Am I right in thinking the income cover and income gearing ratios are purely just reciprocals of one another, ie no minor differences in the numerator or denominator?? Same goes for Asset cover and asset gearing? Just seems weird I've not noticed it mentioned anywhere, the notes always seem to give both when surely the inverse shorthand would be much more useful??
Hi SG4C Yes, the definitions are just reciprocals, although there is more than one defn (isn't there always ). It's perhaps more usual to include "just interest on loan stock" in the income cover ratio and "interest on all borrwings" (so include any overdrafts/short-terms loans too) in the income gearing ratio. The ratios do differ in the "level" at which they're applied. If a company had various different types of long-term debt security, you could work out different income cover ratios for each (depending on order of priority). If you did reciprocals of these, you'd get the various income priority %s. Income cover isn't really calculated at a "loan stock" level in this way - we just calculate it for the company as a whole. Lynn
