Thursday, November 6, 2014
Financial Thought of the Day November 6, 2014: Times Interest Earned
Times interest earned is a very important and often overlooked measure. It is defined by the following formula--operating income/interest expense. It describes a company’s ability to cover interest expense incurred by long-term debt. I have said in many of my articles that the rule of safety lies at five times or more. Companies who can’t meet interest obligations may go into bankruptcy.