Interest cover
Interest cover measures how many times a specified profit subtotal covers finance costs. For IFRS 18-based FA questions, use profit before financing and income taxes divided by finance costs, unless the question specifies another basis. The result describes how many times the specified profit covers the period's finance costs. A fall in the ratio may indicate less room to meet interest, but cash availability and repayment dates also matter. Compare periods on the same basis.
Worked example
Profit before financing and income taxes of 120 and finance costs of 30 give interest cover of 4 times (120 ÷ 30).
Common mistake
State the profit and interest definitions used; low cover suggests greater payment risk.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | FM | Direct | September 2026–June 2027 |
| ACCA | K1 | Direct | July 2027–August 2028 |
| CIMA | BA3 | Direct | Official assessment-window verification pending |
| CIMA | F2 | Direct | Official assessment-window verification pending |
| FIA | FFA | Direct | September 2026–June 2027 |