From the following details, calculate interest coverage ratio :
Net Profit after tax Rs. 60,000, `50%` Long Tax debt 10,00,000, and Tax rate `40%`

Explanation

Net profit after Tax = Rs. 60,000
Tax Rate = `40%`
Net Profit before tax = Net Profit after tax `xx` 100/(100-Tax rate)
= Rs. `60,000xx100//(100-40)`
= Rs. 1,00,000
Interest on Long-term Debt = `50%` of Rs. 10,00,000 = Rs. 1,50,000
Net profit before tax + Interest
= Rs. 1,00,000 + Rs. 1,50,000 = 2,50,000
Interest Converage Ratio = Net profit before Interest and
Tax/Interest on long-term debt
= Rs. 2,50,000/ Rs. 1,50,000
= 1.67 times.