A Cash Coverage Ratio of Less Than One Indicates

question 111

Multiple Choice

A cash coverage ratio of less than one indicates:

• A) the firm does not have enough cash to make its interest payments.
• B) the firm does have enough cash to make its interest payments, but not its lease obligations.
• C) the firm has too little depreciation expense.
• D) earnings need to fall by only a small amount before interest obligations cannot be covered.

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Definitions:

Variable Costs

Costs that change in proportion to the level of production or business activity.

Full Costs

This refers to the comprehensive total amount that includes all relevant costs of production, including direct, indirect, fixed, and variable costs.

Cost of Goods Sold

The historical cost of products sold as reported in the income statement.

Gross Profit

The difference between revenue and the cost of goods sold, indicating the profitability of a company's core activities.