NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Financial Analysis
A firm has EBIT of Rs 60 crore, interest expense of Rs 15 crore and depreciation of Rs 20 crore. What is its interest coverage ratio based on EBIT?
The EBIT-based interest coverage ratio is 4 times, found by dividing EBIT of Rs 60 crore by interest of Rs 15 crore. Depreciation is already deducted in arriving at EBIT, so it should not be added back for this version of the ratio.
- A4 timesCorrect
- B5.33 times
- C3 times
- D1.33 times
Explanation
Interest coverage = EBIT / interest = 60/15 = 4 times. Adding depreciation gives EBITDA of 80 and 80/15 = 5.33, which is the EBITDA-based ratio, not asked here. 3 times wrongly subtracts depreciation from EBIT.
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