Question
A company reported net profit before tax of Rs.36,100.
It has raised debt capital of Rs.250,000 through 13% debentures. What is the interest coverage ratio of the company?Solution
Interest coverage Ratio = EBIT / Interest Interest = 13% of 250000 = 32500 EBIT = profit before tax + interest = 36100 +32500 = 68,600 Therefore, Interest coverage ratio = 68600/32500 = 2.11 times
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