Question

Calculate the Interest Coverage Ratio (up to two decimal places) of BT Ltd. from the particulars given below:

Particulars	(₹)
8% Debentures	10,00,000
6% Bank Loan (Long-term)	1,50,000
Profit before Tax	5,34,000

Answer 1

Calculate Fixed Interest Charges:

Interest on 8% Debentures = `10,00,000 xx 8/100`

= 80,000

Interest on 6% Bank Loan = `1,50,000 xx 6/100`

= 9,000

Total Interest Charges = 80,000 + 9,000

= 89,000

Calculate Net Profit Before Interest and Tax:

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

= 5,34,000 + 89,000

= 6,23,000

Calculate Interest Coverage Ratio:

Interest Coverage Ratio = `"Net Profit Before Interest and Tax"/"Fixed Interest Charges"`

Interest Coverage Ratio = `(6,23,000)/(89,000)`

= 7

The Interest Coverage Ratio of BT Ltd. is 7 times.