Professional Documents
Culture Documents
• Financial break even point may be defined as that level of EBIT which
is just equal to pay the total financial charges, i.e. interest and
preference dividend. At this point EBIT = 0.
• If EBIT< financial break even point, the EPS shall be –ve.
• If EBIT exceeds the financial break even point, more of such fixed
cost funds may be inducted in the capital structure.
• The financial break even point can be calculated as shown below:
(a) When the capital structure consists of equity share capital and debt
only no preference share capital is employed:
Financial Break Even Point = Fixed Interest Charges
(b) When capital structure consists of equity share capital, preference
share capital and debt:
Financial Break Even Point = I+ Dp
(1-t)
Where, I= Fixed Interest Charges
Dp= Preference Dividend
t= Tax Rate
POINT OF INDIFFERENCE AND
UNCOMMITED EARNINGS PER SHARE
DEBT-EQUTY MIX
NON-EMPLOYMENT OF DEBT
FINANCIAL RISK
CAPITAL(NEDC) RISK
MARKET-VALUE OF TE FIRM
9. Requirements of Investors
PRINCIPLES OF CAPITAL STRUCTURE
DECISIONS
CAPITAL GEARING