Assume a companys Income Statement for Year 12 is as follows

Assume a company\'s Income Statement for Year 12 is as follows: Year 12 in 000s Income Statement Data Net Revenues from Footwear Sales Cost of Pairs Sold Warehouse Expenses Marketing Expenses Administrative Expenses Operating Profit (Loss) Interest Income (expenses) Pre-tax Profit (Loss) ncome laxes Net Profit (Loss $290,000 180,000 16,000 42,000 8,000 44,000 (10,000) 34,000 10,200 $23,800 Based on the above income statement data (assume interest income is zero), the company\'s interest coverage ratio is 29.0 290.0 4.40 3.40. 2.38

Solution

Interest coverage ratio formula = EBIT / Interest expenses

Where EBIT = Operating income

So in the given example :

EBIT = 44000

Interest Expenses = 10000

So , Interest coverage ratio formula = 44000 / 10000

Interest coverage ratio formula = 4.4