Calculate the Interest Coverage Ratio of the company.
Calculate the Interest Coverage Ratio of the company.
Show Hint
- 12 times
- 10 times
- 30 times
- 8 times
The Correct Option is B
Solution and Explanation
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.
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