Interest Coverage Ratio Template

Interest Coverage Ratio Template

This Interest Coverage Ratio template will guide you through the calculation of interest coverage ratio using an income statement.

Here is a screenshot of the template:

Interest Coverage Ratio Template Screenshot

 

What is Interest Coverage Ratio (ICR)?

The Interest Coverage Ratio (ICR) is a financial ratio that is used to determine the ability of a company to pay the interest on its outstanding debt. The ICR is commonly used by lenders, creditors, and investors to determine the riskiness of lending capital to a company. The interest coverage ratio is also called the “times interest earned” ratio.

The lower the interest coverage ratio, the greater the company’s debt and the possibility of bankruptcy. Intuitively, a lower ICR indicates that less operating profits are available to meet interest payments and that the company is more vulnerable to volatile interest rates. Therefore, a higher interest coverage ratio indicates stronger financial health – the company is more capable of meeting interest obligations.

However, a high ICR may also indicate that a company is overlooking opportunities to magnify their earnings through leverage. As a rule of thumb, an interest coverage ratio above 2 is considered the minimum acceptable amount. In some cases, analysts would like to see an ICR above 3. An ICR below 1 indicates that a company is not able to pay off its current interest payment obligations and is therefore in poor financial health.

 

More Free Templates

For more resources, check out CFI’s business templates library to download numerous free Excel modeling, PowerPoint presentation, and Word document templates. Also, check out our financial modeling resources and Excel resources.

Analyst Certification FMVA® Program

Below is a break down of subject weightings in the FMVA® financial analyst program. As you can see there is a heavy focus on financial modeling, finance, Excel, business valuation, budgeting/forecasting, PowerPoint presentations, accounting and business strategy.

 

Financial Analyst certification curriculum

 

A well rounded financial analyst possesses all of the above skills!

 

Additional Questions & Answers

CFI is the global institution behind the financial modeling and valuation analyst FMVA® Designation. CFI is on a mission to enable anyone to be a great financial analyst and have a great career path. In order to help you advance your career, CFI has compiled many resources to assist you along the path.

In order to become a great financial analyst, here are some more questions and answers for you to discover:

 

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