Cash Coverage ratio indicates if a firm has enough cash to pay of its interest expenses. The ideal ratio to be maintained by a firm is 1:1. This can be given by the following formula:
Cash Coverage Ratio=[tex]\frac{Earnings before Interest and Tax+Depreciation }{Interest Expense}[/tex]
Cash Coverage Ratio=[tex]\frac{215600-124800+11400}{3600}[/tex]
Cash Coverage Ratio=28.38
Assumption: Cost includes Depreciation, thus depreciation is added back, To find Cash Profits before Interest and Taxes.
