Financial Metrics - Coverage Ratios
Sustainable growth of a company requires adequate coverage to meet future obligations. A key ratio is times interest earned to show how many times earnings will cover fixed-interest payments on long term debt.
EBIT / I = Times Interest Earned Ratio
EBIT = earnings before interest and taxes
I = dollar amount of interest payable on debt
(EBIT / I) + (s / (1-h)) = Total Coverage Ratio
I = interest payments
s = payment on principle figured on income after taxes (1-h)