Professional Documents
Culture Documents
FM Revision Notes 2323
FM Revision Notes 2323
Leverages.
① Ince statement
sales
-
VC
contribution
FC
Coperating) ->
operating EC
-
EBIT
Interest-on
97ntrge
en
-
--
EBT
-
Tax
EAT
ref Dir
-
availabletoes shareint
Estancing
-
Measure
-- afleisk
④ -
Leverges
her
financial bene
wage
Leverage
pating
combined
DCL DOLYDFL
=
in
contribution
DFL=
DCL= -
EBIT--utpic
I t
-
(1-t
if Prefsiv missing
is
DOL-
BIT DELE
DFL=
DCL-EPS
.win sales
so in contribution %Win EBIT ↳Contributio
or %in sales
sales
AssetTurnover Ratio--
0
3
a Assets
5-
I
t
eat CA
3 =-
Sales
10L
CL
30L
- -
TotalLiabilities TotalAsset
loL - -
-
-
-
<
④ Pluratio- duties, as
sales
rationplusatio
⑤ Breakevens Point
BER Financial BEP Combined BEP
operating
That Level asales at
->
That
Level of 1 That
Level ofsales at
atwhich EPS 0 which EPS 0
which EBITO
=
= =
Combined BEP
operating BEP Financial
BEP= Inttepin
linnits)
-> FCT Inter
->
( E)
=
It
⑫ Gont u
#xSP CinES
Centu =>
FCTEnt+Relpiv
aut),
s
moratio (int)
t)
->
plucatio
⑥
cran-
aniesten
bee
(ROI
favorablewage, Intrate
> RoI
unfavorable severages Intrate
Dewerage magiggengty
S
IM lesting ->
OBT
n ene
nme
⑧
mm
of RoE ⑰0
company Business
Equity->s00
Bripic
&%
prefsnares
Debt
aut
->
->
Soc
low e
ROE
(Roz)(1-t) E(02)(1-t) pD] [RO1-Int(1-t)
-
+
=
+
sam24-0-19t [20%-Bit
-
sie
2x
->
E
ROEf -
⑪ ↳Analysis
① Ratio are should be linked
they
-
Denominatal
ous sales
As pectors
-
1095 =-120
Sales XXX
>380
-cons I
GP D
- profit
operating
Non
operating exp
-
are least
ene
sprations
a
gator t -
operating
stratio ep/Adeed)
-
alo
sales
Coverage
-
Ratios
①
EBIT
Interest coverage ratio:
terest
#
② EAT
Prefpiv crelage ratio: ReefDix
③ Div EAES
Equity Evelage ratio-
Div
Equity
EBIT
⑯ Find
charge bilage ratio- --
Interest - Prepir
egehagit -
-
5
Payable ->
reciation
Ar t lash
Nanapraxi/N
+
Instalme
Interest
Turnwer Ratios
--
(time)
① StockTunnel Ratio: COGS Corsales)
Average Stock
⑦ Debtors Tunervation-creditsales
Average/peptoly+BIR) AU Al Receivable
credit Purchases
③ creditors TrnwerRatio--
Average (creditor B10)
+
Ar AK Payable
⑤ FA Tunnel Ratio= -
sales -
Average FA
⑥ Capital sales
Tunnel Ratio-- -
Average capitalemployed
structure
Ratios
ige
Eerier
Pref
Debt
Shares PSC
Dett
EquityRatio
ity(ESMETPSC) =
① -
as
②
funds-Eamiy-
Debt to total = 0.33
funds-
Equity to
equy
③ Total = 0.67
Debt
->
find finance
④ Capital Gearingratio- +Prefse a
ESHF -> wor fixedcost
sources of finance
- Hans
use
equptiRE=>
Equity -> ESH7+PSC
Equity
=
ES17*Y
Licenidity Ratio
① Ratio-
Current Asset
current singility
② QuickRatio -
Asset -> CA-Stock -
Prepaidexp
testRation currentLiabilities
(Alid Liability
Current
Ciauidityration
③ Absolute castratio-Absolute land
