M/s Abacus Ltd. has decided to fill up the position of finance officer. To test the analytical capacity of applicant, following information is provided in the scanning test. You are one of the applicants for the position

CS Professional · Financial, Treasury and Forex Management · PYQS · June 2018
M/s Abacus Ltd. has decided to fill up the position of finance officer. To test the analytical capacity of applicant, following information is provided in the scanning test. You are one of the applicants for the position of finance officer. You are required to prepare the Income Statement in the vertical format based on information given hereunder. 1. The operating leverage is 2.50. 2. The financial leverage is 3.00. 3. The earnings per share is ₹30. 4. Present market price per share is ₹225. 5. Applicable tax rate is 33.0357%. 6. Number of equity shares outstanding as of date are 20,000.

Answer & Explanation:

Income statement of M/s Abacus Ltd. Particulars Amount (₹) Contribution 67,20,000 Less: Fixed cost (40,32,000) EBIT 26,88,000 Less: Interest (17,92,000) EBT 8,96,000 Less: Tax @ 33.0357% (2,96,000) EAT or PAT 6,00,000 Working Notes: No. of shares outstanding = 20,000 EPS = ₹30 EPS = EAT/ No. of share outstanding 30 = EAT/20,000 EAT = ₹6,00,000 EBT = EAT/(1- Tax rate) EBT = ₹6,00,000/(1-0.330357) EBT = ₹8,96,000 DFL = EBIT/EBT 3 = EBIT/₹8,96,000 EBIT = ₹26,88,000 DOL = Contribution/EBIT 2.5 = Contribution/₹26,88,000 Contribution = ₹67,20,000 Fixed cost = Contribution - EBIT Fixed cost = ₹67,20,000 - ₹26,88,000 = ₹40,32,000 Interest = EBIT- EBT = ₹26,88,000 - ₹8,96,000 = ₹17,92,000

Topics: Financial Analysis

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