Question

Zoe art Corp’s EDITDA last year was $290,000 (=EBIT+depreciation + amortization), it interest charges were $9,500, it has to repay 26,000 of long-term debt and I have to make a payment of $17,400 under a long-term lease. The firm has no amortization charges. What was the EDITDA coverage ratio?

Answer 1

The EBITDA coverage ratio for Zoe art Corp is calculated by dividing the EBITDA by the sum of its interest charges, long-term debt repayment, and long-term lease payment. With an EBITDA of $290,000 and total obligations of $53,900, the EBITDA coverage ratio is approximately 5.38.

Step-by-step explanation:

The student has asked for the calculation of the EBITDA coverage ratio for Zoe art Corp. This ratio is a measure of a company's ability to pay off its incurred debt and lease obligations with its EBITDA - Earnings Before Interest, Taxes, Depreciation, and Amortization.

To calculate the EBITDA coverage ratio, we consider the company's EBITDA and its total obligations, which include interest charges, long-term debt repayment, and long-term lease payments. Zoe art Corp has no amortization charges, therefore, amortization is not considered in this case. Here is the step-by-step calculation:

• EBITDA: $290,000
• Interest Charges: $9,500
• Long-term Debt Repayment: $26,000
• Long-term Lease Payment: $17,400
• Total Obligations: $53,900 ($9,500 + $26,000 + $17,400)
• EBITDA Coverage Ratio: EBITDA / Total Obligations
• EBITDA Coverage Ratio: $290,000 / $53,900 ≈ 5.38

Therefore, Zoe art Corp's EBITDA coverage ratio is approximately 5.38.