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 = 2000000 x 10/100
                                        = ₹200000

Profit after tax = ₹120000
Tax rate = 40%
Profit before tax = 120000 x 100/60
                         = ₹200000

Profit before interest and tax = profit before tax + interest on debts
                                          = 200000 + 200000
                                          = ₹400000

Interest Coverage Ratio = Net Profit before Interest and Tax / Interest on long-term debts
                                   = 400000/200000
                                   = 2 times