This ratio attempts to capture how easy it is for a firm to service its current long term debt obligations. Ultimately, a firm must settle interest payments with cash and if it is not able to comfortably meet these requirements with its free cash flow then there is unlikely to be much of an excess return remaining for equity investors.

Ideally, an investor wants the ratio to be as a high as possible, indicating that there is a lot of free cash flow for every £1 of debt on the balance sheet.

That said, the ratio is enormously variable between industries and may be greater than 100% for companies with very little debt and a cash generative business down to low single digits % for companies with high debt levels.

Both can be acceptable depending on the situation and the industry though within a given industry, a higher rate would always be regarded as superior.

This is measured on a prior TTM basis.