Graph # 5 of 8 From Company Dashboard - EBIT / Interest Expense

The fifth graph in my dashboard series is EBIT compared to Interest Expense. EBIT/Interest Expense ratio is also call the Interest Coverage Ratio. Bankers and Investors may use this ratio to determine how risky it is to lend to your company.

What you are looking to compare with this ratio on this graph is your company's earnings (or lack of earnings) compared to the interest expense that you are paying to finance your operations. EBIT stands for Earnings Before Interest and Taxes. The higher the ratio, the better the financial health of your company. For example, in December this particular company lost money but still had to make interest payments.

To perform the calculations you first need to calculate your company's EBIT. As stated above, EBIT stands for Earnings Before Interest and Taxes are paid by your company. Unlike EBITDA, EBIT does include Depreciation and Amortization expense. EBIT is also known as the operating profit, operating earnings or profit before interest and taxes. EBIT shows the strength of your company's earnings without factoring in their capital structure or the effect of taxes on the company's operations.

Once you have your EBIT number just divide your monthly interest expense to calculate the ratio for this graph. The graph above shows monthly changes, you can use the time period that makes sense for your company.