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NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Financial Analysis

Sahyadri Auto has EBIT of Rs 120 crore, interest expense of Rs 30 crore, and a tax rate of 25%. Its depreciation is Rs 40 crore. Preference dividend is nil. What are its interest coverage ratio and its profit after tax respectively?

Interest coverage is 4 times and profit after tax is Rs 67.5 crore. EBIT of Rs 120 crore divided by interest of Rs 30 crore gives 4; PBT of Rs 90 crore less 25% tax of Rs 22.5 crore gives Rs 67.5 crore.

  1. A4 times and Rs 67.5 croreCorrect
  2. B4 times and Rs 90 crore
  3. C5.33 times and Rs 67.5 crore
  4. D3 times and Rs 67.5 crore

Explanation

Interest coverage = EBIT/interest = 120/30 = 4 times. PBT = 120-30 = 90; tax at 25% = 22.5; PAT = 67.5. Rs 90 crore is PBT, ignoring tax. Adding depreciation to EBIT (160/30) gives 5.33, which is wrong because EBIT is already after depreciation.

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