Question

During the year, Belyk Paving Co. had sales of $2,275,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $1,285,000, $535,000, and $420,000, respectively. In addition, the company had an interest expense of $245,000 and a tax rate of 21 percent. (Ignore any tax loss carryforward provision and assume interest expense is fully deductible.) A. What is Belyk Paving Company’s net income? B. What is Belyk Paving Company’s operating cash flow? C. Determine Belyk Paving Company’s Cash Coverage Ratio, Times Interest Earned (Interest Coverage Ratio) and the Gross Profit Margin?

Answer 1

A) EBT =(Sales-COGS-administrative and selling expenses-Depreciation-Interest) =
=(2275000-1285000-535000-420000-245000) =-210000
Net Income =EBT =-210000

B) Taxes =0
Operating Cash Flow =EBIT -Taxes + Depreciation
=(Sales-COGS-administrative and selling expenses-Depreciation)-Taxes +Depreciation
=2275000-1285000-535000-420000-245000-0+420000 =210000

c) Cash Coverage ratio =(EBIT+Depreciation)/Interest =(2275000-1285000-535000)/245000 =1.86

d)Times Interest Earned =EBIT/Interest =(2275000-1285000-535000-420000)/245000=0.14

e)Gross Profit Margin =(Sales-COGS)/COGS =(2275000-1285000)/1285000=77.04%