An analyst gathers the following financial data about a company (in $ millions):
Operating income: 120
Net income: 85
Interest expense: 15
Depreciation and amortization: 15
The interest coverage ratio using EBIT is closest to: | Chartered Financial Analyst Level 1 Quiz - LeetQuiz
Chartered Financial Analyst Level 1
Explanation:
The correct answer is B (8x).
Explanation:
The interest coverage ratio using EBIT (Earnings Before Interest and Taxes) is calculated as:
Interest Coverage Ratio=Interest ExpenseEBIT
Here, EBIT is equivalent to the operating income, which is $120 million.
Therefore, the calculation is:
15120=8
Why not A or C?
Option A (7x) incorrectly uses net income plus depreciation and amortization, which is not the correct measure for EBIT.
Option C (9x) incorrectly includes depreciation and amortization in the numerator, resulting in EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), not EBIT.
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An analyst gathers the following financial data about a company (in $ millions):
Operating income: 120
Net income: 85
Interest expense: 15
Depreciation and amortization: 15
The interest coverage ratio using EBIT is closest to:
