Investing for Beginners .EU, investing Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble... to give way to hope, fear and greed.
Benjamin Graham

Investment Dictionary

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Cash Coverage Ratio


Cash coverage ratio measures company’s ability to repay its debts. It compares EBITDA (type of earnings) of the company and interest that is paid for company’s debts annually. EBITDA is not exactly equal to cash flow of the company but the relation between those two measures is very strong. 


The higher ratio signifies better financial condition of a company. 


Cash coverage ratio formula 

Cash coverage ratio = EBITDA / Interest expenses

EBITDA = Net earnings + Financial expenses – Financial income + Taxes + Depreciation + Amortization


Basically, this ratio is no different from ‘EBITDA coverage ratio’. There are more financial ratios that can be used to measure company’s insolvency risk:

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