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Finance GlossaryInterest Coverage Ratio
Interest Coverage Ratio
Definition of Interest Coverage Ratio
Interest Coverage Ratio (ICR) is used to determine the likelihood of a company’s ability to pay interest on existing outstanding debt. A low ICR typically indicates that a company is less likely to pay interest.
In fact, it indicates that the company may be heading towards bankruptcy. A higher ICR means that a company’s financial health is solid and more than likely to pay interest on existing outstanding debt.
In fact, it indicates that the company may be heading towards bankruptcy. A higher ICR means that a company’s financial health is solid and more than likely to pay interest on existing outstanding debt.
Related Terms
Short Squeeze
A short squeeze takes place when the price of a stock rises sharply, which forces short sellers to buy the shares to keep losses low. This sudden buying results in more upward pressure. This pushes the prices even higher. Often, short squeezes occur in stocks that are heavily shorted, and can lead to volatile price movements.
Non-Cyclical Stocks
Non-Cyclical Stocks are shares of companies whose performance is relatively stable regardless of economic ups and downs. These businesses provide essential goods or services, so demand remains steady even during slow economic periods, making such stocks less volatile than cyclical stocks.
Volatility
Volatility refers to the degree of price fluctuations in a security or market over a period of time. A highly volatile stock may move sharply up or down within short durations, such as technology stocks during earnings announcements, while low volatility indicates more stable and predictable price movements.
Bottom Up Investing
Bottom-up investing is a stock picking strategy that uses analysis of individual companies and shares for decision-making instead of focusing on the broader economy, market, or industry.
Payback Period
The Payback Period is a capital budgeting metric that calculates the amount of time it takes for a project or investment to pay back its initial cost. It is one of the simplest methods for evaluating potential investments. The formula is: Payback Period = Initial Investment/Annual Cash Flow. A shorter payback period is usually preferred as it means a faster return of capital and less risk. However, it is a limited metric, as it does not take into account the time value of money and the cash flows generated after the initial investment is recovered.
Insider Trading
Insider trading refers to the often illegal act of trading shares based on information that is not publicly available, typically obtained through dubious sources.
This privileged access to confidential information is termed “insider trading” because information is generally sourced through insiders or employees working at a publicly traded firm.
This privileged access to confidential information is termed “insider trading” because information is generally sourced through insiders or employees working at a publicly traded firm.
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