Trendy Ltd's net profit after tax was $1,200 and its interest expense was $400. Assuming corporate tax is $400, what is the company's interest cover ratio?
A) 5.0
B) 3.0
C) 1.2
D) 1.8

Question

Quizplus · Accepted Answer

The interest cover ratio is calculated as Earnings Before Interest and Taxes (EBIT) divided by interest expense. To find EBIT, add net profit after tax ($1,200) and tax ($400) to get $1,600, then add interest expense ($400) to get $2,000. Divide $2,000 by the interest expense ($400) to get an interest cover ratio of 5.0.

Trendy Ltd's Net Profit After Tax Was $1,200 and Its