Approches To Determine appropriate capital structure - EbiT-EPS Approches
any body who wish to learn about Financial management they can join my google class by entering code : avkkvj5
The document discusses several theories on corporate dividend policies:
1. Dividend relevance theories argue that a firm's dividend policy impacts its value. Walter's and Gordon's models show how value is determined based on factors like earnings, dividends, growth rates, and costs of capital.
2. Dividend irrelevance theories, proposed by Modigliani and Miller, state that a firm's value depends only on its investment policy, not its dividend policy.
3. The bird-in-hand theory suggests that even in situations of equal growth rates and costs of capital, investors prefer dividends in-hand to future capital gains due to uncertainty.
This document discusses the cost of capital and how to calculate it. It defines cost of capital as the rate of return a firm must earn on its investments to maintain its market value and attract funds. It then discusses how to calculate the costs of different sources of capital including long-term debt, preferred stock, common stock, and retained earnings. It explains how to calculate the weighted average cost of capital (WACC) and discusses weighting schemes. Finally, it discusses how to determine break points and calculate the weighted marginal cost of capital (WMCC), which can be used with the investment opportunities schedule to make financing decisions.
This document discusses several theories of dividend decision-making:
- Walter's model states that share price is the sum of dividends and retained earnings discounted by the cost of equity. It suggests retaining earnings if return on investment exceeds the cost of equity.
- Gordon's model similarly values shares based on dividends but also incorporates the growth rate of earnings from retained profits. It argues investors prefer dividends over capital gains.
- The Miller-Modigliani hypothesis asserts that under perfect capital markets, dividend policy does not affect share price, as investors will value future cash flows regardless of payout method.
The document discusses the cost of capital. It defines cost of capital as the minimum return expected by investors for providing capital to a company. It includes the costs of debt, equity, preference shares, and retained earnings. The weighted average cost of capital takes the costs of different sources of capital weighted by their proportions. Calculating cost of capital is important for capital budgeting and evaluating new projects and investments.
This document discusses the calculation of weighted average cost of capital (WACC) using different methods and capital structures. It provides an example calculating WACC based on book values and market values using the proportions and costs of various sources of capital - equity shares, debentures, retained earnings. The WACC is computed in 1-3 sentences using both weighted proportions and total costs, with results ranging from 11.09% to 20.38% depending on the values and method used.
Cost of Preference Capital Soved Problems-kpuma reur
The Preference Capital carries a cost. The Cost of Preference Capital is calculated as follows:
Preference Shares may be issued at Par, Premium, Discount.
Cost of Redeemable Preference Shares
,
cost of capital
,
bond
,
preferred stock
,
factors influencing cost of capital determination
,
cost of new common stock
,
cost of debt components
,
cost of preferred stock
,
components of cost of capital
The document discusses dividend policy and its relationship to a firm's market value. It defines dividend policy as a board's decision on distributing residual earnings to shareholders. Different types of dividends are covered, including cash, stock, and liquidating dividends. The mechanics of declaring and paying cash dividends are explained. Modigliani and Miller's dividend irrelevance theorem and its assumptions are summarized, along with arguments for why dividends may matter in the real world due to factors like taxes, risk, and investor preferences.
The document discusses several theories on corporate dividend policies:
1. Dividend relevance theories argue that a firm's dividend policy impacts its value. Walter's and Gordon's models show how value is determined based on factors like earnings, dividends, growth rates, and costs of capital.
2. Dividend irrelevance theories, proposed by Modigliani and Miller, state that a firm's value depends only on its investment policy, not its dividend policy.
3. The bird-in-hand theory suggests that even in situations of equal growth rates and costs of capital, investors prefer dividends in-hand to future capital gains due to uncertainty.
This document discusses the cost of capital and how to calculate it. It defines cost of capital as the rate of return a firm must earn on its investments to maintain its market value and attract funds. It then discusses how to calculate the costs of different sources of capital including long-term debt, preferred stock, common stock, and retained earnings. It explains how to calculate the weighted average cost of capital (WACC) and discusses weighting schemes. Finally, it discusses how to determine break points and calculate the weighted marginal cost of capital (WMCC), which can be used with the investment opportunities schedule to make financing decisions.
This document discusses several theories of dividend decision-making:
- Walter's model states that share price is the sum of dividends and retained earnings discounted by the cost of equity. It suggests retaining earnings if return on investment exceeds the cost of equity.
