To calculate interest coverage ratio; steps followed will be
Net Profit after tax Rs. 60,000; 12% Long-term debt 20,00,000; and Tax rate 40%.
(A) Calculate Net Profit before tax
(B) Divide Net Profit before Interest and Tax by Interest on long-term debt
(C) Calculate Net profit before interest and tax
(D) Calculate Interest on Long-term Debt
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A), (D), (C), (B)
Interest coverage ratio = Net profit before interest and tax ÷ Interest on long-term debt. The steps, in order:
(A) Calculate Net Profit before tax
₹60,000 × 100/(100 − 40) = ₹1,00,000
(D) Calculate Interest on Long-term Debt
12% of ₹20,00,000 = ₹2,40,000
(C) Calculate Net profit before interest and tax
₹1,00,000 + ₹2,40,000 = ₹3,40,000
(B) Divide Net Profit before Interest and Tax by Interest on long-term debt
₹3,40,000 ÷ ₹2,40,000 = 1.42 times
NCERT (2026-27 edition):
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