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
Conceptually we have a reasonable understanding of inflation. As an economic term, inflation represents the general price rise of goods and services over a predetermined time.
Usually, your bank would pay interest on your savings accounts. Negative interest rates turn this around and mean customers have to pay banks to hold their savings.
You probably sort of know how index linked gilts, or “linkers,” work. The redemption value is linked to the change in the retail price index, or RPI, that takes place over the life of the gilt.
If you like this article, follow us for more insights.
To receive more content like this subscribe today.