Question

Lee company has provided the following information:

cash flow from operating activities, $250,000
net income, $194,000
interest expense, $30,000
interest cash payments, $20,000
income tax payments, $150,000
income tax expense, $146,000

using the modified method discussed in the text, what was lee's cash coverage ratio?

Answer 1

The cash coverage ratio of Lee Company is 2.1765. It is find by using cash coverage ratio formula.

Step-by-step explanation:

The cash coverage ratio is a financial metric that measures a company's ability to pay off its debt obligations using its operating cash flow. It indicates how many times a company's cash flow from operations can cover its interest and tax payments. To calculate Lee Company's cash coverage ratio, we need to find the sum of net income, interest expense, and income tax expense, and subtract the sum of interest cash payments and income tax payments. The formula for the cash coverage ratio is:

Cash Coverage Ratio = (Net Income + Interest Expense + Income Tax Expense) / (Interest Cash Payments + Income Tax Payments)

Plugging in the values provided:

Cash Coverage Ratio = ($194,000 + $30,000 + $146,000) / ($20,000 + $150,000)

Cash Coverage Ratio = $370,000 / $170,000 = 2.1765