A company has earnings before interest and tax of Rs. 600,000 and annual interest expense of Rs. 150,000. What is its interest coverage ratio?
Correct answer: C. 4 times
- A. 2 times
- B. 3 times
- C. 4 times
- D. 5 times
Explanation
Interest coverage equals earnings before interest and tax divided by interest expense. The calculation is Rs. 600,000 divided by Rs. 150,000, giving 4 times.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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