Question

Use the following information to answer this question.

Windswept, Inc. 2017 Income Statement ($ in millions)
Net sales	$	8,700
Cost of goods sold		7,300
Depreciation		345
Earnings before interest and taxes	$	1,055
Interest paid		87
Taxable income	$	968
Taxes		339
Net income	$	629

  

Windswept, Inc. 2016 and 2017 Balance Sheets ($ in millions)
		2016			2017				2016			2017
Cash	$	140		$	170		Accounts payable	$	1,180		$	1,267
Accounts rec.		920			730		Long-term debt		1,020			1,253
Inventory		1,520			1,560		Common stock		3,210			2,900
Total	$	2,580		$	2,460		Retained earnings		460			710
Net fixed assets		3,290			3,670
Total assets	$	5,870		$	6,130		Total liab. & equity	$	5,870		$	6,130

What is the cash coverage ratio for 2017?   

Multiple Choice

• 1.95 times

• 3.31 times

• 8.24 times

• 16.09 times

• 12.13 times

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Answer 1

D. 16.09 times

Cash coverage ratio for 2017 = (Earnings Before Interest and Taxes + Depreciation) / Interest Expense = ($1,055 + $345) / $87 = 16.09 times