Question:
From the following information, calculate Interest Coverage Ratio:
Financial Information
Particulars Amount (₹) Profit after Tax 6,30,000 Tax Rate 30% 15% Debentures 20,00,000 Equity Share Capital 10,00,000
From the following information, calculate Interest Coverage Ratio:
Financial Information
| Particulars | Amount (₹) |
|---|---|
| Profit after Tax | 6,30,000 |
| Tax Rate | 30% |
| 15% Debentures | 20,00,000 |
| Equity Share Capital | 10,00,000 |
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Always add back interest to Profit before Tax to get EBIT when computing Interest Coverage Ratio.
Updated On: Jan 14, 2026
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Solution and Explanation
Interest = 15% of 20,00,000 = 3,00,000
Profit before Tax = Profit after Tax / (1 - Tax Rate) = 6,30,000 / 0.7 = 9,00,000
EBIT = Profit before Tax + Interest = 9,00,000 + 3,00,000 = 12,00,000
Interest Coverage Ratio = EBIT / Interest = 12,00,000 / 3,00,000 = 4 times
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