asset
CL
④ Basic
Deffenceinterval measure-sets = 136000
⑳
cash
exp per day
days
int
grabso
the
-
dayadayo
E
⑳
sagne
- Absoluteliquid Asset
Marketablesecurities
re -> QuickAsset
Stock
- CA
prepaid exp
A AA
A 22
CL
canal
day, June
·
Return on Investment Return an
Enginee
Return on capital employed
CROCE)
i
egrets
= -
ESHETPSC+Debt ESHF+PSC
⑪
-
I -
-
Debt
CapitalEmplyed-Equity +
-
ESNF+PSC
Debt
ESHI +PSC+
=
o
FA + CA-CL
=
Ete
RoE
e RONO
EBIT(1-t)
espect as
--
or Int
Miscellaneous Ratio
available to Equityshares
⑦ EPS=
Earning
No of equity shares
⑧
Dividendrate Dividedout ratio Dividendyield
Dividend
-- 3/00 Dividend
- I 100 Dividend
--- 100
Falvalue Price
Market
Earning
⑭ easy a
-
Bookvalue -
Market value Fale value
↑ D X
④ MVTOBV=
⑭Analysis
onRaton Raton
①
NetProfit MangixAssetsuevery multiplier
Equity
a
-
Equity
- Profit x
Net -
- Profit
Net
sales Assets Shareholders Equity shareholdersEquity
cast
-
sales
Capitalemployed employed
-
sales VS F
FA sales
TEN
GURU I EpugI
Times Times
Fre
STR =
COGS
-
DTR qreditsales
-
- -
CTR=Credit Purchases
AUStock AuA(Receivables Au Alpayable
So 65452/12
3
Stok - -
365752/12 Debtor - meditar--
CTR
velocity &TR
Velocity velocity
atio-te
⑭Chapter of
Capital
Ke
Equity -
3
Retained we c weighted
Earning
- >
itgene
KP
⑩ ofcapital)
Fa
Coverall cost
shares
Pref
-
pett
tens
[Debentures/arg
⑰ (Dekentwey/Longteam leans)
ebt
Approximationmethod
①
It)
Freemable Debt->Id=
⑰
⑪-> Netproceeds
FVtRe-Expenses dise
2100
Seeing"
5
+ -
2) =
(ane
Seeing t
x
t).
=
I
⑱eng
⑰m 9000D
--
A
NP ⑪
et g
lofnt [7 &
&I
HiI
AP 100
=
RV 120
=
54 percent
=
->
R
IC17)
② YTM (Yield to Maturity
Method) 109-50%) =
taprate 50y, Ent 10%, timeleyeu
=
=
=
ps-5555e
NP E96
=
RV 1/2
=
Statemental NPV
Amount
Been tolerateupre
Particulars year At 5%
rese
r
PV PV
NetProfe 0 -
96 -
96
Interest
a
*-
5%
FaRY,
10.699 26.202
=
yim Lowerate dowel rateaprx
=
+
rates
Rigfg Nov
5% +
=
10.699x(x)
10.699*26,202
5% 10.699*
+
6.901
3
- ⑰6045%
③ Id for zero
campon Band/peep Discount Band
I
NPE 3750
=
-1,50,00
PV Fr
compoundinterestformulae
Rt =
PV (Hr= Fo
3750(1 2)25
+
=
150,00
1x
s
=
kd=
Essenting aserie
$
⑰ble
Debentures
O 5years
ND EICO
=
tims
X->
DebentureRedemption & into
Convent
F EICO
=
5 Equity shares
EPS=Ees
total o 5x28
Total:
-
Higher
Ru
in
I
snale:Er Appreciate. 2.
↓
end share Price
20(1+2,5 E29.08 =
⑭
YTM
↑
7 Ft
#**
⑪af
Drfshe
NP
=
=
ene
⑰ rredemable -> KP= #
NP
⑱ Redemable
KP=
->
or
kp -> Sameas Id
&
F(-t) us
Pacif
EPS
Equity g
① Dividendprice model
made
②
At Earning
the
I +
ke
b g
= +
git
I
⑪
-irnoturate
business
earning
-> g
amoturate share
=
-
D1 D0 (1+g)
=
I Price
Growthrate
of Dividend
Do-Presentsividend did(Pasttense)
Di bead
=
Divided(future Ten)=dD.
it
- 3
I
Do D3
e.
