Question

From the following calculate Interest coverage ratio:

Net profit after tax Rs 12,00,000; 10% debentures Rs 1,00,00,000; Tax Rate 40%

विकल्प

• 1.2 times

• 3 times

• 2 times

• 5 times

Answer 1

3 times

Explanation:

Interest Expenses = 10% × 1,00,00,000

= `10/100 xx 1,00,00,000`

= ₹ 10,00,000

Profit Before Tax = `"Net Profit After Tax"/(1 - "Tax Rate")`

= `(12,00,000)/(1 - 0.40)`

= `(12,00,000)/(0.60)`

= ₹ 20,00,000

Net Profit before Interest and Tax = Profit Before Tax + Interest Expense

= 20,00,000 + 10,00,000

= ₹ 30,00,000

Interest Coverage Ratio = `"Net Profit before Interest and Tax"/"Interest Expenses"`

= `(30,00,000)/(10,00,000)`

= 3 times