NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Financial Analysis
A firm has EBIT of Rs 60 crore, interest expense of Rs 12 crore and a tax rate of 25%. What is its interest coverage ratio and its profit after tax?
Interest coverage is 60 divided by 12, which equals 5 times. Profit before tax is Rs 48 crore and tax at 25% is Rs 12 crore, so profit after tax is Rs 36 crore. Rs 48 crore is PBT, not PAT.
- ACoverage 5 times; PAT Rs 36 croreCorrect
- BCoverage 5 times; PAT Rs 48 crore
- CCoverage 4 times; PAT Rs 36 crore
- DCoverage 6 times; PAT Rs 45 crore
Explanation
Interest coverage = EBIT/interest = 60/12 = 5 times. PBT = 60 - 12 = 48; tax at 25% = 12; PAT = 36. Rs 48 crore is PBT, not PAT, which is the key distractor.
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