From the following details, calculate interest coverage ratio: Net Profit after tax Rs. 1,20,000; 15% Long-term debt 20,00,000; and Tax rate 40%.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → 1.67 times
Interest coverage ratio = net profit before interest and tax ÷ interest on long-term debt. The profit given is after tax, so work back to the profit before tax first.
Profit before tax = Rs. 1,20,000 × 100/(100 − 40) = Rs. 2,00,000
Interest = 15% of Rs. 20,00,000 = Rs. 3,00,000
Net profit before interest and tax = Rs. 2,00,000 + Rs. 3,00,000 = Rs. 5,00,000
Interest coverage ratio = Rs. 5,00,000 ÷ Rs. 3,00,000 = 1.67 times
Note: NTA picked this question from an NCERT (2026-27) illustration and changed the figures. Do not ignore NCERT while practising numericals.
NCERT (2026-27 edition):
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