Odessa Limited has the following profit figures in its statement of profit or loss for its latest year of trading:
$$\begin{array}{l}
\begin{array} {lll }
&£\
\text {Gross profit}&500,000\
\text {Operating profit}&125,000\
\text {Profit befare tax}&105,000\
\text {Profit far the year}&85,000\
\end{array}
\end{array}$$ The company has interest cover of 5 times. Based on these figures, what is Odessa Limited's finance expense for the year?

Question

Odessa Limited has the following profit figures in its statement of profit or loss for its latest year of trading:
$$\begin{array}{l}
\begin{array} {lll } 
&£\
\text {Gross profit}&500,000\
\text {Operating profit}&125,000\
\text {Profit befare tax}&105,000\
\text {Profit far the year}&85,000\
\end{array}
\end{array}$$ The company has interest cover of 5 times. Based on these figures, what is Odessa Limited's finance expense for the year?

Quizplus · Accepted Answer

Interest cover is calculated as Operating Profit divided by Finance Expense. Given an interest cover of 5 times and an Operating Profit of £125,000, the Finance Expense is £125,000 / 5 = £25,000.

Odessa Limited Has the Following Profit Figures in Its Statement