From the following details calculate interest coverage ratio.

Net profit after tax ₹1,20,000

10% long term Debt ₹20,00,000

And tax rate is 40%

2 times

The correct answer is Option (3) - 2 times.

Interest on long term debts = 20,00,000 x 10/100
                                            = ₹2,00,000

Profit after tax = ₹1,20,000
Tax rate = 40%
Profit before tax = 1,20,000 x 100/60
                          = ₹2,00,000

Profit before interest and tax = profit before tax + interest on debts
                                              = 2,00,000 + 2,00,000
                                              = ₹4,00,000

Interest Coverage Ratio = Net Profit before Interest and Tax / Interest on long-term debts
                                       = 4,00,000/2,00,000
                                       = 2 times