Question

please write in text not in handwriting since its hard to read from a paper pic and i need an explanation for each problem thank you

1. During the year, Belyk Paving Co. had sales of $2,275,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $1,285,000, $535,000, and $420,000, respectively. In addition, the company had an interest expense of $245,000 and a tax rate of 21 percent. (Ignore any tax loss carryforward provision and assume interest expense is fully deductible.)

1. What is Belyk Paving Company’s net income?
2. What is Belyk Paving Company’s operating cash flow?
3. Determine Belyk Paving Company’s Cash Coverage Ratio, Times Interest Earned (Interest Coverage Ratio) and the Gross Profit Margin?

Answer 1

Calculations related to Belyk Paving Co. are shown below:
Given, Sales = $2275000
             Cost Of Goods Sold(COGS) = $1285000
             Administration and Selling Expenses = $535000
            Depreciation = $420000
            Interest = $245000( fully deductible)
            Tax Rate : 21%(Ignoring tax loss carry forward provision)

(a) Net Income= Sales -- COGS -- Administration and Selling Expense -- Depreciation -- Interest
Net Income= $ (2275000--1285000--535000--420000--245000)
Net Income = $(--210000)

(b) Operating Cash Flow = Net Income + Depreciation
Operating Cash Flow = $(--210000 + 420000) = $210000

(c) Cash Coverage Ratio = (Earnings Before Interest and Tax(EBIT) + Depreciation)/ Interest
Or, Cash Coverage Ratio = (Net Income + Interest + Depreciation)/ Interest
Or, Cash Coverage Ratio =

(--210000+245000+420000)/245000
Or, Cash Coverage Ratio = 1.8571

Times Interest Earned or Interest Coverage Ratio = EBIT/Interest
Or, Times Interest Earned or Interest Coverage Ratio = (Net Income + Interest)/Interest
Or, Times Interest Earned or Interest Coverage Ratio = (--210000+245000)/245000 = 0.1429

Gross Profit Margin = (Net Sales-- COGS)/Net Sales
Or, Gross Profit Margin =

(2275000--1285000)/2275000 = 0.4352