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Delectable Parsnip, Inc.’s, net income for the most recent year was $9,712. The tax rate was...

Delectable Parsnip, Inc.’s, net income for the most recent year was $9,712. The tax rate was 34 percent. The firm paid $3,787 in total interest expense and deducted $5,273 in depreciation expense.
  
What was the company’s cash coverage ratio for the year?

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Answer #1

Cash Coverage Ratio

Cash Coverage Ratio = Earnings Before Interest, Taxes & Depreciation / Earnings Before Tax

Earnings Before Tax = Net Income / (1 – Tax Rate)

= $9,712 / (1 – 0.34)

= $9,712 / 0.66

= $14,715.15

Earnings Before Interest, Taxes & Depreciation = Earnings Before Tax + Interest Expenses + Depreciation Expenses

= $14,715.15 + $3,787 + $5,273

= $23,775.15

Therefore, the Cash Coverage Ratio = Earnings Before Interest, Taxes & Depreciation / Earnings Before Tax

= $23,775.15 / $3,787

= 6.28 Times

“Cash Coverage Ratio = 6.28 Times”

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