Reading 24: Integration of Financial Statement Analysis Techniques

[gazhoo]

Question 2 regarding interest coverage ratio
How is the adjustment for depreciation simply to take the PV of the lease payments and divide by number of years of lease payments…does it say somewhere there you assume a salvage of zero?

 

[vicky_cool400]

when we will take operating as finance
adjusted ebit= ebit+ lease payment - extra dep
adjusted interest= previous interest expense + additional interest exp for lease

 

[gazhoo]

Thank you. I was wondering about the “extra dep” calculation and how they came up with this calculation?

 

[vicky_cool400]

Extra dep= PV of lease/no of years

 

[gazhoo]

thanks!