logging in or signing up leverage me.nirupam Download Post to : URL : Related Presentations : Let's Connect Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Copy embed code: Embed: Flash iPad Dynamic Copy Does not support media & animations Automatically changes to Flash or non-Flash embed WordPress Embed Customize Embed URL: Copy Thumbnail: Copy The presentation is successfully added In Your Favorites. Views: 299 Category: Education License: All Rights Reserved Like it (0) Dislike it (0) Added: March 09, 2011 This Presentation is Public Favorites: 0 Presentation Description No description available. Comments Posting comment... By: Ibians (36 month(s) ago) hello, very valuable. plz share it with me. i desperately need it Saving..... Post Reply Close By: me.nirupam (36 month(s) ago) post ur email address Saving..... Edit Comment Close By: Ibians (36 month(s) ago) hello, very valuable. plz share it with me. i desperately need it Saving..... Post Reply Close Saving..... Edit Comment Close By: Ibians (36 month(s) ago) hello, very valuable. plz share it with me. i desperately need it Saving..... Post Reply Close Saving..... Edit Comment Close By: Ibians (36 month(s) ago) hello, very valuable. plz share it with me. i deaperately need it Saving..... Post Reply Close Saving..... Edit Comment Close Premium member Presentation Transcript PRESENTATION ON LEVERAGE ANALYSIS: PRESENTATION ON LEVERAGE ANALYSIS Presented by : Nirupam Saha (2k10mkt19 )Leverage analysis : Leverage analysis The dictionary meaning of the firm leverages refers to "an increase means of accomplishing purpose". In machines, leverages means the instrument that helps us in lifting heavy objects, which may not be other wise possible. This concept of leverage is valid in business too. In financial management, it is used to describe the firms ability to use fixed assets costs funds to satisfy to magnify return of its ownersDEFINATION : DEFINATION "Leverage is the ratio of the net rate of return on shareholder's equity and net rate of return on total capitalization."Types of leverage : Types of leverage There are three types of leverages : Financial leverage Operating leverage Composite leveragefinancial leverage: financial leverage financial leverage exists whenever a firm has debts other sources of funds that carry fixed charges. Computation of financial leverage 1. Where capital structure consists of equity shares and debt- financial leverage = EBIT/(EBIT-INT) or EBIT/EBT or OP/(EBT or PBT) 2. Where the capital structure consists of preference share and equity share F.L = EBIT/ (EBIT-PD * 1/(1-t)) 3. Where the capital structure consists of preference share, equity shares and debt. F.L = EBIT/ (EBIT-INT-(PD * 1/(1-t))): Degree of financial leverage DFL = % changes in EPS / % change in EBIT Importance of financial leverage Capital structure management Maximization of EPS and market value of shares Measurement of RiskOperating leverage: Operating leverage Operating leverage is the tendency of the operating profit to vary disproportionately with sales. Operating leverage OL = C / ( OP or EBIT ) contribution = Sales - Variable cost operating profit = contribution - fixed cost Degree of operating leverage DOL = % Change in OP or EBIT / % change in salesComposite leverage : Composite leverage Composite leverage is calculated to determine the combined effect of operating and financial leverages. CL = Financial leverage x Operating leverage or C / PBT Degree of combined leverage DCL = DOL * DFL = % change in EPS / % change in SalesExample : : Example : A firm selling price of its product is $100 per unit. The variable cost per unit is $50 and the fixed operating costs are $50,000 per year. The fixed interest expenses (non-operating) are $25,000 and the firm has 10,000 shares outstanding. Let us evaluate the combined leverage resulting from sale of 1) 2000 units & 2) 3000 units. Tax rate = 35%.Solution: SolutionSlide 11: Thank you You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.