68 :- From the following details, Calculate Interest Coverage Ratio :
Net Profit after Tax 7,00,000
6% Debentures 20,00,000
Tax Rate 30%
Solution :-
Let the profit before Tax be x
Net Profit after Tax = Net Profit before Tax – Tax
7,00,000 = x – 30x/100
7,00,000 = 70x/100
7,00,000 x 100/70 = x
10,00,000 = x
Net Profit before Tax is Rs 10,00,000.
Interest on Debentures = 6% of Debenture
= Rs 1,20,000
Profit before Interest and Tax = Profit before Tax + Interest
= 10,00,000 + 1,20,000
= Rs 11,20,000
Interest Coverage Ratio = Profit before Interest and Tax/Interest on Long – terms Loans
= 11,20,000/1,20,000
= 9.33 times