Question 26.Q1: Returning to the example of Furlong above, what is the compa...
Returning to the example of Furlong above, what is the company’s interest cover?
Interest payments should be taken gross, from the note to the accounts, and not net of interest receipts as shown in the income statement.
\begin{array}{ccc} \frac{\text { PBIT }}{\text { Interest payable }}= & \begin{array}{c} 20X8 & 20X7 \\ \frac{247,011}{18,115} & \frac{360,245}{21,909} \\ =20 \text { times } & =11 \text { times }\end{array} \end{array}Furlong has more than sufficient interest cover. In view of the company’s low gearing, this is not too surprising and so we finally obtain a picture of Furlong as a company that does not seem to have a debt problem, in spite of its high (although declining) debt ratio.
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