Question

Calculate Interest Coverage Ratio from the following Information: Net Profit after tax 50,000, 15%; Long-term Debt5,00,000; Tax Rate 50% (a1.33 times (b) 3.33 times (c) 2.33 times (d) 2.50 times​

Answer 1

Answer:

1.67 times

Explanation:

Net profit after Tax = Rs. 60,000

Tax Rate = 40%

Net Profit before tax = Net Profit after tax × 100/(100-Tax rate)

= Rs. 60,000×100/(100−40)

= Rs. 1,00,000

Interest on Long-term Debt = 50% of Rs. 10,00,000 = Rs. 1,50,000

Net profit before tax + Interest

= Rs. 1,00,000 + Rs. 1,50,000 = 2,50,000

Interest Converage Ratio = Net profit before Interest and

Tax/Interest on long-term debt

= Rs. 2,50,000/ Rs. 1,50,000

= 1.67 times.