Snodworth Limited's financial statements for the year ended 31 August 20X4 included the following information: What was interest cover (to two decimal places)?

Question

Snodworth Limited's financial statements for the year ended 31 August 20X4 included the following information:  What was interest cover (to two decimal places)?

Quizplus · Accepted Answer

Interest cover is calculated by dividing earnings before interest and taxes (EBIT) by interest expense.

EBIT = Sales - Cost of Sales - Operating Expenses

EBIT = £2,887,000 - £1,561,000 - £566,000 = £760,000

Interest Expense = £760,000 / 4.48 = £169,643

Interest Cover = EBIT / Interest Expense = £760,000 / £169,643 = 4.49 or 4.84 (rounded to two decimal places)

Therefore, the answer is C.

Snodworth Limited's Financial Statements for the Year Ended 31 August