Exam 2 lecture 2

Question 1

Interest coverage and financial leverage

Answer 1

Interest coverage refers to the ability to pay off interest using your operating income and the greater the interest coverage the lower your financial leverage or how much a change in operating profit could affect the amount of money left over after an income tax. The lower your interest coverage the higher your financial leverage.

Question 2

Accounts recievable

Answer 2

The sum of the invoices needed to pay by customers (loans given to customers for a specific period), time it takes to pay off loans depends on power of business

Question 3

Inventory

Answer 3

material that is stored on shelves before being sold in stores

Question 4

Tax rate

Answer 4

the amount paid in taxes divided by operating income before it is taxed