The following data relates to Ribbon Ltd. : Earning Before Interest and Taxes (EBIT): ₹30,00,000 Profit after Tax: ₹13,50,000 Operating Fixed Costs: ₹22,50,000 Tax Rate: 40% Required: (i) Prepare the Income Statement of

Income Statement of Ribbon Ltd. Amount in ₹ Contribution 52,50,000 Less: Fixed Cost 22,50,000 EBIT (A) 30,00,000 Less: Interest (A-B) 7,50,000 EBT (B) 22,50,000 Less: Tax 9,00,000 EAT 13,50,000 Tax = ₹22,50,000 × 40% = ₹9,00,000 (ii) % Change in EBIT on % Change in EAT will be determined by Financial Leverage i.e Degree of Financial Leverage = EBIT / EBT = ₹30,00,000 / ₹22,50,000 = 1.33 For 1.33% increase in EAT, EBIT should increase by 1% For 40% increase in EAT, EBIT should increase by 40/1.33 = 30% (Approx.)