The 2008 financial statements for Carmela's Catering are as follows: The firm has 100,000 shares of common stock outstanding with a market value of $8 a share.
-Refer to the information above. Calculate Carmela's interest coverage ratio.

Question

The 2008 financial statements for Carmela's Catering are as follows:   The firm has 100,000 shares of common stock outstanding with a market value of $8 a share.
-Refer to the information above. Calculate Carmela's interest coverage ratio.

Quizplus · Accepted Answer

To calculate interest coverage ratio, we need to use the formula: Earnings before interest and taxes (EBIT) / Interest expense. Looking at the financial statements provided, we can see that Carmela's Catering had EBIT of $693,000 and interest expense of $249,000. Therefore, the interest coverage ratio is $693,000 / $249,000 = 2.78. The best choice is C.

The 2008 Financial Statements for Carmela's Catering Are as Follows