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Home Questions KCWEDBYRVC
Target Exam

CUET

Subject

Business Studies

Chapter

Financial Management

Question:

Match List I with List II.

List I

Formula

List II

Ratio
A. $\frac{\text{Earning before Interest and Tax}}{\text{Interest}}$ I. Earning per Share
B. $\frac{\text{Profit after tax and interest}}{\text{Number of Equity Shares}}$ II. Return on Investment Ratio
C. $\frac{\text{Profit after tax+Depreciation+Interest-Non cash Expenses}}{\text{Preference Dividend + Interest + Repayment obligation}}$ III. Interest Coverage Ratio
D. $\frac{\text{Net Profit Before Interest and Tax}}{\text{Capital Employed}}$ IV. Debt Services Coverage Ratio

Choose the correct answer from the options given below :

Options:

A-I, B-II, C-III, D-IV

A-III, B-II, C-IV, D-I

A-III, B-I, C-IV, D-II

A-IV, B-III, C-II, D-I

Correct Answer:

A-III, B-I, C-IV, D-II

Explanation:

The correct answer is option (3)- A-III, B-I, C-IV, D-II.

List I

Formula

List II

Ratio
A. $\frac{\text{Earning before Interest and Tax}}{\text{Interest}}$ III. Interest Coverage Ratio
B. $\frac{\text{Profit after tax and interest}}{\text{Number of Equity Shares}}$ I. Earning per Share
C. $\frac{\text{Profit after tax+Depreciation+Interest-Non cash Expenses}}{\text{Preference Dividend + Interest + Repayment obligation}}$ IV. Debt Services Coverage Ratio
D. $\frac{\text{Net Profit Before Interest and Tax}}{\text{Capital Employed}}$ II. Return on Investment Ratio

 

Interest Coverage Ratio (ICR): The interest coverage ratio refers to the number of times earnings before interest and taxes of a company covers the interest obligation. This may be calculated as follows:
EBIT/ Interest. The higher the ratio, lower shall be the risk of company failing to meet its interest payment obligations. However, this ratio is not an adequate measure. A firm may have a high EBIT but low cash balance. Apart from interest, repayment obligations are also relevant.

Earnings Per Share (EPS) is a key financial metric that shows the portion of a company's profit allocated to each outstanding share of common stock. It is commonly used by investors to measure a company's profitability on a per-share basis.

Debt Service Coverage Ratio (DSCR): Debt Service Coverage Ratio takes care of the deficiencies referred to in the Interest Coverage Ratio (ICR). The cash profits generated by the operations are compared with the total cash required for the service of the debt and the preference share capital.

Return on Investment Ratio-  The correct formula for the computation of Return on Investment (ROI) is
EBIT (Earnings Before Interest and Taxes)/ Total Investments, and the result is multiplied by 100 to express ROI as a percentage.
EBIT is used because it represents the earnings generated by an investment before accounting for interest and taxes. This formula is commonly used to assess the profitability of investments and to compare the returns from different investment opportunities.

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