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2. From the following information find out the Interest Coverage Ratio: Net Profit After Intt. And Tax Rs.2,80,000 15% Debentures (FV @ 100 each) Rs.8,00,000 10% Public Deposits Rs.3,00,000 Tax Rate @ 30%?
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2. From the following information find out the Interest Coverage Ratio...
Interest Coverage Ratio Calculation:

To calculate the Interest Coverage Ratio, we need to determine the Earnings Before Interest and Taxes (EBIT) and the Interest Expense.

Step 1: Calculate EBIT (Earnings Before Interest and Taxes)

EBIT can be calculated using the formula:
EBIT = Net Profit After Interest and Tax + Interest Expense + Tax

Given:
Net Profit After Interest and Tax = Rs. 2,80,000
Tax Rate = 30%

First, we need to calculate the tax amount:
Tax = Net Profit After Interest and Tax * Tax Rate
= Rs. 2,80,000 * 30%
= Rs. 84,000

Now, we can calculate EBIT:
EBIT = Net Profit After Interest and Tax + Interest Expense + Tax
= Rs. 2,80,000 + Interest Expense + Rs. 84,000

Step 2: Calculate Interest Expense

To calculate the Interest Expense, we need to consider the interest paid on both the debentures and public deposits.

Given:
15% Debentures (FV @ 100 each) = Rs. 8,00,000
10% Public Deposits = Rs. 3,00,000

Interest Expense = Interest on Debentures + Interest on Public Deposits

Interest on Debentures = Debentures * Interest Rate
= Rs. 8,00,000 * 15%
= Rs. 1,20,000

Interest on Public Deposits = Public Deposits * Interest Rate
= Rs. 3,00,000 * 10%
= Rs. 30,000

Interest Expense = Interest on Debentures + Interest on Public Deposits
= Rs. 1,20,000 + Rs. 30,000
= Rs. 1,50,000

Step 3: Calculate Interest Coverage Ratio

Interest Coverage Ratio is calculated by dividing the EBIT by the Interest Expense.

Interest Coverage Ratio = EBIT / Interest Expense
= (Net Profit After Interest and Tax + Interest Expense + Tax) / Interest Expense
= (Rs. 2,80,000 + Rs. 1,50,000 + Rs. 84,000) / Rs. 1,50,000

Interest Coverage Ratio = Rs. 5,14,000 / Rs. 1,50,000
= 3.4267

Conclusion:

The Interest Coverage Ratio is 3.4267. This ratio indicates the company's ability to meet its interest obligations. A higher ratio suggests that the company has sufficient earnings to cover its interest payments, while a lower ratio indicates a higher risk of defaulting on interest payments.
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2. From the following information find out the Interest Coverage Ratio: Net Profit After Intt. And Tax Rs.2,80,000 15% Debentures (FV @ 100 each) Rs.8,00,000 10% Public Deposits Rs.3,00,000 Tax Rate @ 30%?
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2. From the following information find out the Interest Coverage Ratio: Net Profit After Intt. And Tax Rs.2,80,000 15% Debentures (FV @ 100 each) Rs.8,00,000 10% Public Deposits Rs.3,00,000 Tax Rate @ 30%? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about 2. From the following information find out the Interest Coverage Ratio: Net Profit After Intt. And Tax Rs.2,80,000 15% Debentures (FV @ 100 each) Rs.8,00,000 10% Public Deposits Rs.3,00,000 Tax Rate @ 30%? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for 2. From the following information find out the Interest Coverage Ratio: Net Profit After Intt. And Tax Rs.2,80,000 15% Debentures (FV @ 100 each) Rs.8,00,000 10% Public Deposits Rs.3,00,000 Tax Rate @ 30%?.
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