69 :- From the following information, calculate interest Coverage Ratio:
Net Profit after Interest and Tax Rs 1,20,000; Rate of Income Tax; 40%; 15% Debentures Rs 1,00,000; 12% Mortgage Loan Rs 1,00,000.
Solution :-
Let Profit before Tax be x
Profit after Tax = Profit before Tax – Tax
1,20,000 = x – 40x/100
1,20,000 = 60x/100
1,20,000 x 100/60 = x
2,00,000 = x
Therefore, Profit before Tax is Rs 2,00,000.
Interest = Interest on 15% Debentures + Interest on 12% Mortgage Loan
= 15/100 x 1,00,000 + 12/100 x 1,00,000
= 15,000 + 12,000
= Rs 27,000
Profit before Interest and Tax = Profit before Tax + Interest
= 2,00,000 + 27,000
= Rs 2,27,000
Interest Coverage Ratio = Profit before Interest and Tax/Interest on Long terms Loans
= 2,27,000/27,000
= 8.41 times