Question

Use the below information to answer the following question.

Income Statement
For the Year
Net sales $827,500
COGS 611,800
Depreciation 23,100

EBIT $192,600
Interest 9,700

Taxable income $182,900
Taxes 6,200

Net income $176,700



Balance Sheet
Beginning of Year End of Year
Cash $ 38,200 $43,700
Accounts receivable 91,400 86,150
Inventory 203,900 214,600
Net fixed assets 516,100 537,950

Total assets $849,600 $882,400

Accounts payable $136,100 $104,300
Long-term debt 329,500 298,200
Common stock ($1 par value) 75,000 82,000
Retained earnings 309,000 397,900

Total Liab. & Equity $849,600 $882,400

What is the cash coverage ratio for the year?

Answer 1

The cash coverage ratio for the year is calculated by adding EBIT and Depreciation and then dividing by the Interest Expenses, resulting in a ratio of 22.24.

Step-by-step explanation:

The cash coverage ratio is a financial metric used to evaluate a company's ability to cover its interest obligations with its operating cash flow. The formula to calculate the cash coverage ratio is: (EBIT + Depreciation) / Interest Expenses. Using the provided information, we can calculate this as follows: ($192,600 + $23,100) / $9,700, which equals 22.24. This ratio indicates that the company can cover its interest expenses 22.24 times with its operating cash flow, suggesting a strong ability to meet its debt obligations.