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EBIT ₹6,00,000 and Interest ₹1,50,000. The Interest Coverage Ratio is:
A2 times
B3 times
C5 times
D4 times
Answer & Solution
Correct answer: D. 4 times
1. Interest Coverage = EBIT / Interest = 6,00,000 / 1,50,000.
2. Result = 4 times.
3. Comfortable margin for the firm to service its interest obligations.
_Source: ICAI BoS CA Inter Paper 6A, Ch 3 "Financial Analysis and Planning — Ratio Analysis", §3.2.2(b)_