Question #15 asks for the interest coverage ratio if the operating lease is capitalized. Ok, the answer on the mock exam uses the formula as EBIT / interest “expense”… It adjusts EBIT for depreciation and adds lease payments to interest expense (all good there)
My question is: In the front of the Financial Reporting Analysis book, the formula for interest coverage is EBIT/interest “payment”
In fact, on Reading 16 - Question #8. The answer to the question specifically says that we should use Interest PAYMENTS and not interest expense.
Why in the world did the Mock give us Cash interest paid? the book gives us a formula based on interest payments? and the right answer turns out to be based on interest “expense”
Cheers for the help.