Question

The difference between fixed charge coverage and times interest earned ratio is

A- tax expense

B- noncontrolling interest

C- the interest portion of rental

D- all fixed costs

The cash ratio

A- is cash equivalents plus marketable securities divided by current liabilities

B- compares cash to accounts payable

C- is not useful as a measure of short term liquidity

D- is not recommended for use with speculative companies

Answer 1

1) Fixed Coverage ratio = (earnings before interest and taxes + Fixed charges) /( fixed charges + interest)

Times earned ratio = Earnings before interest and taxes/ interest

Therefore difference in the both formula is of fixed cost. Where fixed coverage ratio includes fixed cost times earned ratio do include the same. Fixed coverage ratio calculates ability of firm to cover a fixed charges , whereas times earned ratio calculates ability of firm to meet its debt obligations on current income.

Therefore the correct option is D ie All fixed cost

2) Cash ratio is any quality measure that shows the ability of the company to cover up its short obligations using cash and cash equivalents.

The ratio is (Cash & Cash equivalent)/ current liabilities

Therefore the correct option is A

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