单选题
Comparative income statements for E Company and G Company for the year ended December 31 show the following (in $ millions):
|
|
{{I}}E Company{{/I}} |
{{I}}G Company{{/I}} |
|
Sales |
70 |
90 |
|
Cost of Goods Sold |
{{U}}(30){{/U}} |
{{U}}(40){{/U}} |
|
Gross Profit |
40 |
50 |
|
Sales and Administration |
(5) |
(15) |
|
Depreciation |
{{U}}(5){{/U}} |
{{U}}(10){{/U}} |
|
Operating Profit |
30 |
25 |
|
Interest Expense |
{{U}}(20){{/U}} |
{{U}}(5){{/U}} |
|
Earnings Before Taxes |
10 |
20 |
|
Income Taxes |
{{U}}(4){{/U}} |
{{U}}(8){{/U}} |
|
Earnings after Taxes |
6 |
12 |
The financial risk of E Company, as measured by the interest coverage ratio, is: A. higher than G Company's because its interest coverage ratio is less than one-third of G Company's. B. higher than G Company's because its interest coverage ratio is less than G Company's, but at least one-third of G Company's. C. lower than G Company's because its interest coverage ratio is more than G Company's but less than three times G Company's.
【正确答案】
A
【答案解析】E Company's interest coverage ratio (EBIT/interest expense) is (30/20=)1.5.
G Company's interest coverage ratio is (25/5=)5.0. Higher interest coverage means greater ability to cover required interest and lease payments. Note that 1.5/5.0=0.30, which means the interest coverage for E Company is less than 1/3 that of G Company.