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398 Corporate Finance BRILLIANT’S

Illustration 4.3.8
Liabilities Amount Assets Amount
(bm¶{~{bQ>rO) (am{e) (AgoQ²>g) (am{e)
` `

Equity Share Capital Fixed Assets / {’$³ñS> AgoQ²>g 1,50,000
B{³dQ>r eo¶a H¡${nQ>b 60,000 Current Assets / H$a§Q> AgoQ²>g 50,000
Retained Earnings
[aQ>|S> A{Zª½g 20,000
10% Long-term Debt
>10% bm°ÝJ Q>‘© S>oãQ 80,000
Current Liabilities
H$a§Q> bm¶{~{bQ>rO 40,000
2,00,000 2,00,000

The Company’s total Assets turnover ratio is 3, its fixed operation costs are ` 1,00,000 and
its variable operating cost ratio is 40%. The income-tax rate is 50%. Calculate for the company
the different types of leverages given that the face value of the share is ` 10.
H§$nZr H$m Hw$b AgoQ²>g Q>Z©Amoda aoemo 3 h¡ BgH$m {’$³ñS> Am°naoeZ H$m°ñQ> < 1,00,000 h¡ VWm BgH$s do[aE~b
Am°naoqQ>J H$m°ñQ> aoemo 40% h¡& B§H$‘ Q>¡³g aoQ> 50% h¡& H§$nZr Ho$ {bE {d{^ÝZ àH$ma Ho$ brdaoOog H$s JUZm H$s{OE&
{X¶m J¶m h¡ {H$ eo¶a H$s ’o$g d¡ë¶y < 10 h¡&

Solution:
For calculating different types of leverages, first we prepare income statement showing
sales, EBIT, EBT and EPS.
Sales
Given, Total Assets Turnover =
Total Assets
Sales
 3 =
2,00,000 *
 Sales = ` 6,00,000
* Total of Asset side of Balance Sheet.

Particulars Amount
(`)
Sales 6,00,000
Less: Variable Cost (40%) 2,40,000
Contribution 3,60,000
Less: Fixed Costs 1,00,000