- Gordon's model similarly values shares based on dividends but also incorporates the growth rate of earnings from retained profits. It argues investors prefer dividends over capital gains.
- The Miller-Modigliani hypothesis asserts that under perfect capital markets, dividend policy does not affect share price, as investors will value future cash flows regardless of payout method.
The document discusses the cost of capital. It defines cost of capital as the minimum return expected by investors for providing capital to a company. It includes the costs of debt, equity, preference shares, and retained earnings. The weighted average cost of capital takes the costs of different sources of capital weighted by their proportions. Calculating cost of capital is important for capital budgeting and evaluating new projects and investments.
This document discusses the calculation of weighted average cost of capital (WACC) using different methods and capital structures. It provides an example calculating WACC based on book values and market values using the proportions and costs of various sources of capital - equity shares, debentures, retained earnings. The WACC is computed in 1-3 sentences using both weighted proportions and total costs, with results ranging from 11.09% to 20.38% depending on the values and method used.
Cost of Preference Capital Soved Problems-kpuma reur
The Preference Capital carries a cost. The Cost of Preference Capital is calculated as follows:
Preference Shares may be issued at Par, Premium, Discount.
Cost of Redeemable Preference Shares
,
cost of capital
,
bond
,
preferred stock
,
factors influencing cost of capital determination
,
cost of new common stock
,
cost of debt components
,
cost of preferred stock
,
components of cost of capital
The document discusses dividend policy and its relationship to a firm's market value. It defines dividend policy as a board's decision on distributing residual earnings to shareholders. Different types of dividends are covered, including cash, stock, and liquidating dividends. The mechanics of declaring and paying cash dividends are explained. Modigliani and Miller's dividend irrelevance theorem and its assumptions are summarized, along with arguments for why dividends may matter in the real world due to factors like taxes, risk, and investor preferences.
The document defines the cost of capital as the minimum required rate of return on invested funds. It discusses how the cost of capital is helpful for capital budgeting and structure decisions. It then outlines the different components of cost of capital - cost of debt, preferred shares, equity shares, and retained earnings. Various formulas are provided for calculating the costs of redeemable and irredeemable debt, preferred shares, and equity shares. The cost of retained earnings is said to equal the cost of equity shares.
Capital structure decisions, cost of capital, weighted average cost of capita...Mohammed Jasir PV
Capital structure decisions — cost of capital — computation of cost of debt, preference shares, equity and retained earnings —weighted average cost of capital
Theories of capital structure — NI approach NOI approach -traditional — MM theory — indifference point — fair capitalization — over and under capitalization.
This document discusses the valuation and characteristics of stocks. It covers preferred stock, which is a hybrid security with characteristics of both common stock and bonds. Preferred stock pays fixed dividends, has priority over common stock in claims to assets and income, and may be cumulative or convertible. Common stock represents ownership in a company and entitles the owner to voting rights and residual claims to income and assets. The document discusses how to value preferred stock as a perpetuity and common stock using the dividend valuation model that incorporates growth. It also defines the expected rate of return for stocks.
Cost of capital, Cost of debt, Cost of equity, Cost of preference shares, Wei...Dayana Mastura FCCA CA
This document discusses weighted average cost of capital (WACC) which is a calculation of a firm's cost of capital considering the costs of the different components of the firm's capital structure (debt, equity, preference shares). It defines WACC and explains its importance as the minimum return a firm needs to earn on new projects/investments to break even. The document also outlines how to calculate WACC and the costs of each capital component (cost of equity using CAPM, cost of debt, cost of preference shares). It discusses how WACC is used as a benchmark for projects, in determining leverage limits, for valuation, and in discounting cash flows in a DCF analysis.
This document defines and categorizes different types of financial intermediaries. It discusses insurance companies, mutual funds, non-banking finance companies, investment brokers, investment bankers, escrow companies, pension funds, and collective investment schemes. The main advantages of using financial intermediaries are that they help reduce costs compared to direct lending/borrowing, and help reconcile the conflicting needs of lenders and borrowers to prevent market failure. Financial intermediaries play a vital role in bringing together those with surplus funds to lend and those with shortage of funds to borrow.
The document discusses various bond valuation concepts like coupon rate, current yield, spot interest rate, yield to maturity, yield to call, and realized yield. It provides examples to calculate these measures and explains how bond prices are determined based on factors like interest rates, time to maturity, and cash flows. Bond duration is introduced as a measure of interest rate risk exposure, and bond risks from default and changes in interest rates are explained.
