Description
FRInterestCoverage returns the ratios between CashFlow and InterestExpenses.
Format
FRInterestCoverage(CashFlow, InterestExpenses)
Arguments
CashFlow is a Number or formula. In general, CashFlow equals the net profit of the company plus all the expense items not involving cash (such as depreciation, capital losses, and so on) minus all the profit not involving cash (such as capital gains, and so on). This information can be found in a company's income statement and statement of change in financial position.
InterestExpenses is a Number or formula. InterestExpenses is the total interest expenses that can be found in a company's income statement.
Action
FRInterestCoverage returns the ratios between CashFlow and InterestExpenses (for example, InterestCoverage = CashFlow / InterestExpenses).
Typical uses
This ratio is used to measure the ability of a company to pay the interest charges on its debt with the cash flows generated from its operation. It is usually measured in number of times (for example, 3X, and so on). The higher the result, the higher the ability for the company to meet interest payment even in time of interest rate hike.
Examples
FRInterestCoverage(120, 50)
Returns 2.40.
FRInterestCoverage(30, 100)
Returns 0.3.
None of the arguments can be negative; you may have to check for negative values before passing the arguments.
Comments
FRInterestCoverage is one of the many financial analysis tools used in interpreting the financial position of a company. As in the case of all ratios, it has to be used with caution. It can just be used as a clue and not solid proof for forming a judgment on the financial status of a company.
Neither one of the ratios can be used alone for doing financial analysis and there are no fixed rules on the results of the ratios. Apart from differences between type of industries, result varies among different companies within the same industry and within different account periods. The results should only be used for relative comparison and trend analysis, rather than treating them as something absolute.