Interest cover and Risk register: Difference between pages

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''Financial ratio analysis - long-term solvency ratios.''
''Risk management''. 


'''1.'''
A table or other appropriate structure used to facilitate the description and assessment of risks.  


From a whole-firm perspective, interest cover is the ratio of Profit before interest and tax ÷ Interest payable.
The use of a well designed structure is necessary to ensure a comprehensive assessment process.  


Strategy/objectives should also feature to identify function responsible for developing strategy and policy.


Interest cover measures the safety or sustainability of the future debt servicing flows, from the perspective of the lenders.
By considering the consequence and probability of each of the risks,it should be possible to prioritise the key risks that need to be analysed in more detail.  


The greater the interest cover ratio, the greater the likelihood that the firm paying the debt interest (and other debt servicing costs) will continue to be able to service the debt in the future. 


So a higher cover ratio is associated with lower risk for the debt investors.
== See also ==
 
* [[Risk appetite]]
 
* [[Guide to risk management]]
In the theoretical situation where the cover ratio fell below 1.0, the interest would be said to be ''uncovered'' and the debt would not be sustainable at its previous level unless there was a recovery in the firm's operating profitability.
* [[Risk tolerance]]
 
In practice lenders want much higher minimum interest cover ratios than 1.0, such higher minimum usually stipulated in the related loan documentation. 


So the borrower in this situation would be likely to be already in breach of a related borrowings covenant.


== Other links ==
[http://www.workinginuncertainty.co.uk/ Working In Uncertainty - A better perspective on risk management and internal control], www.workinginuncertainty.co.uk


Also known as the Interest cover ratio or TIE (times interest earned).
[[Category:Manage_risks]]
 
[[Category:Risk_frameworks]]
 
[[Category:Risk_reporting]]
'''2.'''
 
An analogous measure, in relation to an individual tranche or class of debt (rather than to the whole firm).
 
 
== See also ==
* [[Cost of financial distress]]
* [[Covenant]]
* [[Cover ratio]]
* [[Cross acceleration]]
* [[Gearing]]
* [[Interest rate risk]]
* [[Long-term solvency ratio]]
* [[Profit before interest and tax]]
* [[Uncovered]]
 
[[Category:Accounting,_tax_and_regulation]]
[[Category:The_business_context]]
[[Category:Corporate_finance]]
[[Category:Long_term_funding]]
[[Category:Treasury_operations_infrastructure]]

Revision as of 14:29, 5 November 2014

Risk management.

A table or other appropriate structure used to facilitate the description and assessment of risks.

The use of a well designed structure is necessary to ensure a comprehensive assessment process.

Strategy/objectives should also feature to identify function responsible for developing strategy and policy.

By considering the consequence and probability of each of the risks,it should be possible to prioritise the key risks that need to be analysed in more detail.


See also


Other links

Working In Uncertainty - A better perspective on risk management and internal control, www.workinginuncertainty.co.uk

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