This document discusses capital structure decisions and optimal capital structure. It defines capital structure as the mix of long-term financing sources like debt and equity. An optimal capital structure minimizes costs while maximizing firm value. It balances financial risk from debt against non-employment of debt capital risk. The optimal structure achieves the lowest weighted average cost of capital.
The document summarizes William Sharpe's single index model from 1963, which simplified Harry Markowitz's earlier portfolio selection model. The single index model assumes that only one macroeconomic factor, represented by a market index like the S&P 500, influences the systematic risk of stock returns. It expresses the return of a security as the sum of its expected excess return, its sensitivity to market movements, and random error. This allows estimating portfolio variance and minimum variance portfolios based only on market risk rather than the full covariance matrix.
Financial Management; Chapter: cost of capitalArshad Islam
This document discusses the cost of capital, including the costs of equity, debt, and preferred stock. It provides formulas to calculate each of these costs. For example, the cost of debt (rd) is calculated as the interest rate (1 - tax rate). The weighted average cost of capital (WACC) combines the costs and weights of each component of the capital structure. An example is provided to demonstrate calculating WACC given specific financial information for a company.
The document discusses capital structure, which refers to the mix of debt and equity used by a company to finance its long-term operations. It examines several factors that influence a company's capital structure choices as well as different theories about optimal capital structure. The Net Income Theory proposes that firms can maximize value and minimize cost of capital by using as much debt as possible. The Net Operating Income Theory argues capital structure is irrelevant to firm value and cost of capital. The Traditional Theory suggests an optimal debt-equity mix exists. Finally, the Modigliani-Miller Theory states that under certain assumptions, capital structure does not impact firm value or cost of capital, though when taxes are considered, more debt can increase value.
Some of the major different theories of dividend in financial management are as follows: 1. Walter’s model 2. Gordon’s model 3. Modigliani and Miller’s hypothesis.
On the relationship between dividend and the value of the firm different theories have been advanced.
Cost of capital is the minimum rate of return that a company must earn on its investments to maintain its market value and attract funds. It is used to evaluate investment projects and determine the company's capital structure. Cost of capital can be calculated for specific sources like equity, debt, preference shares, and retained earnings using various methods. The overall cost of capital is the weighted average of the costs of each source based on their proportion in the company's capital structure. It is an important concept in financial management for capital budgeting, valuation, and performance evaluation.
The Net Income (NI) approach proposes that a firm's value increases as it takes on more debt financing due to debt generally being a cheaper source of capital than equity. According to the NI approach, the costs of debt and equity remain constant regardless of capital structure, so the overall cost of capital declines as debt levels rise. However, the NI approach assumes unrealistic conditions like taxes being ignored and that more debt does not affect investor risk perceptions. It implies the maximum firm value occurs with 100% debt financing.
This document discusses dividend policy and the various theories around it. It defines dividends and discusses Walter's model and Gordon's model, which propose that dividend policy affects firm value. It also covers the irrelevance theories of Modigliani-Miller and the traditional approach, which argue that dividend policy does not impact value. The document provides formulas for the different models and discusses their assumptions and criticisms.
Definition of leverage, Types of Leverages, meaning of operating leverage, financial leverage, combined leverage, Formulas for Operating and financial leverage, variable cost, fixed cost, EBIT, Contribution, EPS-EBIT Analysis, Income statement, practical problems on leverages, etc.
Transfer pricing refers to the prices charged for goods and services transferred between divisions within the same company. There are several approaches to setting transfer prices, including using market prices, cost-based prices, negotiated prices, or administered prices set by a rule. The objectives of transfer pricing are to provide accurate performance measurement for each division, encourage goal congruence between divisions, and mimic external market prices. Key considerations include using transfer prices that motivate optimal sourcing and production decisions for the entire company.
chapter three interest rates in the financial system.pptxEbsaAbdi
There are two main economic theories that explain how interest rates are determined:
1) Loanable funds theory - Interest rates are determined by the supply and demand of loanable funds in the credit market. Demand comes from entities seeking to borrow, while supply comes from those willing to lend funds.
2) Liquidity preference theory - Interest rates are set by the demand and supply of money balances. Individuals may prefer to hold their wealth in liquid money form rather than invest due to uncertainty, affecting interest rates.
