A Company's performance will have an impact on its Valuation. Based on following information prepare a sensitive table on how changes in sales affects the Company's Enterprise Valuation : Amount (INR Crore) Percentage Sa

Answer 2A(iii)(iii) Sensitivity Table (Sales decreases by 10%): Sensitivity Table Present Sale increases by 10% Sale decreases by 10% Sales (Cr) 1000 1100 900 Cost of Sales (Cr) 700 770 630 Gross Profit (Cr) 300 330 270 Fixed Cost (Constant up to ₹ 2000 Cr of Sales) (Cr) 150 150 150 Variable Cost (10% on Sales) (Cr) 100 110 90 Earnings before Tax (EBT) (Cr) 50 70 30 Tax (25% of EBT) (Cr) 12.50 17.50 7.50 Earning after Tax 37.50 52.50 22.50 EPS (in Rs.) 25 35 15 P/E ratio of the industry 20 20 20 Market Price per Share 500 700 300 Enterprise Value 7,50,00,00,000 10,50,00,00,000 4,50,00,00,000 Change in Market Value per Share 200 -200 Market change (%) 40% -40% Change in Enterprise Value 3,00,00,00,000 -3,00,00,00,000 Change in % 40% -40% Calculations for 10% Sales Decrease: New Sales = 1000 * 0.90 = 900 Cr New Cost of Sales = 70% of 900 = 630 Cr New Gross Profit = 900 - 630 = 270 Cr Fixed Cost = 150 Cr (constant) New Variable Cost = 10% of 900 = 90 Cr New EBT = Gross Profit - Fixed Cost - Variable Cost = 270 - 150 - 90 = 30 Cr New Tax = 25% of 30 = 7.50 Cr New Earning after Tax = 30 - 7.50 = 22.50 Cr New EPS = 22.50 / 1.5 Cr shares = ₹15 New Market Price per Share = 15 * 20 = ₹300 New Enterprise Value = 300 * 1,50,00,000 = ₹4,50,00,00,000 Opinion: A 10% decrease in sales leads to a 40% decrease in Market Price per Share (from ₹500 to ₹300) and Enterprise Value (from ₹7,500 crore to ₹4,500 crore). This confirms the high sensitivity and operational leverage, indicating that even small changes in sales can significantly impact the company's valuation, both positively and negatively.