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Financial Leverage as Trading on equity & as Double edged sword and Combined Leverage & Some MCQ's
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Heena
Believe in Conceptual Learning.

U
Unacademy user
USA constitution came into force on March 4, 1789 sir
all correct😊😊
mam 2 question explain kijiye mam..
mam plzz explain me 1st n 2nd question ...i hav dout .... ans correct nhi aa rha waaki tho ans sabhi right h....
Heena
a year ago
P/V ratio hota h contribution/ sales yha se contribution aa jayegi 40000.. Phr contribution - op fixed cost = 20000 op leverage = 40000/20000= 2
Heena
a year ago
2nd easy h try kro ho jayega bache :)
Shivangi Patwa
a year ago
ohhk thankwwww so much mam for giving me ans. 2nd i will do ..!!!!
mam 6th ques ka option c me OL=OL ×FL diya h .....toh ye shi kse h
Heena
a year ago
wo error h, cl=ol*fl :)
Sonam Goyal
a year ago
okk mam....thanxxx😊
Heena
a year ago
☺️
  1. Financial Decisions- Leverage By Heena Malhotra


  2. Analysis of Leverage Types of Leverage (i) Operating Leverage (ii) Financial Leverages (iii) Combined Leverages Business and Financial Risk By Heena Malhotra


  3. Financial Leverage as 'Trading on Equity Financial leverage indicates the use of funds with fixed cost like long term debts and preference share capital along with equity share capital which is known as trading on equity. The basic aim of financial leverage is to increase the earnings available to equity shareholders using fixed cost fund. A firm is known to have a positive leverage when its earninas are more than the cost of debt. If earnings is equal to or less than cost of debt, it will be an unfavourable leverage. When the quantity of fixed cost fund is relatively high in comparison to equity capital it is said that the firm is "trading on equity By Heena Malhotra


  4. Financial Leverage as a Double edged Sword' On one hand when cost of 'fixed cost fund' is less than the return on investment financial leverage will help to increase return on equity and EPS. The firm will also benefit from the saving of tax on interest on debts etc. However, when cost of debt will be more than the return it will affect return of equity and EPS unfavourably and as a result firm can be under financial distress. This is why financial leverage is known as "double edged sword" Effect on EPS and ROE: When, ROI> Interest - Favourable - Advantage When, ROI< Interest - Unfavourable Disadvantage When, ROI Interest - Neutral - Neither advantage nor disadvantage.


  5. Combined Leverage o Combined leverage maybe defined as the potential use of fixed costs, both operating and financial, which magnifies the effect of sales volume change on the earnina ner share of the firm Degree of combined leverage (DCL) is the ratio of percentage change in earning per share to the percentage change in sales. It indicates the effect the sales changes wil have on EPS DCL = DOL DFL %Change in EBIT %Change in sales %Change in EPS %Change n Sales %change in EPS %Change in EBIT - By Heena Malhotra


  6. Combined Leverage (CI) = Operating Leverage (OL) x Financial Leverage (FL) C EBIT EBIT EBT EBT By Heena Malhotra


  7. A firm's details are as under: Sales (@100 per unit) Variable Cost Fixed Cost 24,00,000 50% 10,00,000 10,00,00OR 100 each) It has borrowed 10,00,000 @ 10% pa and its equity share capital is Calculate (a) Operating Leverage (b) Financial Leverage (c) Combined Leverage By Heena Malhotra


  8. 12,00,000 6 times (a) Operating Leverage (b) FinancialLeverage= -2times (c) Combined Leverage : OLX FL-6 x 2 = 12 times. 200,000 2,00,000 = 2 times 1,00,000 By Heena Malhotra


  9. 1. Given Operating fixed costs Sales 20,000 1,00,000 40% P/V ratio The operating leverage is: (a) 2.00 (b) 2.50 (c) 2.67 (d) 2.47 If EBIT is? 15,00,000, interest is leverage is 2,50,000, corporate tax is 40%, degree of financial (b) 1.20 (c) 1.31 (d) 1.41 By Heena Malhotra


  10. O 3. If DOL is 1.24 and DFL is 1.99, DCL would be: o (a) 2.14 o (b) 2.18 o (c) 2.31 o (d) 2.47 By Heena Malhotra


  11. o6. Which of the following is correct? o (a) CL OL + FL 0 (b) CL-OL-FL o (c) OL = OLX FL By Heena Malhotra