An increase in which one of the following will have no effect on the cash coverage ratio?
A)depreciation
B)interest
C)sales
D)cost of goods sold

Question

Quizplus · Accepted Answer

The cash coverage ratio is calculated by dividing EBIT (earnings before interest and taxes) by the total amount of interest expenses paid. Therefore, an increase in depreciation, sales, or cost of goods sold will all affect EBIT and thus impact the cash coverage ratio. However, interest is directly included in the calculation of the ratio and any increase in interest expenses will lower the ratio. Depreciation, on the other hand, is a non-cash expense and does not affect cash flows, so an increase in depreciation will have no effect on the cash coverage ratio.

An Increase in Which One of the Following Will Have