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.
Posted by William at 10:01 AM