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Financial break even point and Indifference point (EBIT-EPS Analysis) (in Hindi)
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Heena Malhotra
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U
Unacademy user
ma'am improve your teaching...
Dear Madam, Please let me know the answer of the following question; EBIT-EPS analysis is done to determine; a. leverage b. profitability c. liquidity d. financial stability
thank you mam.very well explained.Mam I need your video courses for NTA NET MANAGEMENT in English language.If you can provide,then I will be obliged.Specially I need your video on financial management in English language.
ma'am,only theory or formule acche se kar le.sufficient h na exam ke liye.
Heena Malhotra
a year ago
No, that would not be sufficient.. as formula se maximum do questions aa jayege , aur theories se bhi, Check out my PY questions course on FM , wha se aapko imp topics pta chlege :)
Anjali sharma
a year ago
I mean to say that,numerical ki practice na kare mam,chal jaayega exam mein ya nahi . Dear ma'am,suggest me.please.
Heena Malhotra
a year ago
yes, agr aap commerce ke student ho to leverage ch ki practice, aur management ke ho to dividend ch ke practical :)
Anjali sharma
a year ago
ok ma'am.thanks .your nature is very helping.appreciable.God bless you my Ma'am.
In case of 3 alternatives wat we do?
  1. Capital Structure Decision By Heena Malhotra


  2. Financial break-even point o Financial break-even point is the minimum level of EBIT needed to satisfy all the fixed financial charges i.e. interest and preference dividends. It denotes the level of EBIT for which the company's EPS equals zero. O If the EBIT is less than the financial breakeven point, then the EPS will be negative but if the expected level of EBIT is more than the breakeven point, then more fixed costs financing instruments can be taken in the capital structure, otherwise, equity would be preferred By Heena Malhotra


  3. Financial break-even point O For Equity- Nil For Debt- Interest O For Preference- PD/(1-t) By Heena Malhotra


  4. Indifference Point or EBIT-EPS Analysis The equivalency or indifference point can also be calculated algebraically in the following manner: (EBIT-1.)(1-T) E, (EBIT-12)(1-T) E2 = Where, EBIT = Indifference point E, Number of equity shares in Alternative 1 - Number of equity shares in Alternative 2 - Interest charges in Alternative1 - Interest charges in Alternative2 -Tax-rate 2 Alternative All equity finance Alternative 2 Debt-equity finance. By Heena Malhotra


  5. Alternative 1- 50:50 Alternative 2- 60:40 Interest rate-10% Share price- Rs.10 per share Tax rate-:50% (EBIT-5000) (1-.5) (EBIT-6000)(1-.5) 5000 4000 By Heena Malhotra


  6. Debt Equity Indifference point 0 EBIT () By Heena Malhotra


  7. Limitations of EBIT-EPS Analysis If maximization of the EPS is the only criterion for selecting the particular debt-equity mix, then that capital structure which is expected to result in the highest EPS will always be selected by all the firms. However, achieving the highest EPS need not be the only goal of the firm. The main shortcomings of the EBIT-EPS analysis may be noted as follows (i) The EPS criterion ignores the risk dimension: The EBIT-EPS analysis ignores as to what is the effect of leverage on the overall risk of the firm. With every increase in financial leverage, the risk of the firm and therefore that of investors also increases The EBIT-EPS analysis fails to deal with the variability of EPS and the risk return trade-off. (ii) EPS is more of a performance measure: The EPS, basically, depends upon the operating profit which, in turn, depends upon the operating efficiency of the firm. It is a resultant figure and it is more a measure of performance rather than a measure of decision making