Bài test tiếng Anh ngành ngân hàng và đáp án phần 4

Chapter 4 Test Bank

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
1. Financial statement analysis can help us determine why a firm's cash flows are
increasing or decreasing
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
2. Shareholders focus on the value of their stock but not on how much cash they can
expect to receive from dividends and/or capital appreciation.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
3. Managers' decisions regarding financing, investment, and working capital are reflected
in the financial statements.

A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
4. A financial statement analysis conducted over a three- to five-year period is called
trend analysis.
A) True
B)

False

Page 1


Ans: A

Format: True/False
Learning Objective: LO 5
Level of Difficulty: Easy
5. A benchmark(tiêu chuẩn) for a financial statement analysis is the performance of a
multinational firm in the same industry from another country.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 2
Level of Difficulty: Medium
6. A typical way common size income statement is constructed is by dividing all expense
items in an income statement by net income.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 2
Level of Difficulty: Medium
7. The most frequent method of adjusting balance sheets to a common-size basis is to
divide each of the accounts by total assets, expressing each account as a percentage of
total assets.
A) True
B)

False

Ans: A

Page 2

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
8. Liquidity ratios are concerned with the firm's ability to pay its current bills without
putting the firm in financial difficulty.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
9. A firm's current ratio changed from 1.4 times in the previous year to 1.6 times year.
Concluding that the firm's liquidity improved is ___________.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Medium
10. A company can improve its liquidity by increasing its accounts payable, while holding

all else constant.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Medium
11. The purchase of additional inventory by a firm should decrease a firm's quick ratio.
A) True
B)

False

Ans: B

Page 3


Format: True/False
Learning Objective: LO 3
Level of Difficulty: Medium
12. Turnover ratios are used by managers to identify operational inefficiencies.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
13. A firm increased its days' sales outstanding from 35 days to 43 days. This implies the
firm is more efficient.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
14. Total asset turnover is more relevant for service industry firms, while the fixed asset
turnover ratio is more relevant for manufacturing industry firms.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Medium

15. Financial leverage refers to the use of preferred stock in a firm's capital structure.
A) True
B)

False

Ans: B

Page 4


Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
16. The equity multiplier is computed by dividing equity by total assets.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Medium
17. The higher the times interest earned ratio, the more comfortable are a firm's creditors in
the ability of the firm to meet its interest obligations.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 4
Level of Difficulty: Medium
18. A firm that has no debt will have its ROA equal to its ROE.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 5
Level of Difficulty: Medium
19. For a given level of after-tax income, the lower the level of equity a firm has, the higher
the return on equity its shareholders will earn.
A) True
B)

False

Ans: A

Page 5

Format: True/False
Learning Objective: LO 5
Level of Difficulty: Hard
20. For a given share price of a firm's stock, the lower the EPS the lower the price-earnings
ratio.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 4
Level of Difficulty: Medium
21. The DuPont equation relates a firm's net profit margin, total asset turnover ratio, and
equity multiplier to determine its return on equity.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 4
Level of Difficulty: Medium
22. Firms with a lower ROA and higher leverage will have a lower ROE than firms with a
higher ROA and lower leverage.
A) True

B)

False

Ans: B

Format: True/False
Learning Objective: LO 5
Level of Difficulty: Medium
23. In doing an industry group analysis, you form the comparison group by choosing firms
that are larger than the firm being compared.
A) True
B)

False

Page 6


Ans: B

Format: True/False
Learning Objective: LO 6
Level of Difficulty: Medium
24. The Standard Industry Classification (SIC) system is a federal government established
system in which the last two digits indicate the business or industry in which the firm is
engaged.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 6
Level of Difficulty: Medium
25. The use of market value balance sheets serves to correct a weakness of ratio analysis.
A) True
B)

False

Ans: A

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
26. Financial statements can be analyzed from the following three different perspectives:
A) management, regulator, and bondholder
B)

management, shareholder, and creditor

C)

regulator, shareholder, and creditor

D)

shareholder, creditor, and regulator

Ans: B

Page 7


Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
27. Shareholders analyze financial statements in order to:
A) assess the cash flows that the firm will generate from operations/
B)
C)

determine the firm's profitability, their return for that period, and the dividend
they are likely to receive.
focus on the value of the stock they hold.

D)

All of the above.

