Check sibling questions
Accounts and Finance
Step 7 Ratio Analysis

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

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Davneet Singh is a graduate from Indian Institute of Technology, Kanpur. He has been teaching from the past 12 years. He provides courses for Maths and Science at Teachoo.