- 1
nats
Retentim-la
nindtree ↓
+
RE
s
⑳es*
-
e Gust
I
① Type E45 (x)
② Press 12 times ⑧ is Times
③ -
1 =
④ =u [16 3
= =
Risk Premium
-
Bx(ERM -Rg)
Ke =
Ry #
Bx :- s
+
Note:
itand
-
Campividend price
-
Dividend
clend
price - Now use it
in question
⑤5
CAPM (Capital Asset model)
Pricing
-
ke=
Rg +B (ERm-RI)
·free
Rate
/Itsecurity
"Pipangy--traf Risk premium
⑥ed
approach
ke=
(S,-MPSO
-Morlu) I
x5=
MPSo MDs, =
No
⑩
stained
tanning
Company
7
Esca e Livestment
Div
Real
Tax -Roz 20
↳ Retained
grest
Ea Earning
Cet=2%
Flotation
Method
-
wrk(1-4)(1
B)
Beverage
-
Personal
Tax
Method If we have
to calculate
capital rate
-
FreshEquity sharerate.
Retained Earning We
issued Retained
Earning
Equity
share
I
Fresh
Re 1
=
+ 9 pee= D +
g
--
NP PO (MPS)
I
Po-Flatalie
weighted Average of
cost
Bere 3 ↳tedavelage
->
x-②
⑪ By using
By using BookMarket
value
value cosignts weights
⑰ Estimation
of WAC By Bookvalue weights)
souce Bookvane weight Rate E
ESC 100 199300 Ke -
RE 50 5%/300 Kee -
PSC 50 5%300 Ap -
Delt 100 100/300 Kol -
S
-
WA
- -
⑬Estimation
of WA
(By Market value
wrightsWACC
source ar weights Rate
Esca ⑩ 400Total Ke -
↳ Kre
RE VasueRatio2 hopotal -
PSC
4MP- Opotal k -
⑧
Bett
xmp= Todtal Ka -
⑳
--
-
Total
- --
waggedorginal cost
of Capital
->
E
Additional
↳
combined
->
E=50L
⑳
Debt 50L
=
WACC
nee
k
ture
&
Capital
-1x
structure
is O
structure
Tracie
Decision
·
making · N1
Traditional
Incliff point
· ·
· Md lalith Tax)
emere
⑰
T o Decide
Capital structure
⑰ ⑪ ⑭
Particulars Equity lock Equith=Icocr
Favity Croce Debt loc PS2 -> 10c
Capital structure -
Equity oldthew - -
~
Debt Gld +wew] W ~
500+200) ⑳Te
⑦ropzo; In0
Nor 10-
New Total EBIT(WWD) -
crotal
T
capital)
x 2y
-
Interest
old (-3 (-> -3
New X Ex -
EBI
Tax [S If -
30%
-
EAT - - -
Prefividend
old [S [] ->
New X X EC
EAES - v -
=NoofEquityshares
- I
I
EPS A S *
MPS - - -
Select
Highest EPsAntiquestMPS
x e got
)
-
⑳o
coculate
and use this to
O
Calculate NewRo]
-
scoc
ratio of a
zo
optionEquity
opticality,
EPS=
P82100
MPS
x, 22
step now
cross
multiply and salve a
get
EBIT:
Indifference Level EBIT H
=
IOL
-
⑪
ya
⑧ ⑪
Eps
- Indifferentre
3 - -
->
-
-
Indifferente
⑳ ⑳ !L >X
EBIT
Indiffere
·anal =BIT
Hi
Table
Situation
fir
-
⑦
NI(Net Income
Approach)
a
-ke
-d
>Leverage
Kel Constant
He constant
KaL Ke
when
severage increase ⑩falls
<Debt Content increases
UI wish
⑪proach (Net
Operating Income Arach)
-Ke
Ko
ko remains
remains
constant
constant
UI
-
Ka
↳Leerage
⑪ Traditional Apparach ↳o initially falls, then
Ke Ko rises
-
a
~
-Ko Verises initially, then
