A company with operating income of $200,000, cash flow from operating activities of $75,000 and gross profit of $380,000, has interest payments of $25,000. What is the company's Interest Coverage Ratio (Cash Basis)?
A)4 or 4 to 1
B)3 or 3 to 1
C)15.2 or 15.2 to 1
D)2.67 or 2.67 to 1

Question

Quizplus · Accepted Answer

Interest Coverage Ratio (Cash Basis) = cash flow from operating activities / interest payments
Interest Coverage Ratio (Cash Basis) = $75,000 / $25,000
Interest Coverage Ratio (Cash Basis) = 3 or 3 to 1. 
Therefore, the answer is option B - 3 or 3 to 1.

A Company with Operating Income of $200,000, Cash Flow from Operating