Question

1. Shawna Corp. has debt of $30M and it has EBITDA of $11M. What is its Leverage?

2. Leon, Inc. has $40M of debt, $4M of Preferred Stock, Non-controlling Investment of $10M and Common equity of $20M. What is its Capitalization Ratio (Cap Ratio)?

3. Raj Industries has EBITDA of $9M and Interest Expense of $2M. What is their Interest Coverage Ratio?

Answer 1

Ans.1. Total Debt : $30 Million

EBITDA : $11 Million

Leverage Ratio = Total Debt / EBITDA

Leverage Ratio: $30/$11 = $2.72.

Ans.2. Total Debt: $40 Million

Preferred Stock: $4 Million

Non-Controlling Investment = $10 Million.

Common Equity = $20 Million.

Capitalization Ratio = Total Liability/ Shareholders Equity.

Shareholders Equity = Preferred Stock + Non-Controlling Investment + Common Equity

Shareholders Equity = $4Million +$10 Million + $ 20 Million = $34 Miilion

Capitalization Ratio = $40/%34 = $1.1 times.

Ans.3. EBITDA = $9 Million

Interest Expense = $ 2 Million.

Interest Coverage Ratio = EBIT/Interest

Interest Coverage Ratio = $9 Million/ $ 2 Million.

Interest Coverage Ratio = $4.5 times.