Is 1 a good interest coverage ratio?

Optimal Interest Coverage Ratio Analysts prefer to see a coverage ratio of three (3) or better. In contrast, a coverage ratio below one (1) indicates a company cannot meet its current interest payment obligations and, therefore, is not in good financial health.

What is a good fixed charge coverage ratio?

What’s a Good Fixed Charge Coverage Ratio? As we mentioned above, a good fixed charge coverage ratio is equal to or greater than 1.25:1. A ratio that is 1:1 or lower is concerning, as it means your business is not making enough money to cover your fixed charges or is just scraping by.

What does an interest coverage ratio of 1 mean?

A ratio above one indicates that a company can service the interest on its debts using its earnings or has shown the ability to maintain revenues at a fairly consistent level.

What does a low fixed charge coverage ratio mean?

The fixed-charge ratio is used by lenders looking to analyze the amount of cash flow a company has available for debt repayment. A low ratio often reveals a lack of ability to make payments on fixed charges, a scenario lenders try to avoid since it increases the risk that they will not be paid back.

What company has low interest coverage ratio?

Analysis of Interest Coverage Ratio Low ratio signifies a higher debt burden and a greater possibility of default or bankruptcy. It also influences a company’s goodwill negatively. A ratio between 2.5 and 3 indicates that the firm will pay off its accumulated interest on debt with its current earnings.

What if interest coverage ratio is negative?

Low Interest Coverage Ratio Could Signify Financial Issues A bad interest coverage ratio is any number below 1, as this translates to the company’s current earnings being insufficient to service its outstanding debt.

What does a fixed charge coverage ratio of 8 times indicate?

What does a fixed charge coverage ratio of 8 times indicate? The firm can pay off the fixed charges in 8 days.

What is fixed charge rate?

Fixed Charge Rate means a percentage factor, as may be modified from time to time, which includes components for the recovery of operations and maintenance expense, administrative and general expense, taxes, depreciation and the cost of capital associated with owning and operating the utility plant necessary for …

How do you interpret a coverage ratio?

Key Takeaways

  1. A coverage ratio, broadly, is a measure of a company’s ability to service its debt and meet its financial obligations.
  2. The higher the coverage ratio, the easier it should be to make interest payments on its debt or pay dividends.

Is a high fixed charge coverage ratio good?

Is a High or Low Fixed Charge Coverage Ratio Better? Generally, the higher your FCCR, the better. High FCCRs mean that less of your business revenue is being used to make fixed payments, resulting in more free cash flow, and a greater ability to take on more financial commitments.

What is good current ratio?

between 1.5 and 3
While the range of acceptable current ratios varies depending on the specific industry type, a ratio between 1.5 and 3 is generally considered healthy.

What does a high interest cover indicate?

Although it may be possible for companies that have difficulties servicing their debt to stay in business, a low or negative interest coverage ratio is usually a major red flag for investors. In many cases, it indicates that the firm is at risk of bankruptcy in the future.