Advanced English Dialogue for Business – Interest coverage

Listen to a Business English Dialogue About Interest coverage

Gabriella: Hey Eden, have you ever heard of interest coverage?

Eden: Hi Gabriella! Yes, interest coverage measures a company’s ability to pay its interest expenses on its outstanding debt.

Gabriella: Right, it’s calculated by dividing a company’s earnings before interest and taxes (EBIT) by its interest expenses.

Eden: Exactly. A higher interest coverage ratio indicates that a company is more capable of meeting its interest obligations.

Gabriella: That’s correct. It’s an important metric for investors and creditors to assess a company’s financial health and risk level.

Eden: Definitely. Companies with a higher interest coverage ratio are generally considered less risky investments.

Gabriella: Yes, because they have more earnings available to cover their interest expenses, reducing the likelihood of default.

Eden: Absolutely. It’s also important for companies to maintain a healthy interest coverage ratio to ensure they can continue borrowing at favorable rates.

Gabriella: Right. A low interest coverage ratio may indicate that a company is struggling to generate enough earnings to cover its debt obligations.

Eden: Exactly. So, investors and creditors often use this ratio as a key indicator of a company’s financial stability and risk profile.

Gabriella: Yes, it provides valuable insight into a company’s ability to manage its debt and sustain its operations over the long term.

Eden: Agreed. Monitoring the interest coverage ratio can help investors make informed decisions about where to allocate their capital.