Question

From the following information regarding Aditya Ltd. which is in the business of manufacturing green tea, calculate the Return on Investment and Interest Coverage Ratio of the company: (Show working)

Earning before interest and tax	₹ 15,00,000
10% debentures	₹ 12,00,000
Equity Share Capital (₹10 each)	₹ 18,00,000
Tax Rate	40%

Answer 1

Calculation of Return on Investment (ROI)

`ROI = "Earnings before interest and tax"/"Total investment" xx 100`

`ROI = 1500000/3000000 xx 100`

= 50%

Calculation of Interest Coverage Ratio (ICR)

`"Interest coverage ratio" = "Earnings before interest and tax"/"Interest"`

`ICR = 1500000/120000`

= 12.5 times