Interest Coverage Ratio
factor.formula
Interest coverage ratio = EBIT TTM / Interest Expense TTM
In the formula:
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Earnings Before Interest and Taxes (Trailing Twelve Months) refers to the total profit of a company before paying interest and income tax. It is an important indicator to measure the profitability of a company's operations. TTM means using the cumulative data of the last 12 months.
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Interest Expense, Trailing Twelve Months. Refers to the net interest expense incurred by an enterprise in the last 12 months, including the interest expense of financial expenses minus the interest income. This data usually comes from the enterprise's income statement.
factor.explanation
The interest coverage ratio is an important indicator to measure a company's debt repayment ability. It reflects the company's ability to cover interest expenses with its operating profit. The higher the value of this indicator, the stronger the company's ability to repay debt interest and the lower the financial risk. Generally, a higher interest coverage ratio means that the company has greater financial flexibility and can better cope with market fluctuations and economic downward pressure. In quantitative investment, this factor can be used as one of the important reference indicators for screening high-quality, low-risk stocks. It should be noted that the reasonable range of interest coverage ratios may vary for companies in different industries and at different stages of development. Therefore, it is necessary to consider industry characteristics and specific corporate conditions when applying this indicator.