CA Intermediate · Financial Management and Strategic Management · Financial Analysis and Planning - Ratio Analysis
Mehta Ltd has EBIT of ₹12,00,000, interest of ₹3,00,000 and a tax rate of 25%. What is its interest coverage ratio, and what is the profit after tax?
The interest coverage ratio is 4 times and profit after tax is ₹6,75,000. Coverage is EBIT of ₹12,00,000 divided by interest of ₹3,00,000. EBT is ₹9,00,000, and after deducting 25% tax of ₹2,25,000, the profit after tax is ₹6,75,000.
- A4 times; ₹6,75,000Correct
- B4 times; ₹9,00,000
- C3 times; ₹6,75,000
- D5 times; ₹9,00,000
Explanation
Interest coverage = EBIT / interest = 12,00,000 / 3,00,000 = 4 times. EBT = 9,00,000; tax at 25% = 2,25,000; PAT = ₹6,75,000. ₹9,00,000 is EBT, ignoring tax.
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