Sales 250000 cost of goods sold 180000 depreciation 22000

Sales = $250,000, cost of goods sold = $180,000, depreciation = $22,000, net income = $18,500, tax rate = 34%. 1) What is the times interest earned ratio? 2) What is the cash coverage ratio?

Solution

EBIT = Revenues - COGS - Depreciation = 250,000 - 180,000 -22,000 = 48,000

Net Income = (Sales - COGS -Depreciation - Interest ) * ( 1- tax rate)
18500 = ( 250,000 - 180,000 - 22,000 - Interest ) * ( 1- 34%)
Interest = 250,000 - 202,000 - 18500/0.66 = 19969.6969

1)Times interest earned ratio = EBIT/Interest =( EBIT)/ Interest = 48,000/19969.6969 = 2.403

2) Cash coverage ratio = (EBIT + Depreciation)/Interest = (48,000 + 22,000)/19969.6969 = 3.5053

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