EBIT-EPS Analysis

Leverages

Sales
 Operating Leverage

Contribution/ EBIT

Equity Share Capital

10000 10 100000 Authorised Share Capital

6000 10 60000 Issued Share Capital

5000 10 50000 Subscribed Share Capital

1000 10 10000

4500 10 45000 Paid Up Capital

250 5 1250
250 2 500
1000 10 10000
56750 Net Proceeds

Face Value - Book Value

Market Value - Sale Price/ Bid Price
No of Shares Issued
Net Proceeds

Application Money
Allotment Money
Call 1
Call 2
Call 3

ASBA

Application Supported by Blocked Amount

1) Cost of Equity Capital

1)
 Cost of Capital

Term Loans Interest

Debentures/ Bonds Interest/ Coupon
Reedemable Debentures
Irredeemable Debentures
Equity Shares Dividend
Preference Shares Dividend
Redeemable Preference Shares
Irredeemable Preference Shares
Reserves & Surplus Opportunity Cost

Sales
(-) Variable Cost
Gross Profit/ Contribution

(-) Fixed Costs Except Depreciation & Interest

EBITDA (Earnings Before Interest, Tax & Depreciation)

(-) Depreciation

EBIT (Earnings Before Interest & Tax)

(-) Interest

EBT (Earnings Before Tax)

(-) Tax

EAT (Earnings After Tax)

(-) Preference Dividend

Earnings Available to Equity Shareholders

No of Shares

Earnings Per Share

Interest
 Financial Leverage Combined Leverage (Operating Leverage x Financial Leverage)

EBIT/ EBT Contribution/ EBIT x EBIT/ EBT

Contribution/ EBT

Maximum Share Capital Allowed to be raised

Issued out of Authorised Share Capital

Subscribed out of Issued Capital

Proceeds received

Issued at a Premium Issued at a Discount Issued At Par

10 10 10
350 5 10
10000 10000 10000
3500000 50000 100000

10 10
2 5
3 5
2 0
2 0
1 0

Net Proceeds
1) Cost of Equity Capital

1) Dividend Yield Method Ke = D/ MP x 100

Ke = D/ NP x 100

2) Dividend Yield Plus Growth Method Ke = D/ MP x 100 + G

Ke = D/ NP x 100 + G

3) Earnings Yield Method Ke = EPS/ MP x 100

Ke = EPS/ NP x 100

4) Earnings Growth Method Ke = EPS/ MP x 100 + G

Ke = EPS/ NP x 100 + G
Ke = Cost of Equity Capital D = Dividend Per Share MP = Market Price Per Share
Ke = Cost of Equity Capital D = Dividend Per Share NP = Net Proceeds Per Share

Ke = Cost of Equity Capital D = Dividend Per Share MP = Market Price Per Share G = Growth Rate
Ke = Cost of Equity Capital D = Dividend Per Share NP = Net Proceeds Per Share G = Growth Rate

Ke = Cost of Equity Capital EPS = Earnings Per Share MP = Market Price Per Share
Ke = Cost of Equity Capital EPS = Earnings Per Share NP = Net Proceeds Per Share

Ke = Cost of Equity Capital EPS = Earnings Per Share MP = Market Price Per Share G = Growth Rate
Ke = Cost of Equity Capital EPS = Earnings Per Share NP = Net Proceeds Per Share G = Growth Rate
A company has sales of Rs. 2 Lacs. Variable Costs are 40% of
Sales and Fixed Costs are Rs. 40,000/-. Interest on Long Term
Loans is Rs. 10,000/-.
Calculate Operating Leverage, Financial Leverage & Combined
Leverage

Earnings Before Interest & Tax 80,000.00

Contribution 120,000.00
Earnings Before Tax 70,000.00

Sales 200,000.00
(-) Variable Costs (40% of Sales) 80,000.00

Contribution 120,000.00

Fixed Costs 40,000.00

Earnings Before Interest & Tax 80,000.00

(-) Interest 10,000.00

Earnings Before Tax 70,000.00

Operating Leverage = Contribution/ EBIT

OL = 120000/80000
OL = 1.5 times

Financial Leverage = EBIT/ EBT

FL = 80000/70000
FL = 1.14 times

Combined Leverage = Operating Leverage x Financial Leverage

CL = 1.5 x 1.14
CL = 1.71 times

Combined Leverage = Contribution/ EBT

CL = 120000/70000
CL = 1.71 times
Equity Capital (Rs. 10 each) 1,000,000.00
15% Debentures 800,000.00
Total 1,800,000.00

Requirement 1,500,000.00

1) Equity of 1500000
2) Term Loan of 1500000 @ 16% pa
3) Equity of 750000 & Term Loan of 750000 @ 16% pa
4) Equity of 800000, Term Loan of 400000 @ 16% pa &
Preference Shares of 300000 @ 14%

Income Tax Rate = 50% & EBIT = 800000

Plan 1
Particulars
Equity 1500000

Earnings Before Interest & Tax 800,000.00

(-) Interest 120,000.00

800000*15%

Earnings Before Tax 680,000.00

(-) Tax @ 50% 340,000.00

Earnings After Tax 340,000.00

(-) Preference Dividend -

Earnings Available for Equity Shareholders 340,000.00

No. of Shares 250,000

Earnings Per Share 1.36

 Plan 2 Plan 3 Plan 4
E 8, TL 4 @16%, PF
TL 1500000@16% E 7.5 TL 7.5 @ 16%
300000@14%

800,000.00 800,000.00 800,000.00

360,000.00 240,000.00 184,000.00

(800000*15%)+(1500000*16%) (800000*15%)+(750000*16%) (800000*15%)+(400000*16%)

440,000.00 560,000.00 616,000.00

220,000.00 280,000.00 308,000.00

220,000.00 280,000.00 308,000.00

- - 42,000.00
300000*14%

220,000.00 280,000.00 266,000.00

100,000 175,000 180,000

2.20 1.60 1.48