Question

alpha dog paid $2,380 in interest and $2,200 in dividends last year. the times interest earned ratio is 2.6 and the depreciation expense is $680. what is the value of the cash coverage ratio?

Answer 1

The value of the cash coverage ratio is 2.72

The value of Earnings Before Interest and Taxes(EBIT) is :

= Interest paid * times interest earned ratio

= $(2,380 * 2.4)

= $5,712

The cash available for settling the interest expenses is :

= EBIT + depreciation expense

= $5,712 + $760

= $6,472

The cash coverage ratio is :

= Cash available for settling the interest expenses/interest paid

= 2.72