1. What is the Cash Coverage Ratio?

The Cash Coverage Ratio measures a company's ability to pay interest expenses with its operating cash flow. It indicates how many times a company can cover its interest payments with its earnings before interest and taxes (EBIT) plus non-cash expenses.

2. How Does the Calculator Work?

The calculator uses the Cash Coverage Ratio formula:

Where:

• EBIT — Earnings Before Interest and Taxes
• Non-Cash Expenses — Depreciation, amortization, etc.
• Interest Expense — Total interest payments due

Explanation: The ratio shows how comfortably a company can meet its interest obligations from its operating cash flow.

3. Importance of Cash Coverage Ratio

Details: This ratio is crucial for creditors and investors to assess a company's financial health. A higher ratio indicates better ability to service debt.

4. Using the Calculator

Tips: Enter EBIT, non-cash expenses, and interest expense in dollars. All values must be positive, with interest expense greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Cash Coverage Ratio?
A: Generally, a ratio above 1.0 indicates the company can cover its interest payments. Ratios below 1.0 may signal financial distress.

Q2: How does this differ from Interest Coverage Ratio?
A: Cash Coverage Ratio includes non-cash expenses in the numerator, making it a more comprehensive measure of cash available for interest payments.

Q3: What are typical non-cash expenses?
A: Common non-cash expenses include depreciation, amortization, stock-based compensation, and impairment charges.

Q4: Why is EBIT used instead of net income?
A: EBIT excludes interest and taxes, focusing purely on operating performance before financing costs.

Q5: How often should this ratio be calculated?
A: It should be monitored quarterly along with other financial ratios to track a company's financial health over time.