I beg to differ, based on the curriculum book (page 105 # 8 solution)
“Capitalized interest appears on the balance sheet as part of the asset being constructed instead of being reported as interest expense in the period incurred. However, the interest coverage ratio should be based on interest payments, not interest expense (earnings before interest and taxes/interest payments), and should be unchanged.”
Excluding interest that gets capitalized doesn’t make any sense. Capitlaized Interest is cash spent on interest just the same. If there is an exam quesiton, I am using Cash Payments on Interest, if it is given. Using Interest Expense has at least two issues: a) missing capitalized interest as just noted, b) interest expense almost definitley will have non-cash amortization in it
Using Cash Payments on Interest has the problem of comapring a cash basis figure (Cash Payments on Interest) with an accrual basis figure (EBIT), bu tthat is less of a problem, IMO.