I starts falling
↳Leverage
⑭mmAppoon (without Tax) -> same as Not Appeach
-r
- Ko
Ko Gustaut
UI constant
-
Id
⑪ MM
Approach (with Tax
Tax rate
Debt x
varwaftword:
+
value
of
unlevered
firm
Earningsof
severed fire =
Earningof
unlevered fire (at Taxat
rmules
VE
ES >VE -T =
=
Ko
=
E V2
EBIT
-
Int
-
EES
Capital Budgeting
I
went
Decisions
-
⑰ NonDiscounted methods ⑪Modern methods
<Traditional) Discounted)
-
Basics
profit
ene
①
Accounting
↳open
raiyarapetax
De
fre
Tax MBTXD
-
PBT PBT
-
TaX E
- PAT PAT
Deft + Taxsawing on sep
↓ ↓ appreciation
x Taxratet
in
only
used
I It's
used
everywhere
Celse exceptAR
Lower is Better
-> -
a
period -
Stepscompute tent
amount At
CIAT Cumulative(FAT
Stepyear
1 100 100
200 300
④
·
70 1000
300 130
5 500
Initial Investment =
1/00 paise abhaue
Kite
-> chaiye
--
Initial
PBP completedyears -
C
=
Investment -Cummulative
CFAT uptic
- - completed
ear x 12
⑰Taf year
next
3
= + 100 x 12
300
3+
=
x12
-years 3
years 4 Monty
->Better
Methodacted
PBP
Annual
O Initial Investment & CFAT
Step
1 A
o=0.90g a a
in,2
= 0.86
2 B 6 a +
6
⑪ C is a be *
-
Y D
= a b c
+ + d
+
I 0.621
5 E 1+10,5
=
e
CumulativeDisanted
(investment-date (
Initial CFAT Til
Discounted completed
PBP
-
years
- x 12
Discounted (As jog
nextgeal
PCI=A
PVCI+=Fv
is constantal/orfactor
ov:
sugar
Rate 10
=
Try
-
Initial Investment [1,00,000
=
/
year
I 40,000 0.90936360 36360
-years
3 M
od ARR= Rated Return t
AccountingRate Reten
Average of
InitialInvestment Terminal value
- *
es oben obes
Her
Step ②
Average Profit
ARR= --
InitialInvestment
de
ARR =
AverageProfit
-
AverageInvestment-
(Initial Inves Tuminal
test
C C
ARR ARRI
=+ ARRz +ARRs +ARRu +ARRI-
5
Rule- better
Decision HigherARRis
⑭
->
NetPresentvalue
statement for CPU
yr Art PV
Particulars
Mu
InitialInvestment 0 I 602 60,0,000
90L
Purchasey Mecomachine
old Machine Sh
salad
-
->
Sot svantsubsidy -
--
122
1 10L 10,00,000
workingcapital 0
present
value
of Cash outflow PUCOA
Engbus
Annual CFAT I 0.909 C -
⑨
0.826 O -
0.757 C -
0.683 d -
0:621 e -
I
ScrapsaleMachine 0.621 Scraprate -
NOV
⑬ -
AAPUC1-PVCO
Decision NPUI o AcceptRest
->
NOW CO RejectRegit
seditional
u con
I
↑
we original
wa Additional
Swap value
-
PVC1-PUGO,
NOV
!
=co PVCI=
-PVCO--GSt
Rere
Profit
-
&
X
NPV PUCI-PUCO
=
PVCo
NPV 10 Accept
PIII Accept
Index/Resirability Index=PI
⑭ Profitability
PI
Prt ==
=
=
⑰dex=
co-Goo=
=
e
RR
=>
conflict
I
ProjectA Project
NOV= 10,000
14%
o- Desin setthe
IRR= 11% ligner NOV
* Reason Because IRR has
-
ofcashlaws.
Difference in timing manylimitations.
