From the following information, calculate Interest Coverage Ratio:

ParticularsAmount
( Rs.)
10,000 Equity Shares of Rs. 10 each1,00,000
8% Preference Shares70,000
10% Debentures50,000
Long-term Loans from Bank50,000
Interest on Long-term Loans from Bank5,000
Profit after Tax75,000
Tax9,000

SOLUTION

Interest on 10% debentures = 50,000 × 10 / 1000 = 5,000
Profit before Interest and Tax = Profit after Tax + Tax + Interest on Debentures + Interest on Long-term Loans from Bank
= 75,000 + 9,000 + 5,000 + 5,000
= 94,000

Total Interest Amount = Interest on Debentures + Interest on Long-term loans from Bank
= 5,000 + 5,000 = 10,000

Interest Coverage Ratio = Net Profit before Interest and Tax / Interest
= 94,000 / 10,000
= 9.4 times

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