Chapter 12 Income Cover

Discussion in 'CT2' started by littlesan, Feb 18, 2009.

  1. littlesan

    littlesan Member

    Hi

    I'm currently having difficulties on understanding Ch12 p7
    Income cover only includes (all prior loan stock) but in ch12 p7 Income conver on eurosterling why is it divide by (1560+2500 +3800)??

    Since eurosterling is on 2009 but the interest (2500) happens in year 2010 which is after 2009??

    the same issue as well on eurosterling on asset cover

    Please clarify for me.

    Thanks!
     
    littlesan, Feb 18, 2009
    #1
  2. w1w2teo

    w1w2teo Member

    Re:

    I believe that it is just a crude measure using all the interest paid on prior loans that the company has taken on and does not take into account the year of payment.
     
    w1w2teo, Feb 23, 2009
    #2
  3. Simon James

    Simon James ActEd Tutor Staff Member

    The date of the bond (eg Eurosterling 2009) is the redemption date, not the interest payment date. Interest is payable every year, so we take it into the calculation.
     
    Simon James, Feb 24, 2009
    #3
  4. littlesan

    littlesan Member

    Still don't understand

    Yes i get your point.

    I understand for income cover of unsecured loan stock we need to add ( 1560 + 2500 + 3800) but how come for income cover on eurosterling we still need to include 2500 when the redemtion year is 2009?

    isn't the denominator for eurosterling suppose to be ( 1560 + 3800) instead because we are just including all PRIOR loan stock??
     
    littlesan, Feb 28, 2009
    #4
  5. Simon James

    Simon James ActEd Tutor Staff Member

    Using the definition on page 6 of chapter 12

    Income cover= (profit on ordinary activities before interest and taxation)/(annual interest payments due on that issue of loan stock + all prior loan stock)

    As the Eurosterling and unsecured loan stock rank equally we combine them when considering the ratio.

    Also note that we are calculating these %s at 2007 (so the 2009 stock still has a couple of years before redemption).
     
    Last edited: Mar 2, 2009
    Simon James, Mar 2, 2009
    #5
  6. Oliver

    Oliver Member

    I don't get you!!!!

    I see nothing wrong with the Eurosterling income cover. From the defn, we just divide by the annual interest payments due for the loan plus those on prior loans. So is it not a case of dividing by the interest payments for loans for 2009, 2008 and 2007?
    However for the unsecured loan stock there is only one prior loan stock which is mortgage debenture for 2007. Are we not just supposed to divide by the interest payments for loans for the two, that is, by the interest payments on loan stock and mortgage debenture?
    Or otherwise the ranking is by priority of payment, and not to do with the dates given?
     
    Last edited by a moderator: Jun 7, 2009
    Oliver, Jun 7, 2009
    #6
  7. Lynn Birchall

    Lynn Birchall ActEd Tutor Staff Member

    Hi

    Yes, the ranking is by priority of payment, nothing to do with the dates...

    The "all prior loans" in the Income cover definition is "all prior ranking loans" (ie higher ranking) - it has nothing to do with dates of issue of the loans.

    Hope this helps clarify
    Lynn
     
    Lynn Birchall, Jun 28, 2009
    #7

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