Ans: D

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
28. The creditors of a firm analyze financial statements so that they can focus on
A) the firm's amount of debt.

B)
C)

the firm's ability to generate sufficient cash flows to meet all legal obligations
first and still have sufficient cash flows to meet debt repayment and interest
payments.
the firm's ability to meet its short-term obligations.

D)

All of the above.

Ans: D

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
29. A firm's management analyzes financial statement's so that:
A) they can get feedback on their investing, financing, and working capital decisions
by identifying trends in the various accounts that are reported in the financial
statements.
B) similar to shareholders, they can focus on profitability, dividend, capital
appreciation, and return on investment.
C) they can get more stock options.
D)

a and b.

Ans: D

Page 8


Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
30. Anyone analyzing a firm's financial statements should
A) use audited financial statements only.
B)

do a trend analysis.

C)

perform a benchmark analysis.

D)

All of the above.

Ans: D

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
31. An individual analyzing a firm's financial statements should do all but one of the
following:
A) Use unaudited financial statements.
B)

Do a trend analysis.

C)

Perform a benchmark analysis.

D)

Compare the firm's performance to that of its direct competitors.

Ans: A

Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Easy
32. All but one of the following is true of common-size balance sheets.
A) Each asset and liability item on the balance sheet is standardized by dividing it by
total assets.
B) Balance sheet accounts are represented as percentages of total assets.
C)

Each asset and liability item on the balance sheet is standardized by dividing
it by sales.
D) Common-size financial statements allow us to make meaningful comparisons
between the financial statements of two firms that are different in size.
Ans: C

Page 9

Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Easy
33. All but one of the following is true of common-size income statements.
A) Each income statement item is standardized by dividing it by total assets.
B)

Income statement accounts are represented as percentages of sales.

C)

Each income statement item is standardized by dividing it by sales.

D)

Common-size financial statement analysis is a specialized application of ratio
analysis.
Ans: A

Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Easy
34. Common-size financial statements:
A) are a specialized application of ratio analysis.
B)
C)
D)

allow us to make meaningful comparisons between the financial statements of
two firms that are different in size.

are prepared by having each financial statement item expressed as a percentage of
some base number, such as total assets or total revenues.
All of the above are true.

Ans: D

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
35. Which of the following is true of ratio analysis?
A) A ratio is computed by dividing one balance sheet or income statement by
another.
B) The choice of the scale determines the story that can be garnered from the ratio.
C)
D)

Ratios can be calculated based on the type of firm being analyzed or the kind of
analysis being performed.
All of the above are true.

Ans: D

Page 10


Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
36. Which of the following is NOT true of liquidity ratios?
A) They measure the ability of the firm to meet short-term obligations with shortterm assets without putting the firm in financial trouble.

B) There are two commonly used ratios to measure liquidity—current ratio and
quick ratio.
C) For manufacturing firms, quick ratios will tend to be much larger than
current ratios.
D) The higher the number, the more liquid the firm and the better its ability to pay its
short-term bills.
Ans: C

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Easy
37. All but one of the following is true about quick ratios.
A) The quick ratio is calculated by dividing the most liquid of current assets by
current liabilities.
B) Service firms that tend not to carry too much inventory will see significantly
higher quick ratios than current ratios.
C) Inventory, being not very liquid, is subtracted from total current assets to
determine the most liquid assets.
D) Quick ratios will tend to be much smaller than current ratio for manufacturing
firms or other industries that have a lot of inventory.
Ans: B

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Easy
38. Which one of the following does NOT change a firm's current ratio?
A) The firm collects on its accounts receivables.
B)

The firm purchases inventory by taking a short-term loan.

C)

The firm pays down its accounts payables.

D)

None of the above.

Ans: A

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Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Easy
39. All else being equal, which one of the following will decrease a firm's current ratio?
A) a decrease in the net fixed assets
B)

a decrease in depreciation

C)

an increase in accounts payable

D)

None of the above

Ans: C

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Easy
40. All but one of the following is true about the inventory turnover ratio.
A) It is calculated by dividing inventory by cost of goods sold.
B)

It measures how many times the inventory is turned over into saleable products.

C)

The more times a firm can turnover the inventory, the better.

D)

Too high a turnover or too low a turnover could be a warning sign.

Ans: A

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
41. Which one of the following statements is NOT true?
A) The accounts receivables turnover ratio measures how quickly the firm collects
on its credit sales.
B) One ratio that measures the efficiency of a firm's collection policy is days' sales
outstanding.

