Page 380 - FM Integrated WorkBook STUDENT 2018-19
P. 380
Chapter 19
Debt and gearing ratios
In addition to the gearing ratios seen in the capital structure chapter, the following
ratios are also useful.
3.1 Interest cover
Interest cover is a measure of the adequacy of a company’s profits
relative to its interest payments on its debt.
Operating profit before interest and tax
Interest cover = ––––––––––––––––––––––––––––––––
Debt interest
The lower the cover, the greater the risk that profit will become
insufficient to cover interest payments.
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