Net Profit B.T. + interest paid (paid less capitalised) X 100
(FA + CA – CL) + Bank Overdraft + S.T. Bond Payments + Others S.T. Loans
Profit before interest payments as a percentage of the investment in the business (capital employed plus short term borrowing).
The ration shows the combined profit made on the capital tied up in the company by both assets owned by the company and those funded via bank overdraft and other short term borrowing.
In effect it is simply a modified return on capital employed model. See return on capital employed, also relate this to gearing.