From the following details calculate Interest Coverage Ratio:
Net profit after tax - ₹ 7,00,000
6% debentures of ₹ 20,00,000
Tax Rate 30%
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Net Profit Before Tax – Tax paid = Net Profit After Tax
x – 30/100 (x) = ₹7,00,000
x = ₹ 7,00,000 (100/70)
x = ₹ 10,00,000
Net Profit Before Tax = ₹ 10,00,000
Interest Payment = 6/100 (₹ 20,00,000) = ₹ 1,20,000
Earning Before Interest and Tax = Net Profit Before Tax + Interest Payment
= ₹ 10,00,000 + ₹ 1,20,000
= ₹11,20,000
Interest Coverage ration `=("Earning Before Interest and Tax")/("Interest Expense ")`
Interest Coverage Ratio `=₹11,20,000//₹ 1,20,000`
Interest Coverage Ratio =9.33 times.