Question

Use the financial statements below to calculate the funded debt to EBITDA ratio. Income Statement (000's) Balance Sheet (000's) Revenues 40,789 Cash 9,121 Cost of sales (18,429) Accounts receivable 6,904 Gross profit 22,360 Inventory 9,601 Depreciation and amortization (1,495) Prepaid expenses 5,513 Marketing (9,598) Total current assets 31,139 Sales (352) Property, plant and equipment 14,150 General and administration (1,062) Goodwill 3,460 Operating profit 9,853 Total assets 48,749 Interest (571) Taxes (1,500) Accounts payable 4,800 Net income 7,782 Short-term loan 3,853 Total current liabilities 8,653 Long-term loan 15,000 Share capital 17,314 Retained earnings 7,782 Total shareholders' equity 25,096 Total liabilities and shareholders' equity 48,749

Answer 1

The funded debt to EBITDA ratio for the company is calculated by dividing the long-term loan amount ($15,000,000) by the EBITDA ($11,348,000), resulting in a ratio of approximately 1.32.

Step-by-step explanation:

To calculate the funded debt to EBITDA ratio, first we need to figure out the company's Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) from the income statement. Then, we calculate the total of funded debt from the balance sheet.

EBITDA can be calculated by taking the Operating Profit and adding back the Depreciation and Amortization expenses

Operating Profit = $9,853,000Depreciation and Amortization = $1,495,000EBITDA = Operating Profit + Depreciation and Amortization = $9,853,000 + $1,495,000 = $11,348,000

The funded debt is usually the long-term debt obligations of the company, so we look at the Long-term loan on the balance sheet in this case:
Long-term Loan = $15,000,000

Now we can calculate the funded debt to EBITDA ratio:

Funded Debt to EBITDA Ratio = Funded Debt / EBITDA = $15,000,000 / $11,348,000 ≈ 1.32

The funded debt to EBITDA ratio for this company is approximately 1.32, indicating that the company has $1.32 of long-term debt for every dollar of EBITDA.