plus one-third rental charges, divided debt-to-equity ratioA widely used financial statement ratio to assess the Declaration dateThe date on which a firm's directors meet and announce the date and amount of the next Declaration dateThe date on which the board of directors has declared a dividend. Discontinued operationA business segment that has been or is planned to be closed or sold off. Discontinued OperationsNet income and the gain or loss on disposal of a business segment whose assets and operations are clearly distinguishable from the other assets and operations of an entity. Dividend payout ratioPercentage of earnings paid out as dividends. dividend payout ratioComputed by dividing cash dividends for the year dividend payout ratioPercentage of earnings paid out as dividends. dividend yield ratioCash dividends paid by a business over the most Dollar durationThe product of modified duration and the initial price. Domestic International Sales Corporation (DISC)A U.S. corporation that receives a tax incentive for DurationA common gauge of the price sensitivity of an asset or portfolio to a change in interest rates. DurationThe weighted average of the time until maturity of each of the DurationThe expected life of a fixed-income security considering its coupon DurationThe time it takes for a policy or annuity to reach maturity. earnings before interest and income tax (EBIT)A measure of profit that Earnings before interest and taxes (EBIT)A financial measure defined as revenues less cost of goods sold Earnings before interest and taxes (EBIT)The operating profit before deducting interest and tax. Earnings before interest, taxes, depreciation and amortization (EBITDA)The operating profit before deducting interest, tax, depreciation and amortization. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)An earningsbased measure that, for many, serves as a surrogate for cash flow. Actually consists of working Earnings retention ratioPlowback rate. economic integrationthe creation of multi-country markets Edge corporationsSpecialized banking institutions, authorized and chartered by the Federal Reserve Board Effective annual interest rateAn annual measure of the time value of money that fully reflects the effects of effective annual interest rateinterest rate that is annualized using compound interest.
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