The interest coverage ratios (ICRs) are used to quantify the ability of firms to pay financial debts; ICRs are then considered by banks such as covenants in the financing term sheet, and are used by researchers and the rating agencies to estimate the probability of default of firms. Typically, ICRs calculation is based on profit margins, such as EBITDA and EBIT; EBITDA and EBIT approximate, but do not directly express, cash flows available to pay financial debts. The article aims to evaluate whether there are significant differences in results using ICRs based on EBITDA or EBIT and ICRs based on different definitions of cash flow (CF). The application is made to a sample of firms characterized by high absorption of capital operating in the Italian agro-food sector. The article highlights that there are statistically significant differences using ICRs EBITDA and EBIT based and ICRs based on different CF definitions.

EBITDA / EBIT and CASH FLOW BASED ICRs: A COMPARATIVE APPROACH IN THE AGRO-FOOD SYSTEM in ITALY / Bonazzi, Giuseppe; Iotti, Mattia. - In: FINANCIAL ASSETS AND INVESTING. - ISSN 1804-5081. - 3:2(2012), pp. 19-31. [10.5817/FAI2012-2-2]

EBITDA / EBIT and CASH FLOW BASED ICRs: A COMPARATIVE APPROACH IN THE AGRO-FOOD SYSTEM in ITALY

BONAZZI, Giuseppe;IOTTI, Mattia
2012-01-01

Abstract

The interest coverage ratios (ICRs) are used to quantify the ability of firms to pay financial debts; ICRs are then considered by banks such as covenants in the financing term sheet, and are used by researchers and the rating agencies to estimate the probability of default of firms. Typically, ICRs calculation is based on profit margins, such as EBITDA and EBIT; EBITDA and EBIT approximate, but do not directly express, cash flows available to pay financial debts. The article aims to evaluate whether there are significant differences in results using ICRs based on EBITDA or EBIT and ICRs based on different definitions of cash flow (CF). The application is made to a sample of firms characterized by high absorption of capital operating in the Italian agro-food sector. The article highlights that there are statistically significant differences using ICRs EBITDA and EBIT based and ICRs based on different CF definitions.
2012
EBITDA / EBIT and CASH FLOW BASED ICRs: A COMPARATIVE APPROACH IN THE AGRO-FOOD SYSTEM in ITALY / Bonazzi, Giuseppe; Iotti, Mattia. - In: FINANCIAL ASSETS AND INVESTING. - ISSN 1804-5081. - 3:2(2012), pp. 19-31. [10.5817/FAI2012-2-2]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11381/2523899
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