Question

The cash coverage ratio adds ______ to operating earnings (EBIT) for a better measure of how much cash is available to meet interest obligations.

Answer 1

Depreciation

Step-by-step explanation:

Various liquidity ratio methods are used by banks, firms and organisations to measure the cash available to pay the liabilities. The quick ratio, current ratio and cash coverage ratio are some of the most used methods. Cash coverage ratio uses depreciation to measure the cash available to meet interest obligation. The formula to measure the cash coverage ratio is

CR= EBIT + Depreciation +Amortization