Why would a fixed charge coverage ratio be materially different from an interest coverage ratio?
What will be an ideal response?
A fixed charge coverage ratio would be materially different from an interest coverage ratio calculation of simple pretax interest coverage if there are fixed obligations other than interest that are significant. If there are other fixed obligations, a more appropriate coverage ratio would include these other obligations, and should compute a fixed charge coverage ratio. An example of other significant fixed obligations is lease payments. An analyst must also be aware of any contingent liabilities, such as a company's guaranteeing another company's debt.
You might also like to view...
The initial step in achieving the efficiency of a just-in-time system is to
A) redesign the plant layout. B) replace laborers with machines. C) stop ordering materials for inventory. D) identify products that are not profitable.
Which of the following is true of distribution structure?
A. Consumer products pass through a system that includes several producers and one wholesaler. B. The use of direct channels has increased in the past decade with the introduction of various Internet buying and selling schemes. C. Channels of distribution for business marketing are typically longer. D. A manufacturer market is most common for indirect users in direct channel.
Resale price maintenance agreements are currently considered per se violations of antitrust law.
Answer the following statement true (T) or false (F)
Bridges and Lloyd, an accounting firm, provides consulting and tax planning services. For many years, the firm's total administrative cost (currently $250,000) has been allocated to services on the basis of billable hours to clients. A recent analysis found that 65% of the firm's billable hours to clients resulted from tax planning services, while 35% resulted from consulting services. The firm, contemplating a change to activity-based costing, has identified three components of administrative cost, as follows: Staff Support$180,000 In-house computing charges 50,000 Miscellaneous office costs 20,000 Total$250,000 A recent analysis of staff support found a strong correlation between the number of staff personnel and the number of clients served (consulting, 20; tax planning,
60). In contrast, in-house computing and miscellaneous office cost varied directly with the number of computer hours logged and number of client transactions, respectively. Consulting consumed 30% of the firm's computer hours and had 20% of the total client transactions.Assuming the use of activity-based costing, the proper percentage to use in allocating staff support costs to tax planning services is: A. 20%. B. 60%. C. 80%. D. 65%. E. 75%.