Interest Coverage Ratio: Understanding Its Impact on Forex Trading

Analyzing a company’s financial performance is a critical component of any investor’s decision-making process. Among the most important considerations is the interest coverage ratio, a financial metric used to determine if a company has the ability to pay its current debt obligations. In the Foreign Exchange (Forex) market, where riskier investments abound and the potential rewards are high, the interest coverage ratio has become a only more influential metric. In this article, we look at the what an interest coverage ratio is, how it is calculated, and what it means to traders looking for success in the Forex market. The debt service coverage ratio (DSCR) is the most commonly used measure of a company’s ability to service its debt obligations. It is calculated by dividing a company’s annual net operating income (NOI) by its total annual debt service. The higher the number, the more likely the company is to be able to meet its financial obligations. The DSCR is sometimes referred to as the “coverage ratio” or the “debt service to income ratio.” Generally, a ratio of 1:1 or higher is considered to be good, whereas a ratio of less than 1:1 is undesirable. A lower ratio may indicate that the company may not be able to pay its financial obligations in full. Lenders typically want to see a DSCR of at least 1.25 to 1 before providing loan approval.