Additionally, the structure of interest rates varies based on factors like maturity, risk, and transaction costs associated with different financial instruments. Riskier loans command higher interest rates as compensation for default risk.
Leverage refers to using debt, borrowed money, or derivative instruments to amplify gains and losses from investments or business operations. There are two types of leverage: operating leverage, which is the use of fixed operating costs, and financial leverage, which is the use of fixed financing costs. The document defines various leverage metrics such as degree of operating leverage (DOL), degree of financial leverage (DFL), and degree of combined leverage (DCL) which measure how changes in sales, operating income, and earnings per share are amplified through the use of leverage.
The document discusses the EBIT-EPS approach for determining appropriate capital structure. The EBIT-EPS approach involves selecting a capital structure that maximizes earnings per share (EPS) over the expected range of earnings before interest and taxes (EBIT). Managers use this approach to balance debt and equity financing by analyzing how different capital structures affect EPS at given EBIT levels. However, the approach does not consider risk premiums associated with higher debt levels and may not always be the best tool for capital structure decisions.
This document discusses various approaches to determining an appropriate capital structure for a business, including the EBIT-EPS approach, valuation approaches using cost of capital and adjusted present value, and cash flow approaches. It provides details on calculating EBIT, EPS, leverage (operating, financial, and combined), and determining the optimal capital structure. Key points covered include the EBIT-EPS analysis method, calculating financial break-even points and indifference points, and applying the adjusted present value valuation approach.
The document defines the cost of capital as the minimum required rate of return on invested funds. It discusses how the cost of capital is helpful for capital budgeting and structure decisions. It then outlines the different components of cost of capital - cost of debt, preferred shares, equity shares, and retained earnings. Various formulas are provided for calculating the costs of redeemable and irredeemable debt, preferred shares, and equity shares. The cost of retained earnings is said to equal the cost of equity shares.
Capital structure decisions, cost of capital, weighted average cost of capita...Mohammed Jasir PV
Capital structure decisions — cost of capital — computation of cost of debt, preference shares, equity and retained earnings —weighted average cost of capital
Theories of capital structure — NI approach NOI approach -traditional — MM theory — indifference point — fair capitalization — over and under capitalization.
This document discusses the valuation and characteristics of stocks. It covers preferred stock, which is a hybrid security with characteristics of both common stock and bonds. Preferred stock pays fixed dividends, has priority over common stock in claims to assets and income, and may be cumulative or convertible. Common stock represents ownership in a company and entitles the owner to voting rights and residual claims to income and assets. The document discusses how to value preferred stock as a perpetuity and common stock using the dividend valuation model that incorporates growth. It also defines the expected rate of return for stocks.
Cost of capital, Cost of debt, Cost of equity, Cost of preference shares, Wei...Dayana Mastura FCCA CA
This document discusses weighted average cost of capital (WACC) which is a calculation of a firm's cost of capital considering the costs of the different components of the firm's capital structure (debt, equity, preference shares). It defines WACC and explains its importance as the minimum return a firm needs to earn on new projects/investments to break even. The document also outlines how to calculate WACC and the costs of each capital component (cost of equity using CAPM, cost of debt, cost of preference shares). It discusses how WACC is used as a benchmark for projects, in determining leverage limits, for valuation, and in discounting cash flows in a DCF analysis.
This document defines and categorizes different types of financial intermediaries. It discusses insurance companies, mutual funds, non-banking finance companies, investment brokers, investment bankers, escrow companies, pension funds, and collective investment schemes. The main advantages of using financial intermediaries are that they help reduce costs compared to direct lending/borrowing, and help reconcile the conflicting needs of lenders and borrowers to prevent market failure. Financial intermediaries play a vital role in bringing together those with surplus funds to lend and those with shortage of funds to borrow.
The document discusses various bond valuation concepts like coupon rate, current yield, spot interest rate, yield to maturity, yield to call, and realized yield. It provides examples to calculate these measures and explains how bond prices are determined based on factors like interest rates, time to maturity, and cash flows. Bond duration is introduced as a measure of interest rate risk exposure, and bond risks from default and changes in interest rates are explained.
This document discusses capital structure decisions and optimal capital structure. It defines capital structure as the mix of long-term financing sources like debt and equity. An optimal capital structure minimizes costs while maximizing firm value. It balances financial risk from debt against non-employment of debt capital risk. The optimal structure achieves the lowest weighted average cost of capital.
