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 a measure of a company's ability to repay its debt obligations using cash generated from operations. It is calculated by dividing the company's earnings before interest and taxes (EBIT) by its interest expense. Since depreciation is a non-cash expense and does not impact a company's ability to generate cash, an increase in depreciation will have no effect on the cash coverage ratio. On the other hand, increases in interest, sales, and cost of goods sold could all potentially impact a company's ability to generate cash, and therefore could affect the cash coverage ratio.

An Increase in Which One of the Following Will Have