![]() ![]() Capex: 5.0% Growth Rate in Year 1 and Increase of +2.0% / Year.EBIT: 3.5% Growth Rate in Year 1 and Increase of +1.5% / Year.EBITDA: 4.0% Growth Rate in Year 1 and Increase of +2.0% / Year.Suppose a company had the following select income statement financial data in Year 0.įrom Year 1 onward, we’ll use a step function that assumes each line item will grow by the following: Debt-to-EBITDA, Debt-to-EBIT, Debt-to-EBITDA Less Capex Debt-to-Equity Ratio (D/E), Debt-to-Total Capitalization Here, the amount of debt carried by a company is compared to either: The fixed charge coverage ratio (FCCR) measures a company’s ability to service all required, short-term financial obligations – can often adjust for rent expense as wellĪnother method to measure risk is leverage ratios, which determine how much debt comprises the entire capital structure.(EBITDA – Capex) ÷ (Interest Expense + Current Portion of Long-Term Debt).The EBITDA Less Capex coverage ratio measures the number of times that EBITDA, once Capex is deducted, can service the interest expense coming due.The EBIT coverage ratio measures the number of times EBIT can service the interest expense coming due.ĮBITDA Less Capex Interest Coverage Ratio.The EBITDA coverage ratio measures the number of times EBITDA can service the interest expense coming due.Types of Interest Coverage Ratios Coverage Ratio ![]() Therefore, the higher the number of “turns” for an interest coverage ratio, the more coverage (and reduced risk), because there is more “cushion” in case the company underperforms.
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