Question

Calculate the Interest Coverage Ratio of the company.

• A. 12 times
• B. 10 times
• C. 30 times
• D. 8 times

Hint:

Interest Coverage Ratio indicates how comfortably a company can pay interest on its debt.

Answer 1

The Correct Option is B

Step 1: Calculate Interest Expense

Interest = 13% × ₹3,00,000 = ₹39,000.

Step 2: Calculate Earnings Before Interest and Tax (EBIT)

Assuming Net Profit before Tax includes interest, add back interest to get EBIT:
EBIT = NPBT + Interest = ₹3,51,000 + ₹39,000 = ₹3,90,000.

Step 3: Calculate Interest Coverage Ratio

Interest Coverage Ratio = EBIT / Interest Expense = ₹3,90,000 / ₹39,000 = 10.

Step 4: Interpretation

The company earns 10 times its interest expense before interest and tax, indicating strong ability to cover interest.