Financial Reporting And Analysis - Financial Reporting And Analysis Section 2
| Interest charges | $44,000 |
| Lease payments | $20,000 |
What is the fixed charge coverage ratio for the company?
- Option : C
- Explanation : Fixed charge coverage = (EBIT + Lease payments) / (Interest payments + Lease payments) = (127,500 + 20,000) / (44,000 + 20,000) = 2.30
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47. Which of the following is most likely to be known as ‘times interest earned’?
- Option : C
- Explanation : The interest coverage ratio is known as times interest earned.
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48. Which of the following statements about solvency ratios is correct?
- Option : B
- Explanation : A high interest coverage ratio implies greater solvency. A higher debt to assets ratio implies weaker solvency.
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49. Which of the following statements about profitability ratios is most likely correct?
- Option : C
- Explanation : A is not correct because return on common equity is a ratio of (net income – preferred dividends) to average common equity. B is not correct because a change in R&D costs does not impact gross profit.
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- Option : C
- Explanation : The ability to meet long-term obligations is known as solvency.
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