Rex Corp's EBITDA last year was $385,000 (= EBIT + depreciation + amortization), its interest charges were $10,000, it had to repay $25,000 of long term debt, and it had to make a payment of $20,000 under a long term lease. The firm had no amortization charges. What was the EBITDA coverage ratio?
7.36
To calculate the EBITDA coverage ratio, we need to find the company's EBITDA and total debt service.
First, we calculate the total debt service, which includes both interest charges and debt repayment under long-term obligations:
Total Debt Service = Interest Charges + Debt Repayment + Lease Payment
= $10,000 + $25,000 + $20,000
= $55,000
Next, we divide the EBITDA by the total debt service to get the EBITDA coverage ratio:
EBITDA Coverage Ratio = EBITDA / Total Debt Service
= $385,000 / $55,000
= 7
Therefore, the EBITDA coverage ratio for Rex Corp is 7.