interest coverage ratio-2
This query is : Open
Querist : Anonymous
Querist :
Anonymous
(Querist)
02 February 2011
Hi
respected sir/mam
i want to know what is interest coverage ratio and for project finance whether is it should be high or low.
if suppose it is high then what will be the effect?
if suppose it is low then what will be the effect and meaning
please help
thanks in advance
respected sir/mam
i want to know what is interest coverage ratio and for project finance whether is it should be high or low.
if suppose it is high then what will be the effect?
if suppose it is low then what will be the effect and meaning
please help
thanks in advance
02 February 2011
Interest coverage ratio is the relation between (1)the amount available to (2) the Interest payable.
Higher the ratio .. better for the bank as the borrower is having adequate fund to meet its interest obligations and vice versa for low ratios. You are also required to understand that the ratio calculated is based on projections which are always not achievable and hence bank does a SENSIVITY TEST ( reduction in Sales by say 5% and / or increase in expenses by say 5% )when low interest ratio will boil down to negative ratio suggesting that during adverse situations the borrower will not have enough fund to pay the interest
Higher the ratio .. better for the bank as the borrower is having adequate fund to meet its interest obligations and vice versa for low ratios. You are also required to understand that the ratio calculated is based on projections which are always not achievable and hence bank does a SENSIVITY TEST ( reduction in Sales by say 5% and / or increase in expenses by say 5% )when low interest ratio will boil down to negative ratio suggesting that during adverse situations the borrower will not have enough fund to pay the interest
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Gst registered proprietorship firm
- TDS Challan - change of FY 2025-26 to TY 2026-27
- AUDITOR APPOINTMENT FOR THE YEAR ENDING MARCH 27
- GST Intimation due to Government took possession of Business Premises under PPE Act
- UDIN ISSUE
- Non filing of I T Returns
- TDS on purchase of under construction property from a reseller
- SALARY CAN BE CAPITALIZE
- TDS on Fixed Assets purchased
- How to Handle Active E-Invoices in GST Portal Deleted from Tally?
- IMPORT PURCHASE ENTRY PASSED IN BOOKS OF ACCOUNT
- FAST DS 26 Undisclosed Foreign Asset Disclosure Scheme 2026
- Starting trading business
- Regime change
- Goods sold but invoice not issued
- Tally: Imported bank entries do not show up in manual reconciliation
- Sales of goods of amount Rs97 lakhs to a party
- Confused About My Career After 12th — Cyber Security, AI or Finance? Need Guidance
- FAST-DS 2026 Under Tax Law - No recourse or support for person declaring via this scheme?
Trending Online Classes
-
DT & Audit (Exam Oriented Fastrack Batch) - For May 26 Exams and onwards Full English
CA Bhanwar Borana & CA Shubham Keswani
Subscribe to Pro
Join an elite circle of professionals
CAclubindia
