Cash Interest Coverage Ratio

Cash Interest Coverage Ratio shows the liquidity of the enterprise in terms of cash flow. Operating, free and incoming cash flows can be used to carry out the estimation.

Alternative names of the Cash Interest Coverage Ratio:

  • CIC – Cash Interest Coverage Ratio
  • ICR – Interest Coverage Ratio
  • TIE – Times-interest-earned Ratio.

What Does the Cash Interest Coverage Ratio Show?

The indicator shows how many times the enterprise’s income exceeds interest on loans. In fact, it shows the amount of cash available to repay interest. Pay attention that the Interest Coverage Ratio on loans allows obtaining more accurate data than the traditional Interest Coverage Ratio on incomes.

Formula of Cash Interest Coverage Ratio

CICR = (Operating cash flow + Interest on loans + Income tax) / Interest on loans

CICR = (Net cash flow + Interest on loans + Income tax) / Interest on loans

CICR = Net cash flow / Interest on loans

Interest on loans refers to the total interest on short-term and long-term liabilities. The numerator of the formula is determined depending on the type of the enterprise’s reports. If the main activity does not include taxes, they should be added to the operating cash flow.

Normative Value of the Cash Interest Coverage Ratio

The lower the value of the Interest Coverage Ratio, the more the company depends on the interest rate of a bank. If the figure is below 1, the company’s income is not enough to repay the debt.