EBITDA/Interest Expense a Negative number?

CFA Level II FRA
#1

Does it make sense to include this ratio from a credit analysis standpoint if the company generates interest income instead of interest expense?

Let’s say EBITDA = 100, Interest Income = 10. Since interest expense is a positive number, interest income would be a negative numbers and the ratio would be = -10

How would you represent this ratio in this situation?

#2

Using interest income in the equation would make it “not meaningful” because it would look similar to a company with negative EBITDA and positive interest expense.

1 Like
#3

That makes sense. Thank you!