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A company's times interest ratio indicates how well it can pay its debts while still investing in itself for growth. A higher ratio suggests to investors that an investment in the company is ...
The times interest earned ratio indicates the extent of which earnings are available to meet interest payments. A lower times interest earned ratio means less earnings are available to meet interest payments and that the business is more vulnerable to increases in interest rates and being unable to meet their existing outstanding loan obligations.
By contrast, an annual effective rate of interest is calculated by dividing the amount of interest earned during a one-year period by the balance of money at the beginning of the year. The present value (today) of a payment of 1 that is to be made n {\displaystyle \,n} years in the future is ( 1 − d ) n {\displaystyle \,{(1-d)}^{n}} .
For example, a nominal interest rate of 6% compounded monthly is equivalent to an effective interest rate of 6.17%. 6% compounded monthly is credited as 6%/12 = 0.005 every month. After one year, the initial capital is increased by the factor (1 + 0.005) 12 ≈ 1.0617.
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A company's earnings before interest, taxes, depreciation, and amortization (commonly abbreviated EBITDA, [1] pronounced / ˈ iː b ɪ t d ɑː,-b ə-, ˈ ɛ-/ [2]) is a measure of a company's profitability of the operating business only, thus before any effects of indebtedness, state-mandated payments, and costs required to maintain its asset ...
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