CA Final · Financial Reporting · Analysis of Financial Statements
Meera Pharma Ltd has EBIT of Rs 8,00,000, interest expense of Rs 2,00,000 and a tax rate of 25%. Its preference dividend is Rs 0. What is its interest coverage ratio and net profit after tax?
Interest coverage is 4 times because EBIT of Rs 8,00,000 is divided by interest of Rs 2,00,000. Profit before tax is Rs 6,00,000, tax at 25% is Rs 1,50,000, so profit after tax is Rs 4,50,000. Rs 6,00,000 ignores tax.
- A4 times; Rs 4,50,000Correct
- B4 times; Rs 6,00,000
- C3 times; Rs 4,50,000
- D3 times; Rs 6,00,000
Explanation
Interest coverage = EBIT/interest = 8,00,000/2,00,000 = 4 times. PBT = 8,00,000 - 2,00,000 = 6,00,000; tax at 25% = 1,50,000; PAT = 4,50,000. Rs 6,00,000 is PBT, ignoring tax.
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