The following information is given for Rana Ltd. for a year:
| Profit after tax | Rs. 6 lakh |
| Depreciation | Rs. 2 lakh |
| Interest | Rs. 3 lakh |
| Other non-cash expenses | Rs. 1 lakh |
| Preference dividend | Rs. 1 lakh |
| Repayment obligation | Rs. 2 lakh |
Calculate the Debt Service Coverage Ratio (DSCR) of the company.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → 2 times
Given:
Profit after tax = Rs. 6 lakh; Depreciation = Rs. 2 lakh
Interest = Rs. 3 lakh; Other non-cash expenses = Rs. 1 lakh
Preference dividend = Rs. 1 lakh; Repayment obligation = Rs. 2 lakh
DSCR = (Profit after tax + Depreciation + Interest + Non-cash expenses) ÷ (Preference dividend + Interest + Repayment obligation)
Cash profits = 6 + 2 + 3 + 1 = Rs. 12 lakh
Debt service = 1 + 3 + 2 = Rs. 6 lakh
DSCR = 12 ÷ 6 = 2 times
Option (1) 1.5 times — Incorrect. Interest is left out of the cash profits: 9 ÷ 6 = 1.5.
Option (3) 3 times — Incorrect. The repayment obligation is left out of the debt service: 12 ÷ 4 = 3.
Option (4) 4 times — Incorrect. Only the interest is taken as debt service: 12 ÷ 3 = 4.
NCERT (2026-27 Edition):
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