To calculate interest coverage ratio; steps followed will be

Net Profit after tax Rs. 60,000; 12% Long-term debt 20,00,000; and Tax rate 40%.

(A) Calculate Net Profit before tax

(B) Divide Net Profit before Interest and Tax by Interest on long-term debt

(C) Calculate Net profit before interest and tax

(D) Calculate Interest on Long-term Debt

Choose the correct answer from the options given below:

Interest Coverage Ratio is calculated as: $\frac{\text{Net Profit before Interest and Tax (EBIT)}}{\text{Interest on long-term debt}}$

Given that we start with Net Profit after tax, let's understand the logical sequence:

Starting Point: Net Profit after tax = Rs. 60,000

(A) Calculate Net Profit before tax

Since Net Profit after tax = Net Profit before tax × (1 - Tax rate)

60,000 = Net Profit before tax × (1 - 0.40)

Net Profit before tax = 60,000 ÷ 0.60 = Rs. 1,00,000

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(D) Calculate Interest on Long-term Debt

Interest = 12% of Rs. 20,00,000 = Rs. 2,40,000

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(C) Calculate Net profit before interest and tax

The relationship is: Net Profit before tax = EBIT - Interest

Therefore: EBIT = Net Profit before tax + Interest

EBIT = 1,00,000 + 2,40,000 = Rs. 3,40,000

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(B) Divide Net Profit before Interest and Tax by Interest on long-term debt

Interest Coverage Ratio = $\frac{3,40,000}{2,40,000}$ = 1.42 times

The correct sequence is (A), (D), (C), (B) which matches Option 1.