On the basis of following information, answer the questions:
| Particulars | Amount (₹) |
| Inventory | 1,00,000 |
| Total current assets | 1,60,000 |
| Shareholders funds | 4,00,000 |
| 13% debentures | 3,00,000 |
| Current liabilities | 1,00,000 |
| Net profit before tax | 3,51,000 |
| Cost of revenue from operations | 5,00,000 |
On basis of above case, the interest coverage ratio is:
Answer & explanation
Correct answer: option 4
The correct answer is option 4- 10 times.
Interest coverage ratio = Profit before interest and tax/ Interest charges
= 3,90,000/39,000
= 10 times
* Interest on debentures = 3,00,000 x 13/100
= ₹39,000
* Profit before interest and tax = Profit before tax + interest
= 3,51,000 + 39,000
= 3,90,000