The document summarizes William Sharpe's single index model from 1963, which simplified Harry Markowitz's earlier portfolio selection model. The single index model assumes that only one macroeconomic factor, represented by a market index like the S&P 500, influences the systematic risk of stock returns. It expresses the return of a security as the sum of its expected excess return, its sensitivity to market movements, and random error. This allows estimating portfolio variance and minimum variance portfolios based only on market risk rather than the full covariance matrix.
Financial Management; Chapter: cost of capitalArshad Islam
This document discusses the cost of capital, including the costs of equity, debt, and preferred stock. It provides formulas to calculate each of these costs. For example, the cost of debt (rd) is calculated as the interest rate (1 - tax rate). The weighted average cost of capital (WACC) combines the costs and weights of each component of the capital structure. An example is provided to demonstrate calculating WACC given specific financial information for a company.
The document discusses capital structure, which refers to the mix of debt and equity used by a company to finance its long-term operations. It examines several factors that influence a company's capital structure choices as well as different theories about optimal capital structure. The Net Income Theory proposes that firms can maximize value and minimize cost of capital by using as much debt as possible. The Net Operating Income Theory argues capital structure is irrelevant to firm value and cost of capital. The Traditional Theory suggests an optimal debt-equity mix exists. Finally, the Modigliani-Miller Theory states that under certain assumptions, capital structure does not impact firm value or cost of capital, though when taxes are considered, more debt can increase value.
Some of the major different theories of dividend in financial management are as follows: 1. Walter’s model 2. Gordon’s model 3. Modigliani and Miller’s hypothesis.
On the relationship between dividend and the value of the firm different theories have been advanced.
Cost of capital is the minimum rate of return that a company must earn on its investments to maintain its market value and attract funds. It is used to evaluate investment projects and determine the company's capital structure. Cost of capital can be calculated for specific sources like equity, debt, preference shares, and retained earnings using various methods. The overall cost of capital is the weighted average of the costs of each source based on their proportion in the company's capital structure. It is an important concept in financial management for capital budgeting, valuation, and performance evaluation.
The Net Income (NI) approach proposes that a firm's value increases as it takes on more debt financing due to debt generally being a cheaper source of capital than equity. According to the NI approach, the costs of debt and equity remain constant regardless of capital structure, so the overall cost of capital declines as debt levels rise. However, the NI approach assumes unrealistic conditions like taxes being ignored and that more debt does not affect investor risk perceptions. It implies the maximum firm value occurs with 100% debt financing.
This document discusses dividend policy and the various theories around it. It defines dividends and discusses Walter's model and Gordon's model, which propose that dividend policy affects firm value. It also covers the irrelevance theories of Modigliani-Miller and the traditional approach, which argue that dividend policy does not impact value. The document provides formulas for the different models and discusses their assumptions and criticisms.
Definition of leverage, Types of Leverages, meaning of operating leverage, financial leverage, combined leverage, Formulas for Operating and financial leverage, variable cost, fixed cost, EBIT, Contribution, EPS-EBIT Analysis, Income statement, practical problems on leverages, etc.
Transfer pricing refers to the prices charged for goods and services transferred between divisions within the same company. There are several approaches to setting transfer prices, including using market prices, cost-based prices, negotiated prices, or administered prices set by a rule. The objectives of transfer pricing are to provide accurate performance measurement for each division, encourage goal congruence between divisions, and mimic external market prices. Key considerations include using transfer prices that motivate optimal sourcing and production decisions for the entire company.
chapter three interest rates in the financial system.pptxEbsaAbdi
There are two main economic theories that explain how interest rates are determined:
1) Loanable funds theory - Interest rates are determined by the supply and demand of loanable funds in the credit market. Demand comes from entities seeking to borrow, while supply comes from those willing to lend funds.
2) Liquidity preference theory - Interest rates are set by the demand and supply of money balances. Individuals may prefer to hold their wealth in liquid money form rather than invest due to uncertainty, affecting interest rates.
Additionally, the structure of interest rates varies based on factors like maturity, risk, and transaction costs associated with different financial instruments. Riskier loans command higher interest rates as compensation for default risk.
Leverage refers to using debt, borrowed money, or derivative instruments to amplify gains and losses from investments or business operations. There are two types of leverage: operating leverage, which is the use of fixed operating costs, and financial leverage, which is the use of fixed financing costs. The document defines various leverage metrics such as degree of operating leverage (DOL), degree of financial leverage (DFL), and degree of combined leverage (DCL) which measure how changes in sales, operating income, and earnings per share are amplified through the use of leverage.
