Interest Cover Formula
Interest cover ratio is
calculated to know the company ability to pay interest. Interest cover ratio is
calculated by following equation. Interest cover is expressed in term No of
times. In other word it explains how much profit is available to pay interest.
Interest
Cover = Profit before Interest & Tax
Interest
Interest Cover Formula Example
Mr. Ali khan reported a Profit of $ 800,000 &
interest is payable on debenture amount 10 million @ 4%. How much profit is
available to pay interest?
Solution
Interest
Cover = Profit before Interest & Tax
Interest
=
$ 800,000/$ 400,000
=2
times
