From the following information determine Interest Coverage Ratio. Pro…

The correct answer is Option (4) - 4 times.

Interest on long term debts = 50,00,000 x 10/100
                                         = ₹5,00,000

Profit after tax = ₹12,00,000
Tax rate = 20%
Profit before tax = 12,00,000 x 100/80
                        = ₹15,00,000

Profit before interest and tax = profit before tax + interest on debts
                                          = 15,00,000 + 5,00,000
                                          = ₹20,00,000

Interest Coverage Ratio = Net Profit before Interest and Tax / Interest on long-term debts
                                   = 20,00,000/5,00,000
                                   = 4 times