From the following details, calculate interest coverage ratio:

Net Profit after tax ₹1,80,000; 15% Long-term debt ₹20,00,000; and Tax rate 40%.

2 times

The correct answer is Option (2) → 2 times.

Net Profit after tax = ₹1,80,000
Tax rate = 40%
Net Profit after tax is 60%
Net profit before tax (100%) = 1,80,000/60 x 100
                                              = 3,00,000

15% Long-term debt = ₹20,00,000
Interest = 20,00,000 x 15/100
              = 3,00,000

Net Profit before Interest and Tax= Net profit before tax + Interest
                                                     = 3,00,000 + 3,00,000
                                                     = 6,00,000

Interest coverage ratio = Net Profit before Interest and Tax / Interest on long-term debt
                                       = 6,00,000/3,00,000
                                       = 2 times