Problema Solution
Willis Publishing has $30 billion in total assets. The company's basic earnings power ratios is 20 percent and it's times interest earned ratio is 8. Willis' depreciation and amortization expense totals $3.2 billion. It has 2 billion in lease payments and 1 billion must go toward principle payments on outstanding loans and long term debt. What is Willis' EBITDA coverage ratio?
Answer provided by our tutors
EBITDA coverage ratio =
(EBITDA + Lease Payments)/(Interest+Principal.P+Lease.P) 7
Note that
BEP = EBIT/TA, so
EBIT = BEP x TA = .20 x $30 billion = $6 billion
EBITDA = EBIT + DA = $6billion + $3.2billion = $9.2billion
Now, from the definition of Times-interest-earned we can
calculate the interest expense.
Times-interest-earned = EBIT/Interest, so
Interest = EBIT/Times-Interest-Earned=
= $6billion/8 = $0.75 billion
Now we can plug everything into the EBITDA coverage ratio
formula
EBITDA coverage ratio =
($9.2 + $2)/($0.75 + $1 + $2) = 2.9867