44
hand,
fund
flow
coverage
ratio
is
using
the
cash
from operations
minus
payment of interest and taxes as the denominator which is known as
EBITDA.
Funds
Flow
Coverage
can
be
calculated
using
the
following
formula:
Funds Flow Coverage Ratio
EBITDA
Interest +tax adjusted debt repayment+ tax adjusted preferred dividend
Table 2.19: Calculation of Fund Flow Coverage Ratio
From: The Power Of Cash Flow Ratios, 1998.
Additionally, a company with
funds
flow
coverage
ratio of 1.0 indicates
that the company
is struggle
in accomplishing its obligations. Conversely,
when
the
ratio
is
below 1.0,
the
company
is
required
to
generate
new
capital
in
order
to
stay
survive.
Last
but
not
least,
Palepu
et
al
(2004,
p.10-7) states that it is necessary for company to have sufficient cash flow
in order to maintain plant and equipment in order to stay survive over the
long term period.
d)
Cash Interest Coverage Ratio
According to Kennon (n.d) interest coverage ratio is a measurement used
to
evaluate the
number
of times
a
company
can
fulfill
its
interest
commitments by
using
its earnings before
interest and taxes also known
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