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Saturday, December 4, 2010

Financial Metrics - Coverage Ratio

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

Read more about ratios at:
Financial Metrics - Ratio Analysis Considerations