Question

I created a schedule of the ratio analysis with the information given. I am missing three ratios. I need to show work and find: 'Quality of Income' and 'Times interest earned ratio' and 'cash coverage ratio'. Use the photos to help find those three ratios.

Blue Water Prime Fish Balance sheet: $ 42,100 $ Cash Accounts receivable (net) 19,900 34,300 43,500 Inventory 93,500 46,600 156,500 414,200 Property & equipment (net) Other assets 85,100 316,000 Total assets $ 831,000 $ 420,700 93,500 72,700 155,700 Current liabilities Long-term debt (interest rate: 15%) Capital stock ($10 par value) Additional paid-in capital 65,500 62,200 523,000 30,100 107,100 73,200 Retained earnings Total liabilities and stockholders' equity 68,700 420,700 $ 831,000 Income statement: Sales revenue (1/2 on credit) 791,000 Cost of goods sold Operating expenses Net income Other data: Per share stock price at end of current year 430,500 (235,500 (163,200 31,800 (401,100 (312,100 77,800 $ $ 23.1 Average income tax rate Dividends declared and paid in current year 34,100 153,500

Answer 1

Quality of Income - Cash Flow From Operating Activities / Net Income Amount (in $) Blue Water Prime Fish Net Income 31800 77800 Cash Flow From Operating Activities Net Income Add: Interest expense @ 15% (72,700 * 15%, 62,200 * 15%) 31800 10905 77800 9330 42705 87130 Earnings Before Interest Taxes Depreciation & Amortization (EBITDA) Less: Tax @ 45% Cash Flow From Operating Activities 19217 23488 39209 47922 Calculated based on the available information . Quality of income ratio higher than 1 indicates high quality earnings, while the ratio lower than 1 is considered to indicate low quality earnings, Quality of Income = 23488 / 31800 47922 / 77800 0.74 0.62 Times interest earned ratio = Earnings before interest and taxes / Interest expense EBIT or EBITDA (in this case) = Interest expense = 42705 10905 87130 9330 Times interest earned ratio = 42705 / 10905 3.92 87130 / 9330 9.34 The ratio is a number that shows how many times a company could cover its interest charges Cash Coverage Ratio = (Cash + Cash Equivalents) / Total Current Liabilities Amount (in $) Blue Water Prime Fish Cash Total Current Liabilities 42100 93500 19900 65500 Cash Coverage Ratio = 42100 / 93500 19900 / 65500 0.45 0.30