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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 Malhotra
Believe in Conceptual Learning.

Unacademy user
Lok Sabha can be extended for six months
all correct😊😊
5/6. Not getting que 2 😕
mam 2 question explain kijiye mam..
Seema Kaushik
6 months ago
Mam 1st ka bhi aa gya
Seema Kaushik
6 months ago
Thank you Mam
Heena Malhotra
6 months ago
Great , Keep it up :)
Seema Kaushik
6 months ago
Mam u the best teacher
Heena Malhotra
6 months ago
Thank you so much seema :) God bless you 😘
Seema Kaushik
6 months ago
Mam please y bta do ki M.com. 2nd Sem. ke baad Net exam valid mana jayga kya July vala
Seema Kaushik
6 months ago
July 2019
Heena Malhotra
6 months ago
han mana jayega agr aapki kissi subject m re na ho to .
Seema Kaushik
6 months ago
Okay Mam Thank you very much
Heena Malhotra
6 months ago
Aram se exam do M.com jo kr rhe hote h aur JRF easily crack ho jata h
Seema Kaushik
6 months ago
Okay Mam😊
  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