Question

A firm has sales of $4,720, costs of $2,520, interest paid of $167, and depreciation of $469. The tax rate is 30 percent. What is the cash coverage ratio?

Answer 1

Answer:

cash conversion ratio = 13.17

Explanation:

given data

sales = $4,720

costs = $2,520

interest paid = $167

depreciation = $469

tax rate = 30 percent

solution

we get here cash conversion ratio that is express as

cash conversion ratio = $\frac{EBIT+ depreciation}{interest}$    ...................1

here EBIT = sale - cost - depreciation

EBIT =  $4,720 - $2,520 - $469

EBIT = $1731

cash conversion ratio = $\frac{1731+469}{167}$

cash conversion ratio = 13.17