ICR Ratio Explained: Interest Coverage Formula & Benchmarks
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Key terms
- BenchmarkA standard index or portfolio used to measure investment performance. Common benchmarks include the S&P 500 for large-cap stocks and the Bloomberg Aggregate Bond Index for bonds.
- Compound InterestInterest calculated on both the initial principal and accumulated interest from previous periods. Often called 'interest on interest,' it's a powerful force for growing wealth over time.
- Debt-to-Income Ratio (DTI)The percentage of your gross monthly income that goes toward paying debts. Lenders use DTI to assess your ability to manage monthly payments and repay borrowed money.
- Expense RatioThe annual fee that all funds or ETFs charge their shareholders, expressed as a percentage of assets. Lower expense ratios mean more of your money is invested rather than going to fees.
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