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Question
Calculate Interest Coverage Ratio of Criss Cross Ltd. (up-to two decimal places) from the following information:
| Particulars | (₹) |
| Net Profit after Interest and Tax | ₹ 80,000 |
| Tax Rate | 50% |
| 12% Debentures | ₹ 3,00,000 |
| 9% Bank Loan | ₹ 1,00,000 |
Solution
Given: Net Profit after Interest and Tax = ₹ 80,000
Tax Rate = 50%
12% Debentures = ₹ 3,00,000
9% Bank Loan = ₹ 1,00,000
Interest on Debentures = 12% of ₹ 3,00,000
∴ Interest on Debentures = 0.12 × 3,00,000 = ₹ 36,000
Interest on Bank Loan = 9% of ₹ 1,00,000
∴ Interest on Bank Loan = 0.09 × 1,00,000 = ₹ 9,000
∴ Total Interest Expense = ₹ 36,000 + ₹ 9,000 = ₹ 45,000
Earnings Before Tax = `(80,000)/0.50` = ₹ 1,60,000
Earnings Before Interest and Tax = Earnings Before Tax + Interest Expense
= ₹ 1,60,000 + ₹ 45,000
= ₹ 2,05,000
As we know the formula,
Interest Coverage Ratio = `"Net Profit before interest and taxes"/"Fixed Interest Charges"`
= `(2,05,000)/(45,000)`
= 4.56 times
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According to the ratings agency Chrisil, healthy demand for grocery items and expansion into tier II and III cities will help organized brick-and-mortar food and grocery (F&G) retailers log a revenue of 14-15% in FY25. The agency further said the debt raising will be capped to ensure healthy key debt protection metrics.
From the following ratios:
- Choose the formula of the ratio to be used by the F&G retailers as a debt protection metrics
- Mention the name of the ratio so chosen
