NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Financial Analysis
A company reports profit before tax of Rs 120 crore, interest expense of Rs 30 crore and depreciation of Rs 50 crore. What is its interest coverage ratio based on EBIT?
The interest coverage ratio is 5.0. EBIT is profit before tax of Rs 120 crore plus interest of Rs 30 crore, giving Rs 150 crore. Dividing this by interest of Rs 30 crore gives 5 times. Depreciation is already deducted in PBT.
- A5.0Correct
- B4.0
- C2.4
- D6.67
Explanation
EBIT = PBT + interest = 120 + 30 = 150. Coverage = 150/30 = 5.0. Using PBT alone gives 4.0. Using EBIT less depreciation, 100, would give 3.33; adding depreciation as well (EBITDA 200) gives 6.67, which is not EBIT-based.
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