Coverage ratios: Fahr Company had depreciation expenses of $630,715, interest expenses of $112,078, and an EBIT of $1,542,833 for the year ended June 30, 2006. What are the times interest earned and cash coverage ratios for this company?
A) 19.4 times; 12.7 times
B) 17.3 time; 11.4 times
C) 13.8 times; 19.4 times
D) None of the above

Question

Quizplus · Accepted Answer

The times interest earned ratio is calculated as EBIT divided by interest expenses: $1,542,833 / $112,078 = 13.8 times. The cash coverage ratio is calculated as (EBIT + Depreciation) divided by interest expenses: ($1,542,833 + $630,715) / $112,078 = 19.4 times.

Coverage Ratios: Fahr Company Had Depreciation Expenses of $630,715, Interest