Which of the following accounting ratios considers the importance of cash flows relating to required interest payments?
A)times interest earned ratio
B)debt/equity ratio
C)cash coverage ratio
D)receivables turnover

Question

Quizplus · Accepted Answer

The cash coverage ratio measures a company's ability to cover required interest payments from the operating cash flow. The formula for cash coverage ratio is (operating cash flow + interest paid) / interest paid. The times interest earned ratio also considers interest payments, but it only measures a company's ability to meet interest payments from its earnings before interest and taxes (EBIT), whereas the cash coverage ratio considers the importance of cash flows. The debt/equity ratio and receivables turnover do not directly relate to interest payments.

Which of the Following Accounting Ratios Considers the Importance of Cash