->
Reinvestmentassumpsif
⑱esternal
Rateof Return
5%
At At 10
Pu
Oufactor pe
Bufactur
i
-- -
waterpr- Higher Rateopv
-
t
⑰
-
zijfgNor
5% x
x
+
-
=
7.5;
↳
means
It is project me exactly 7.5;
Kari hai
earning 7.5% Ratelepar MPU compute
isliye
agarhum
Karageteh vo s'ayega,
note
-
outflow
only
was
ques geta
·avalanceagent
Particulars pu
I
t
--
-
380,000 (1-30j) =
Duco A
Life
Breed
Notes. Urenal
Project(yes
-
-
syst e
NOVA NPVB
I cummulative
Pofactory- 3.791 - 20486
Life
Annual
Equivalent NPV Ax BX
Annual NPV
Equivalent
Now select
higher
#
Mutually
exclusive. Ripsals-
only one of projectcan
the
be selected
Rationing
1-
Divisible Indivisible
- -
=+
C5594 +CF1695)
CNTs
+
Initial Investment
MERR -
uting
rate
⑰ dIRR
L--
11
CFAT,
- -
I 1
CFAT CFATS CFATy CFAT5
Step
-
Y
CFAT, C1+ 2 -
- StepG
(1 233
Initial Totalseminal R,et
-
CFAT +
=
-
-
CFAT (1+22=
CFATy CH23' = -
=-
CAAT5 -
Total Terminal
- inglan
was
i
Dis
3 years
yeaus
invest
invest
mineen
Risk
Analysis CapitalBudgeting
Statistical Methods
in
⑰
Marance
Coefficiental
(or standard deviations
variation (Cov)
probability
e I
Situation cashflow ①x
X- x)?8
⑪ ②
A a 0.1 0.1 a (a x320.1
-
b
B 0. 0.36 (b -x)2 0.3
C C 0.5 0.5C 2 x)20.5
-
Extente ↓
Standard deviation -
valliance $x)?8
=
o
=
=Standard deviation) -
Variance
③
Cofficientof variation-deviation -
X
/
L
If
car is
high -
High variability
High Risk
->
20w
->
stability
Riskadjusted
Disconting rate
Rf
=
+ Risk Premium
D
esiy djjects
Youi discoming he life
ke
life
⑪R Kous
Kiya Jata hai
⑧y
Equivalent
2
345
111
- lo CHAT, CAT2 CFAT CFATY CFAy
-
Certaienn
uncertain
calfow X certainty - Certain Cash Flows
Equivalent ↓
coefficient weuse. These
To
casfloes
NPV
x
least
Englow
⑥Analysis I outflnohiguest
inglowhighest
"You
lowest
have calculate Vfr.wootcase outflow
to
->
·
Bestlate
Tent 8 Mostainly case
·
Senstivity
⑦
⑧ Analysis
Steps calculate Novas
pergiven situation
Stepchange actorcatonetime
Statementof NOW
PresentCase
Salesvalue UniXSP= *
-
UC UnityVC=<->
-
FC -]
PEBTD. A
C)
-
Dep
PBT r
-
Tay I
PAT ⑰
+ Dep I
CFAT (Pelannum) *A
IV
factory5
years
ploy
(Cummulatines
3.79/
PVCI B A
-
DVCo (-)
InitialInvestment
NOV ⑰ ⑬
↳gla
-
Dividend Decisions
- 1
ex
Relevance
Ed they Dividend relevance They
-
X- MM
Walter Model Gardenmodel Approach
Px
ext
nee ⑩
= +
Ke
~Ke · Dividend
UKe
Any Divided D1 Do (19)
=
=
Retention
Wat Dividend
I I
~Ke
UKe
Any Divided
=
②
-M Valueaffirm values firm later
-
originally
n x Po (n on)>P,-
-
+
Investment
tarnings
+
Gra
⑭be
3 Grever
is
9 5%
e sets g
=
.
-
10%
Dividual pufautale
year Pu
I &1 DoCIIo;
=
0.909 -
2 D2 D, [Hoy,
=
0.826 v
3 D3 D2 (10%) 0.75t V
=
-
3 P3 0.55
⑳
-
-
Grahmbodd =>P
m(D E)
=>
= +
Lintel Model-
D1
Do+(EPsypaget--Dx8
=
speedly
adjustment
⑫-inque we don
Elo
->
numerical
-