Consider the following information of Sunshine Ltd.: Earning before interest and taxes: ₹2,000 lakh Earning before taxes: ₹600 lakh Fixed Cost: ₹1,400 lakh Calculate the percentage of change in Earnings per share, if sal

Calculation of Percentage Change in Earnings Per Share (EPS) To calculate the percentage change in EPS due to a change in sales, we need to use the concept of Combined Leverage. Given: EBIT = ₹2,000 lakh EBT = ₹600 lakh Fixed Cost = ₹1,400 lakh Percentage increase in sales = 2% 1. Calculate Operating Leverage (OL): Operating Leverage (OL) = (EBIT + Fixed Cost) / EBIT OL = (2,000 + 1,400) / 2,000 OL = 3,400 / 2,000 OL = 1.7 2. Calculate Financial Leverage (FL): Financial Leverage (FL) = EBIT / EBT FL = 2,000 / 600 FL ≈ 3.33 3. Calculate Combined Leverage (CL): Combined Leverage (CL) = Operating Leverage × Financial Leverage CL = 1.7 × 3.33 CL ≈ 5.661 The combined leverage of 5.661 implies that for a 1% change in sales, there will be approximately a 5.661% change in Earnings Per Share (EPS). 4. Calculate Percentage Change in EPS: Percentage Change in EPS = Combined Leverage × Percentage Change in Sales Percentage Change in EPS = 5.661 × 2% Percentage Change in EPS = 11.322% Therefore, if sales increase by 2%, the Earnings Per Share (EPS) will increase by approximately 11.32%.