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EBITDA Coverage Ratio Formula:
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The EBITDA Coverage Ratio measures a company's ability to pay off its financial obligations including interest, principal, and lease payments using its EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). It's an important metric for assessing financial health and creditworthiness.
The calculator uses the EBITDA Coverage Ratio formula:
Where:
Explanation: The ratio shows how many times a company can cover its financial obligations with its EBITDA. Higher ratios indicate better financial health.
Details: This ratio is crucial for lenders and investors to assess a company's ability to service its debt. A ratio below 1 indicates the company doesn't generate enough EBITDA to cover its obligations.
Tips: Enter all values in USD. Ensure all financial figures are from the same period for accurate calculation. All values must be non-negative.
Q1: What is a good EBITDA Coverage Ratio?
A: Generally, a ratio above 1.5 is considered healthy, though this varies by industry. Below 1 indicates potential financial distress.
Q2: How does this differ from Interest Coverage Ratio?
A: Interest Coverage Ratio only considers interest payments, while EBITDA Coverage includes principal and lease payments, providing a more comprehensive view.
Q3: Should EBITDA be adjusted for this calculation?
A: For most accurate results, use normalized EBITDA that excludes one-time items and non-recurring expenses.
Q4: What are limitations of this ratio?
A: It doesn't account for capital expenditures or changes in working capital needs, and can be manipulated through accounting practices.
Q5: How often should this ratio be calculated?
A: It should be monitored quarterly for public companies and at least annually for private businesses, or more frequently during financial stress.