The document discusses the EBIT-EPS approach for determining appropriate capital structure. The EBIT-EPS approach involves selecting a capital structure that maximizes earnings per share (EPS) over the expected range of earnings before interest and taxes (EBIT). Managers use this approach to balance debt and equity financing by analyzing how different capital structures affect EPS at given EBIT levels. However, the approach does not consider risk premiums associated with higher debt levels and may not always be the best tool for capital structure decisions.
This document discusses various approaches to determining an appropriate capital structure for a business, including the EBIT-EPS approach, valuation approaches using cost of capital and adjusted present value, and cash flow approaches. It provides details on calculating EBIT, EPS, leverage (operating, financial, and combined), and determining the optimal capital structure. Key points covered include the EBIT-EPS analysis method, calculating financial break-even points and indifference points, and applying the adjusted present value valuation approach.
This document discusses different types of financial leverage used by firms, including short-term, medium-term, and long-term leverage as well as ownership and creditorship securities. It also discusses why firms employ borrowed funds through financial leverage, such as to gain tax advantages and earn returns higher than interest rates. Methods for calculating financial leverage ratios are presented, including debt ratio, debt-equity ratio, and interest coverage ratio. The impact of financial leverage on earnings per share, return on equity, and return on investment is explained through EBIT-EPS analysis. Operating leverage and its relationship to financial leverage in determining a firm's overall combined leverage and risk is also covered.
The document discusses various aspects of capital structure including:
- Defining capital structure and the components that make up a company's financial structure
- Approaches to determine the appropriate capital structure such as EBIT-EPS, valuation, and cash flow approaches
- The concept of optimal capital structure which maximizes share price value and minimizes cost of capital
- Different forms of capital structure such as equity only, combinations of equity and debt, etc.
- The concepts of leverage including operating, financial, and combined leverage and how they impact risk and returns
Capital structure theories - NI Approach, NOI approach & MM ApproachSundar B N
Capital structure theories - NI Approach, NOI approach & MM Approach. Meaning of capital structure , Features of An Appropriate Capital Structure, Determinants of Capital Structure, Planning the Capital Structure Important Considerations,
Financial leverage refers to raising funds through long-term debt and preference shares that incur fixed financing charges. Degree of financial leverage is measured as the percentage change in EPS divided by the percentage change in EBIT. It is also calculated as the ratio of EBIT to earnings before tax.
Operating leverage refers to the use of fixed operating costs in a firm's operations. It is calculated as the ratio of contribution to EBIT. Combined leverage is the product of operating leverage and financial leverage.
EBIT-EPS analysis assesses the impact of different financial proposals on shareholder value by calculating EPS under each proposal. The proposal with the highest EPS is selected. Indifference point is the level of EBIT where EPS is
This document discusses capital structure, leverage, and cost of capital. It defines capital structure as how a firm finances its operations through various sources of funds like debt and equity. Capital structure planning is important for long-term survival and makes the balance sheet strong. Optimal capital structure seeks to lower cost of capital and maximize firm value. Leverage refers to using assets or funds with fixed costs to magnify returns, and there are three types: operating, financial, and combined. Cost of capital includes return at zero risk, business risk premium, and financial risk premium. It is used for capital budgeting, determining capital mix, and evaluating financial performance.
The document discusses various methods of financing for businesses. It describes capital structure as the combination of debt and equity used to finance a company's assets. It then discusses three main methods of financing - equity financing, debt financing, and lease financing. Equity financing involves selling ownership stakes, debt financing involves taking loans that must be repaid with interest, and lease financing allows using assets without ownership through rental agreements.
EVA was developed as a performance measurement tool to evaluate whether a company is creating shareholder value. It measures profits generated after deducting the cost of capital used to generate those profits. EVA is calculated by subtracting the weighted average cost of capital (WACC) from net operating profit after tax (NOPAT). While ROI only considers profits in relation to assets without accounting for cost of capital, EVA is considered a better measure because it incorporates the minimum return expected by investors and shows whether the company has exceeded that threshold to create economic value. EVA motivates managers to take actions that increase shareholder value by focusing on long-term profitability over revenue or earnings alone.
