Question

Ziebart Corp.'s EBITDA last year was $350,000 ( = EBIT + depreciation + amortization), its interest charges were $9,500, it had to repay $26,000 of long-term debt, and it had to make a payment of $17,400 under a long-term lease. The firm had no amortization charges. What was the EBITDA coverage ratio?

Answer 1

Answer:

EBITDA Coverage Ratio = 6.95

Explanation:

Earnings before interest, taxes, depreciation and amortization coverage ratio measures the company's ability to pay the debt, interest, and lease with the net income before interest and taxes. The formula of EBITDA coverage ratio is as follows:

EBITDA Coverage Ratio = $\frac{EBITDA + Lease Payments}{Interest Payments + Principal Repayments + Lease Payments}$

Given,

EBITDA = EBIT + depreciation + amortization = $350,000

Long-term lease payments = $17,400

Interest expenses = $9,500

Repayment of debt = $26,000

Therefore,

EBITDA Coverage Ratio = $\frac{350,000 + 17,400}{9,500 + 26,000 + 17,400}$

or, EBITDA Coverage Ratio = $\frac{367,400}{52,900}$

Hence, EBITDA Coverage Ratio = 6.95