Question

Chutes​ & Co. has interest expense of $ 1.25 million and an operating margin of 10.8 % on total sales of $ 30.7 million. What is​ Chutes' interest coverage​ ratio?

Answer 1

2.7 times

Step-by-step explanation:

Chutes and co. has an interest expense of 1.25 million

Operating margin of 10.8%

Total sales of 30.7 million

The first step is to calculate the operating income

Operating income= Sales×operating margin

= $30,700,000×10.8/100

= $30,700,000×0.108

= $3,315,600

Therefore, the interest coverage ratio can be calculated as follows

Interest coverage ratio= Operating income/Interest expense

= $3,315,600/$1,250,000

= 2.65

= 2.7 times

Hence Chutes' interest coverage​ ratio is 2.7 times