A company has capital employed of ₹10,00,000, EBIT of ₹1,50,000 and debt of ₹4,00,000 carrying 10% interest. Ignore tax. Calculate ROI and interest coverage ratio, and assess whether the operating return exceeds the debt cost.

Answer – ROI = ₹1,50,000 ÷ ₹10,00,000 × 100 = 15%. Interest = ₹4,00,000 × 10% = ₹40,000. Interest coverage = ₹1,50,000 ÷ ₹40,000 = 3.75 times. ROI exceeds the 10% debt cost, so debt can favour equity returns under these assumptions; repayment and cash-flow risk still require assessment.