Given below are two statements: Statement I: Interest coverage ratio indicates how many times fixed interest charges are earned, based on the earnings available to pay these expenses. Statement II: One minus the reciprocal of interest coverage ratio indicates how far earnings could decline before it would be impossible to pay the interest charges from current earnings. In the light of the above statements, choose the most appropriate answer from the options given below:
Both Statement I and Statement II are true
Interest coverage is \(ICR=\frac{EBIT}{I}\). With positive interest and current coverage of at least one, the fractional EBIT decline until interest is just covered is \(\frac{EBIT-I}{EBIT}=1-\frac{1}{ICR}\). Therefore both statements are true under the usual coverage assumptions.
Important Questions from Accounting and Financial Management - Teaching
- Assertion (A) : Break even analysis and calculation of Break even point is an important part of purchase, layout design and labour recruitment.
Reason (R) : It is based on systems of record and reports providing database.
Codes : The contribution margin can be increased by which of the following?
A. Increasing the selling price per unit
B. Changing the sales mixture and selling more profitable products for which the P/V ratio is higher
C. Keeping the marginal cost unchanged
D. Increase the amount of fixed assets
E. Decreasing the selling price per unit
Choose the correct answer from the options given below:
Which among the following information shall be disclosed for all public issues of shares irrespective of their issue price?
A. Earning per share
B. Dividend payout ratio
C. Pre-issue P/E ratio
D. Average return on net worth in last 3 years
E. Net asset value per share based on last balance sheet
Choose thecorrectanswer from the options given below:
The salient features of Zero Base Budgeting are:
A. It is a decision oriented approach
B. The decision unit is broken into understandable decision packages which are ranked according to importance
C. The responsibility is shifted from top management to the manager of the decision unit
D. It is an accounting oriented approach
E. Top management decides why a particular amount of money should be spent on a particular decision unit
Choose the correct answer from the options given below:
In case of agency problem, the actions of managers are very likely to be directed towards the goal of
