Financial Management

Assignment
Leverage Analysis

Ques 1: Calculate the three leverages for the following three firms A, B and C:-

Particular A B C

Output(Units) 60,000 15,000 1,00,000

Fixed Costs(Rs.) 7,000 14,000 1,500

Variable Cost per 0.2 1.5 0.02

unit (Rs.)

Interest on Debt 4,000 8,000 -

Selling Price per 0.6 5 0.1

Unit(Rs.)

Solution:

Particulars A (60,000) B (15,000) C (1,00,000)

Selling Price (Rs.) 36,000 75,000 10,000
(-) Variable Cost () 12,000 22,500 2,000
Contribution 24,000 52,500 8,000
(-) Fixed Cost 7,000 14,000 1,500
EBIT(Contribution- 17,000 38,500 6,500
FC)
(-) Interest 4,000 8,000 -
EBT 13,000 30,500 6,500

OL= C/EBIT 24,000/17000 = 1.41 52,500/38500 = 1.36 8,000/6500 = 1.23

FL = EBIT/EBT 17,000/13,000 = 1.31 38500/30500 = 1.26 6,500/6,500 = 0
CL = C/EBT 24,000/13,000 = 1.85 52,500/30,500 = 1.72 8,000/6,500 = 1.23
CL can also be 1.41 * 1.31 1.36 * 1.26 1.23 * 1 =
found as OL*FL = 1.85 = 1.72 1.23

Name: Vishal Chandak

MBA 2nd Semester
 Financial Management

Ques: A firm has sales of Rs. 10,00,000, variable cost Rs. 7,00,000 and fixed cost Rs.
2,00,000. It has a 10% debt of Rs. 5,00,000. Find the leverages.

If the firm wants to double its EBIT, how much % sales should be raised?

Solution:

Particular Amount
Selling Price (Rs.) 10,00,000
(-) V.C (Rs.) 7,00,000
Contribution 3,00,000
(-) Fixed Costs 2,00,000
EBIT (Contribution -FC) 1,00,000
(-) Interest (500000*10%) 50,000
EBT 50,000
OL = C/EBIT 3,00,000/ 1,00,000 = 3
FL = EBIT/EBT 1,00,000/50,000 = 2
CL = C/EBT 3,00,000/ 50,000 = 6 (3*2)

Name: Vishal Chandak

MBA 2nd Semester