Interest Cover Ratio

gillybeanburke
gillybeanburke Registered Posts: 2 New contributor 🐸
in AAT Level 4 (Level 8 in Scotland)
Hi Everyone,

Can someone help me? I'm very confused over the Interest Cover Ratio. I have seen it written at least three different ways. What is the correct version please? (I have seen versions with both Gross and Net Profit used:crying:).

Cheers!

Comments

  • SandyHood
    SandyHood Registered, Moderator Posts: 2,027 mod
    Interest cover ratio shows
    How many times can you afford to pay the interest that is falling due by using the profits?

    So you really want to know how much profit you have made before taking off the interest (or any corporation tax)

    Profit before interest and tax
    ......Annual interest payable


    If your operating profit is the same as your profit before interest and tax then you could use that instead, but sometimes there might be profits/losses on the disposals or other non-operating costs to take into account.
    Sandy
    sandy@sandyhood.com
    www.sandyhood.com
  • gillybeanburke
    gillybeanburke Registered Posts: 2 New contributor 🐸
    Thank you

    Thank you very much Sandy, your information has been invaluable as usual.
    I don't know what us students would do without you.:001_rolleyes:

    Regards
    Gillian

Categories

Privacy Policy