Page 397 - Corporate Finance PDF Final new link

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BRILLIANT’S Leverage Analysis 397

Solution:

Sales
Calculation of Sales: Total assets turnover ratio =
Total Assets
Where, Total assets turnover ratio = 5
Sales = ?
Total assets = Fixed Assets + Current Assets = 1,80,000 + 50,000 = ` 2,30,000
Sales
So, 5 =
2,30,000
 Sales = ` 11,50,000
Income Statement

Particulars Amount
(`)
Sales 11,50,000
Less: Variable Cost 50% 5,75,000
Contribution 5,75,000
Less: Fixed Cost 1,50,000
EBIT (Earning Before Interest and Tax) 4,25,000
Less: Interest @ 10% of 90,000 9,000
Earning Before Tax (EBT) 4,16,000
Less: Income Tax @ 40% 1,66,400
Earning After Tax 2,49,600
1. Calculation of Operating Leverage:

Contribution 5,75,000
Operating Leverage = =
EBIT 4,25,000
= 1.35
2. Calculation of Financial Leverage:
Earning Before Interest & Tax 4,25,000
Financial Leverage = =
Earning Before Tax 4,16,000
= 1.02
3. Calculation of Combined Leverage:

Contribution 5,75,000
Combined Leverage = =
Earning Before Tax 4,16,000
= 1.38