Russell's has annual sales of $649,200, cost of goods sold of $389,400, interest of $23,650, depreciation of $121,000, and a tax rate of 21 percent. What is the cash coverage ratio for the year?

Question

Quizplus · Accepted Answer

Cash Coverage Ratio = (Annual EBITDA + Annual Interest Expense) / Annual Interest Expense
We first need to calculate EBITDA:
EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization
EBITDA = Annual Sales - Cost of Goods Sold - Depreciation
EBITDA = $649,200 - $389,400 - $121,000
EBITDA = $138,800
Now we can calculate the Cash Coverage Ratio:
CCR = ($138,800 + $23,650) / $23,650
CCR = 6.86
Therefore, the answer is B) 10.99.

Russell's Has Annual Sales of $649,200, Cost of Goods Sold