Why would a fixed charge coverage ratio be materially different from an interest coverage ratio?
What will be an ideal response?
A fixed charge coverage ratio would be materially different from an interest coverage ratio calculation of simple pretax interest coverage if there are fixed obligations other than interest that are significant. If there are other fixed obligations, a more appropriate coverage ratio would include these other obligations, and should compute a fixed charge coverage ratio. An example of other significant fixed obligations is lease payments. An analyst must also be aware of any contingent liabilities, such as a company's guaranteeing another company's debt.
You might also like to view...
If a corporation purchases a lot and building and subsequently tears down the building and uses the property as a parking lot, the proper accounting treatment of the cost of the building would depend on
a. the significance of the cost allocated to the building in relation to the combined cost of the lot and building. b. the length of time for which the building was held prior to its demolition. c. the contemplated future use of the parking lot. d. the intention of management for the property when the building was acquired.
If a seller wanted to relieve himself of the primary liability for payment of a trust deed and note, he must find a buyer who is willing to:
A: Assume the trust deed and note liability; B: Sign a release agreement; C: Take title subject to the trust deed and note; D: Execute a subordination agreement