Given the following income statements of three companies, which appears to have greater financial leverage (i.e. greater debt) based upon the interest coverage ratio? Firm A Firm B Firm C EBIT $50 $100 $75 Interest 10 15 5 EBT 40 85 70 Taxes 20 45 50 EAT 20 40 20

Given the following income statements of three companies, which appears to have greater financial leverage (i.e. greater debt) based upon the interest coverage ratio? Firm A Firm B Firm C EBIT $50 $100 $75 Interest 10 15 5 EBT 40 85 70 Taxes 20 45 50 EAT 20 40 20

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Given the following income statements of three companies, which appears to have greater financial leverage (i.e. greater debt) based upon the interest coverage ratio?

	Firm A	Firm B	Firm C
EBIT	$50	$100	$75
Interest	10	15	5
EBT	40	85	70
Taxes	20	45	50
EAT	20	40	20

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