C) The more days that it takes the firm to collect on its receivables, the more
efficient the firm is.
D) DSO measures in days, the time the firm takes to convert its receivables into
cash.
Ans: C

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Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
42. One of the following statements is NOT true of asset turnover ratios.
A) Asset turnover ratios measure the level of sales per dollar of assets that the firm
has.
B) The fixed assets turnover ratio is less significant for equipment-intensive
manufacturing industry firms than the total assets turnover ratio.
C) The higher the total asset turnover, the more efficiently management is using total
assets.
D) All of the above are true.
Ans: B

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Easy
43. Which one of the following statements is correct?
A) The lower the level of a firm's debt, the higher the firm's leverage.
B)

The lower the level of a firm's debt, the lower the firm's equity multiplier.

C)

The lower the level of a firm's debt, the higher the firm's equity multiplier.

D)

The tax benefit from using debt financing reduces a firm's risk.

Ans: B

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
44. If firm A has a higher debt-to-equity ratio than firm B, then
A) firm A has a lower equity multiplier than firm B.
B)

firm B has a lower equity multiplier than firm A.

C)

firm B has lower financial leverage than firm A.

D)

None of the above.

Ans: A

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Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
45. Which one of the following statements is NOT correct?
A) A leveraged firm is more risky than a firm that is not leveraged.
B)

A leveraged firm is less risky than a firm that is not leveraged.

C)

A firm that uses debt magnifies the return to its shareholders.

D)

All of the above statements are correct.

Ans: B

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Easy
46. Coverage ratios, like times interest earned and cash coverage ratio, allow
A) a firm's management to assess how well they meet short-term liabilities.
B)

a firm's shareholders to assess how well the firm will meet its short-term

liabilities.
C) a firm's creditors to assess how well the firm will meet its interest
obligations.
D) a firm's creditors to assess how well the firm will meet its short-term liabilities
other than interest expense.
Ans: C

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Easy
47. For a firm that has no debt in its capital structure,
A) ROE > ROA.
B)

ROE < ROA.

C)

ROE = ROA.

D)

None of the above.

Ans: C

Page 14


Format: Multiple Choice

Learning Objective: LO 4
Level of Difficulty: Easy
48. For a firm that has both debt and equity,
A) ROE > ROA.
B)

ROE < ROA.

C)

ROE = ROA

D)

None of the above.

Ans: A

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
49. Which one of the following statements is NOT correct?
A) The DuPont system is based on two equations that relate a firm's ROA and ROE.
B)
C)
D)

The DuPont system is a set of related ratios that links the balance sheet and the
income statement.
Both management and shareholders can use this tool to understand the factors

that drive a firm's ROE.
All of the above are correct.

Ans: D

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Easy
50. The DuPont equation shows that a firm's ROE is determined by three factors:
A) net profit margin, total asset turnover, and the equity multiplier
B)

operating profit margin, ROA, and the ROE

C)

net profit margin, total asset turnover, the ROA

D)

ROA, total assets turnover, and the equity multiplier

Ans: A

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Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium

51. Which one of the following is a criticism of equating the goals of maximizing the ROE
of a firm and maximizing the firm's shareholder wealth?
A) ROE is based on after-tax earnings, not cash flows.
B)

ROE does not consider risk.

C)

ROE ignores the size of the initial investment as well as future cash flows.

D)

All of the above are criticisms of ROE as a goal.

Ans: D

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Easy
52. Which one of the following is NOT an advantage of using ROE as a goal?
A) ROE is highly correlated with shareholder wealth maximization.
B)
C)

ROE and the DuPont analysis allow management to break down the performance
and identify areas of strengths and weaknesses.
ROE does not consider risk.

D)

All of the above are advantages of using ROE as a goal.

Ans: C

Format: Multiple Choice
Learning Objective: LO 5
Level of Difficulty: Medium
53. Which one of the following statements about trend analysis is NOT correct?
A) This benchmark is based on a firm's historical performance.
B)
C)
D)

It allows management to examine each ratio over time and determine whether the
trend is good or bad for the firm.
The Standard Industrial Classification (SIC) System is used to identify
benchmark firms.
All of the above are true statements.

