Example 1

Suppose a person approached Bank for a Loan.He asks bank for a loan of 5000000 @ 12% p.a.

He says that from this loan, he will take start a business where he will earn every year Rs 400000

Will bank give him loan?

View Answer


What are Coverage Ratios

Ratios which are used to calculate whether compay has the profitability to repay loan is repayable is called coverage ratos

It measures how many timed of repayment the business is to be repaid


Profit After Tax+Dep+Interest/Total Amount Repaid


Ideal Ratio

If this ratio is less than 1,no bank will give loan

This ratio should be ideally atleat 1.5

Higher the ratio,the better

  1. Accounts and Finance
  2. Step 7 Ratio Analysis


Accounts and Finance
Step 7 Ratio Analysis

About the Author

CA Maninder Singh's photo - Expert in Practical Accounts, Taxation and Efiling
CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 10 years. He also provides Accounts Tax GST Training in Delhi and Pune.