Is it better to have a high or low interest coverage ratio?

A high interest coverage ratio indicates there are enough profits available to service the debt, but it may also mean the company is not using its debt properly. 

For example, if a company is not borrowing enough, it may not be investing in new products and technologies to stay ahead of the competition in the long-term. 

Similarly, a low ratio means there is a low amount of profits available to meet the interest expense on the debt. Also, if the company has variable-rate debt, the interest expense will rise in a rising interest rate environment. 

Further Readings – 

  1. What Do You Mean By Line of Credit?
  2. Non Performing Assets (NPA)
  3. Types of Bonds

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