Question

From the following information, calculate ‘Interest coverage Ratio’:

Profit after interest and tax	₹ 6,00,000
10% Debentures	₹ 8,00,000
Rate of Income Tax	40%

Answer 1

Interest coverage ratio = `"Profit after interest and tax"/"Interest on debenture"`

Interest on debenture = ₹ 8,00,000 × 10% 

= ₹ 80,000

Profit before Interest and tax = `((₹ 6,00,000)/60xx10)+₹10,80,000`

Interest coverage ratio = `(₹10,80,000)/(80,000)`

= 13.5 Times