Question

Interest Coverage Ratio can be calculated as ______?

विकल्प

• Net Profit before Interest and Tax/Interest on long term debt

• Interest on long term debt/Net Profit before Interest and Tax

• Shareholders' Funds/Capital employed (or net assets)

• None of these

Answer 1

Interest Coverage Ratio can be calculated as Net Profit before Interest and Tax/ Interest on long term debt.

Explanation:

It is a ratio that deals with the repayment of loan interest. It is a measure of interest payable on long-term debt security. It depicts the link between available profits for interest payment and the amount of interest due.

 It is calculated as follows:

Interest Coverage Ratio = Net Profit before Interest and Tax/Interest on long term debt.

Significance: It shows how many times the interest on long-term debt is covered by interest-paying profits. A greater ratio implies the availability of surplus for shareholders while also ensuring the safety of interest payment debt.