Question

	Schand Manufacturing				Apparel Industry
	2018	2017	2016		2018	2017	2016
Interest Cash Coverage	7.0	6.5	4.8		9.0	8.5	8.0
Interest Coverage (TIE) Ratio	6.1	5.9	3.2		8.5	7.9	7.4
Debt/Assets Ratio	0.4	0.5	0.6		0.3	0.4	0.5
Debt/Equity Ratio	0.9	1.0	1.2		0.4	0.7	1.0
Which statement best describes Shand’s ability to cover interest expense? a.It is deteriorating over time, but the company is underperforming as compared to its industry b. It is improving over time, and the company is underperforming as compared to its industry    c. It is improving over time, and the company is outperforming as compared to other companies in its industry d. It is deteriorating over time, and the company is outperforming as compared to other companies in its industry e. None of the above statement is correct
Which of the following best describes Schand’s interest coverage situation? a. The company has the ability to pay interest on debt out of current earnings b. Interest Cash Coverage is a good short-term indicator of the firm’s ability to pay interest expense because depreciation and amortization are added back to EBIT c. The company’s ability to cover interest charges is improving over time d. Both b and c above are correct e. All of the above are correct

Answer 1

Interest Coverage ratio Shows us the companies ability to pay the interest obligations on debt from its current earnings, Higher the interest coverage ratio more better for the company .

In the given scenario, we can see that Schand Manufacturing's interest coverage ratio is improving i.e Increasing However still below the industry.

So answer will be  b.It is improving over time, and the company is underperforming as compared to its industry  

2) Earnings before interest and taxation is used to calculate the interest coverage ratio which shows that whether earnings available is able to cover interest commitments or not.

Answer for this is e. All of the above are correct