ABC Ltd. had the following Balance Sheet as on 31st March, 2018: Liabilities in crore Assets in crore Equity share capital (100 lakh shares @ ₹ 10 each) 10 Fixed Assets (Net) 25 Reserves & Surplus 2 Current Assets 15

CS Professional · Financial, Treasury and Forex Management · PYQS · December 2018
ABC Ltd. had the following Balance Sheet as on 31st March, 2018: Liabilities in crore Assets in crore Equity share capital (100 lakh shares @ ₹ 10 each) 10 Fixed Assets (Net) 25 Reserves & Surplus 2 Current Assets 15 15% Debentures 20 Current Liabilities 8 Total 40 Total 40 The additional information are as under : Fixed cost per annum (excluding interest) ₹ 8 crore Variable Operating Cost Ratio 65% Total Assets Turnover Ratio 2.5 Income Tax Rate 30% You are required to calculate the following : Financial Leverage

Answer & Explanation:

Profitability statement Particulars ₹ in crore Sales (Total Assets * Total Assets Turnover Ratio = ₹ 40 crore * 2.5) 100 Less: variable cost @ 65% (65) Contribution 35 Less: fixed cost (8) EBIT 27 Less: interest (15% debenture on ₹ 20 crore) (3) EBT 24 Less: tax @ 30% (7.2) EAT 16.8 (c) Financial Leverage Financial leverage = EBIT / EBT = ₹ 27 crore / ₹ 24 crore = 1.125

Topics: Leverage Analysis

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