Cash Coverage Ratio Calculator

Formula

The formula to calculate the Cash Coverage Ratio (CCR) is:

\[ CCR = \frac{EBIT + NCE}{IE} \]

Where:

$ CCR $ is the Cash Coverage Ratio (%).
$ EBIT $ is the Earnings Before Tax and Interest ($).
$ NCE $ is the Non-Cash Expenses ($).
$ IE $ is the Interest Expense ($).

What is Cash Coverage Ratio?

The Cash Coverage Ratio is a financial metric used to assess a company’s ability to cover its interest expenses with its available cash flow. It provides insight into a company’s ability to meet its debt obligations and indicates whether it has sufficient cash flow to pay interest on its outstanding debt. This ratio is particularly important for lenders and investors as it helps them evaluate the company’s financial health and risk level.

Example Calculation

Consider an example where:

Earnings Before Tax and Interest (EBIT): $200,000
Non-Cash Expenses (NCE): $50,000
Interest Expense (IE): $25,000

Using the formula to calculate the Cash Coverage Ratio:

\[ CCR = \frac{200,000 + 50,000}{25,000} = 10 \]

This means that the cash coverage ratio for this example is 10, indicating that the company generates enough cash flow to cover its interest payments 10 times over.