Default risk is the chance that a company is unable to make interest payments on their debt obligations. A business with low level of Net Debt/EBITDA at a very high rate of interest may face a greater default risk than a more highly geared company facing an exceptionally low rate of interest. Interest cover is a good way to capture this risk.
= Earnings before interest and tax/Interest
A question I am frequently asked is how do we analyse stocks? How much emphasis do we place on valuation? And how much do we place on company analysis, in terms of assessing quality and growth…
A core method we, as equity analysts, use to calculate and estimate the present value of the companies we invest into on behalf of clients is the discounted cash flow model (DCF).
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