Interest Coverage vs. Principal Repayment Explained
Summary
Hollow Point Trading shares a short video explaining why interest coverage does not measure principal repayment coverage. It illustrates the distinction with $12 million in operating profit, $3 million in interest expense, and $6 million in principal due—a key nuance when assessing a borrower's ability to meet debt obligations.
https://youtu.be/3HDvB9RiDNM
Interest coverage is not principal repayment coverage #Shorts
Interest coverage does not count every debt payment. In a hypothetical example, operating profit before interest and taxes is twelve million dollars. Interest expense is three million dollars. Dividing twelve by three gives four times interest coverage. Now suppose six million dollars of loan principal also comes due. Four times coverage does no...