Ans: C

Page 16


Format: Multiple Choice
Learning Objective: LO 5
Level of Difficulty: Medium
54. Peer group analysis can be performed by
A) management choosing a set of firms that are similar in size or sales, or who

compete in the same market.
B) using the average ratios of this peer group, which would then be used as the
benchmark.
C) identifying firms in the same industry that are grouped by size, sales, and product
lines in order to establish benchmark ratios.
D) Only a and b relate to peer group analysis.
Ans: D

Format: Multiple Choice
Learning Objective: LO 6
Level of Difficulty: Hard
55. Limitations of ratio analysis include all but
A) Ratios depend on accounting data based on historical costs.
B)
C)

Differences in accounting practices like FIFO versus LIFO make comparison
difficult.
Trend analysis could be distorted by financial statements affected by inflation.

D)

All of the above are limitations of ratio analysis.

Ans: D

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
56. Liquidity ratio: Lionel, Inc., has current assets of $623,122, including inventory of

$241,990, and current liabilities of 378,454. What is the quick ratio?
A) 1.65
B)

0.64

C)

1.01

D)

None of the above

Ans: C

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Feedback:
Current assets = $623,122
Current liabilities = $378,454
Inventory = $241,990
Current assets - Inventory
Current liabilities
$623,122  $241,990

$378, 454
 1.01

Quick ratio 

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
57. Liquidity ratio: Bathez Corp. has receivables of $334,227, inventory of $451,000,
cash of $73,913, and accounts payables of $469,553. What is the firm's current ratio?
A) 1.83
B)

0.73

C)

1.67

D)

None of the above

Ans: A
Feedback:
Current assets = $73,913 + $451,000 +$334,227 = $859,140
Current liabilities = $469,553
Current assets
Current ratio 
Current liabilities
$859,140

$469,553

 1.83
Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
58. Liquidity ratio: Zidane Enterprises has a current ratio of 1.92, current liabilities of
$272,934, and inventory of 197,333. What is the firm's quick ratio?
A) 0.72
B)

1.20

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C)

1.92

D)

None of the above

Ans: B
Feedback:
Current ratio = 1.92
Current liabilities = $272,934
Inventory = $197,333
Current assets
Current ratio 
Current liabilites

Current assets
1.92 
Current liabilites
Current assets  1.92 �$272,934  $524,033
Current assets - Inventory
Quick ratio 
Current liabilities
$524, 033  $197,333

$272,934
 1.20
Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Hard
59. Liquidity ratio: Ronaldinho Trading Co. is required by its bank to maintain a current
ratio of at least 1.75, and its current ratio now is 2.1. The firm plans to acquire
additional inventory to meet an unexpected surge in the demand for its products and
will pay for the inventory with short-term debt. How much inventory can the firm
purchase without violating its debt agreement if their total current assets equal $3.5
million?
A) $0
B)

$777,777

C)

$1 million

D)

None of the above

Ans: B

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Feedback:
Let X represent the additional borrowing against the firm's line of credit (which also
equals the addition to current assets). We can solve for that level of X that forces the
firm's current ratio to be at 1.75
$3,500,000/ Current liabilities = 2.1
Current liabilities = $1,666,667
1.75 = ($3,500,000 + X) / ($1,666,667 + X)
(1.75 * $1,666,667) + 1.75X = $3,500,000 + X
0.75X = $3,500,000 - $2,916,667
X = $777,777
Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
60. Efficiency ratio: If Randolph Corp. has accounts receivables of $654,803 and net sales
of $1,932,349, what is its accounts receivable turnover?
A) 0.34 times
B)

1.78 times

C)

2.95 times

D)

None of the above

Ans: C
Feedback:
Accounts receivables = $654,803
Net sales = $1,932,349
Net sales
Accounts receivables
$1,932,349

$654,803
 2.95 times

Accounts receivables turnover 

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
61. Efficiency ratio: If Viera, Inc., has an accounts receivable turnover of 3.9 times and net
sales of $3,436,812, what is its level of receivables?
A) $881,234

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B)

$13,403,567

C)

$1,340,357

D)

$81,234

Ans: A
Feedback:
Accounts receivables turnover = 3.9x
Net sales = $3,436,812
Net sales
Accounts receivables
$3, 436,812
3.9 x 
Accounts receivables
$3, 436,812
Accounts receivables 
 $881, 234
3.9

