The following are some figures from Laura Sweet Company’s 2020 financial statements: (in thousands)
Cash $213
AR 341
Inventory 327
Net PP&E 6,571
AP 250
Note Payable 1,474
Long-term Debt 2,386
Common Shares 1,200
Retained Earnings 2,336
Sales 4,184
COGS 2,664
Depreciation 570
Interest 535
Income Tax 77
Required: Calculate the following ratio (round your answer to two decimals, percentage should be expressed with decimals, e.g. 14% = 0.14) Cash Coverage Ratio
Formula for Cash Coverage ratio:-
Cash Coverage ratio = (Earnings Before Interest and Taxes + Non-Cash Expenses)/Interest Expense
- Earnings Before Interest and Taxes = Sales - COGS - Depreciation = $4184 - $2664 - $570
= $950
- Non-Cash Expenses = Depreciation = $570
- Interest Expense = $535
Cash Coverage ratio = ($950 + $570)/$535
Cash Coverage ratio = 2.84
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