Accounts receivables turnover 

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium

62. Efficiency ratio: Jason Traders has sales of $833,587, a gross profit margin of 32.4
percent, and inventory of $178,435. What is the company's inventory turnover ratio?
A) 4.67 times
B)

3.16 times

C)

4.1 times

D)

None of the above

Ans: B

Page 21


Feedback:
Sales = $833,587
Gross profit margin = 32.4%
Inventory = $178,435
Sales-Cost of goods sold
Gross profit margin 
Sales
833,587  Cost of goods Sold
0.324 
833,587

Cost of goods sold  833,587  (0.324  833,587)
 $563,506
Cost of goods sold $563,506

Inventory
$178, 435
 3.16x

Inventory turnover ratio 

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
63. Efficiency ratio: Gateway Corp. has an inventory turnover ratio of 5.6. What is the
firm's days' sales in inventory?
A) 65.2 days
B)

64.3 days

C)

61.7 days

D)

57.9 days

Ans: A
Feedback:

Day ' s sales in inventory 

365
 65.2 days
5.6

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Hard
64. Efficiency ratio: Jet, Inc., has net sales of $712,478 and accounts receivables of
$167,435. What are the firm's accounts receivables turnover and days' sales
outstanding?
A) 0.24 times; 78.5 days
B)

4.26 times;

85.7 days

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C)

5.2 times;

61.3 days

D)

None of the above

Ans: B
Feedback:
Net sales = $712,478
Accounts receivables = $167,435
Net sales
Accounts receivable
$712, 478

 4.26 times.
$167, 435

Accounts receivable turnover 

365
Net sales/Accounts recievable
365

Accounts receivables turnover
365

4.26
 $85.7 days

DSO 

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium

65. Efficiency ratio: Ellicott City Manufacturers, Inc., has sales of $6,344,210, and a gross
profit margin of 67.3 percent. What is the firm's cost of goods sold?
A) $2,074,557
B)

$2,745,640

C)

$274,560

D)

None of the above

Ans: A

Page 23


Feedback:
Sales-Cost of goods sold
Sales
$6,344, 210  Cost of Goods Sold
0.673 
$6,344,210
Cost of goods sold  $6,344, 210  (0.673  $6,344, 210)
 $2, 074, 557

Gross profit margin 

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Hard
66. Efficiency ratio: Deutsche Bearings has total sales of $9,745,923, inventories of
$2,237,435, cash and equivalents of $755,071, and days' sales outstanding of 49 days. If
the firm's management wanted its DSO to be 35 days, by how much will the accounts
receivable have to change?
A) $373,816.23
B)

-$373,816.23

C)

-$379,008.12

D)

$379,008.12

Ans: B
Feedback:
Sales = $9,745,923;
Days

Inventory = $2,237,435

Cash = 755,071;

DSO = 49

365
365

Accounts recievable turnover Net sales/Accounts recievable
365  Accounts recievables
DSO 
Net sales
DSO �Net sales 49 �$9, 745,923
Accounts recievables 

365
365
 $1,308,356.79
Target DSO  35 Days
DSO �Net sales 35 �9, 745,923
New accounts recievables 

365
365
 $934,540.56
 Accounts recievables  $1,308,356.79-$934,540.56
-$373, 816.23
DSO 

Page 24


Format: Multiple Choice

Learning Objective: LO 3
Level of Difficulty: Hard
67. Coverage ratio: Trident Corp. has debt of $3.35 million with an interest rate of 6.875
percent. The company has an EBIT of $2,766,009. What is its times interest earned?
A) 13 times
B)

12 times

C)

11 times

D)

None of the above

Ans: B
Feedback:
Interest expense = $3,350,000 x 0.06875 = $230,312.50
EBIT
$2, 766, 009
Times interest earned 

Interest expense $230,312.50
 12 times
Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
68. Coverage ratios: Sectors, Inc., has an EBIT of $7,221,643 and interest expense of

$611,800. Its depreciation for the year is $1,434,500. What is its cash coverage ratio?
A) 15.42 times
B)

18.34 times

C)

14.15 times

D)

None of the above

Ans: C
Feedback:
Depreciation = $1,434,500
Interest expenses = $611,800
EDIT = $7,221,643
EBITDA
EBIT  Depreciation
Cash coverage rates 

Interest expense
Interest expense
$7, 221, 643  $1, 434,500

$611,800
 14.15 times

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