Leverage and sharia law b.v.raghunandanSVS College
This document discusses leverages and Sharia law. It defines leverage as cost-volume-profit analysis where costs are divided into fixed and variable costs. Economists derived the break-even point, which is a managerial decision making tool. Operating leverage measures the impact of sales changes on earnings before interest and taxes, while financial leverage measures the impact on earnings per share. Sharia law prohibits interest but allows profit sharing, contributing to sustainable financial management principles like absorbing risk rather than hedging with derivatives.
Leverage and sharia law b.v.raghunandanSVS College
This document discusses leverages and Sharia law. It defines leverage as cost-volume-profit analysis where costs are divided into fixed and variable costs. Economists derived the break-even point, which is a managerial decision making tool. Operating leverage measures the impact of sales changes on earnings before interest and taxes, while financial leverage measures the impact on earnings per share. Sharia law prohibits interest but allows profit sharing, contributing to sustainable financial management principles like absorbing risk rather than hedging with derivatives.
Analysis and Interpretation of Financial Statement.pptxmarvinrosel4
The document discusses various techniques for analyzing financial statements, including horizontal analysis, vertical analysis, ratio analysis, and calculations. It defines each technique and provides examples of key financial ratios used to evaluate a company's profitability, liquidity, solvency, operational efficiency, and financial health. These ratios include gross profit margin, return on assets, current ratio, debt-to-equity ratio, inventory turnover, and accounts receivable turnover. The document aims to teach learners how to interpret financial statement data using these analytical methods.
The document defines capital structure as the composition of a company's long-term financing, including loans, reserves, shares, and bonds. It discusses factors that influence a company's capital structure such as financial leverage, risk, growth, and cost of capital. It also discusses the concept of an optimal capital structure that maximizes firm value. The document then covers related topics like the point of indifference, types of leverage including financial and operating leverage, and how they impact a company's earnings.
The document defines capital structure as the permanent long-term financing of a company, including long-term debt, common stock, preferred stock, and retained earnings. It discusses the concept of optimal capital structure, which minimizes a firm's cost of capital. The document also outlines various approaches to establishing capital structure, including EBIT-EPS analysis and cash flow analysis. It evaluates capital structure based on factors like flexibility, risk, return, and control.
This document discusses capital structure and leverage. It defines capital structure as the composition of a company's long-term capital sources including loans, reserves, shares and bonds. The optimal capital structure maximizes firm value by balancing the use of debt and equity. Leverage refers to a company's use of fixed-cost funds, like debt, to increase returns to shareholders. Both financial leverage and operating leverage can magnify the impact of changes in revenues and earnings but also increase business risk.
The document discusses various concepts related to corporate finance and leverage. It defines financial leverage as using fixed financial charges to magnify the effects of changes in EBIT on earnings per share. It also defines operating leverage as a company's ability to use fixed operating costs to magnify the effects of sales changes on earnings before interest and taxes. Combined leverage is when a company uses both financial and operating leverage to magnify changes in sales into larger changes in earnings per share. The document also discusses capital structure theories including the net income approach, traditional approach, and Modigliani-Miller approach.
Leverage - Financial, Operating and CombinedJithin Thomas
Leverage refers to assets or sources of finance that a firm uses which require fixed payments. There are three types of leverage: operating, financial, and combined. Operating leverage is caused by fixed operating expenses and measures how changes in sales impact earnings before interest and taxes. Financial leverage is caused by fixed financial costs like interest and measures how changes in earnings before interest and taxes affect earnings per share. Combined leverage multiplies the effects of operating and financial leverage and represents the total risk faced by a firm.
This document discusses financial statement ratio analysis. It explains that ratio analysis evaluates relationships within financial statements to provide insights into a company's performance relative to peers and over time. Differences in ratios can be due to strategy, management effectiveness, accounting methods, or financial strategy. The DuPont formula breaks return on equity into net profit margin, asset turnover, and financial leverage. Various liquidity and solvency ratios are also discussed.
The document discusses capital structure, which refers to the composition of a company's long-term financing, including loans, reserves, shares, and bonds. It outlines factors that influence a company's capital structure, both internal factors like financial leverage and risk, and external factors like industry trends and availability of funds. The document also discusses the concept of an optimal capital structure that maximizes firm value and minimizes cost of capital, and explains the point of indifference where earnings per share remains the same regardless of the debt-equity mix. Leverage is defined as a company's ability to use fixed-cost assets or funds to increase returns to owners, and different types of leverage including financial, operating, combined, and working capital leverage are described
The document discusses John Rawls' theory of justice as presented in his book "A Theory of Justice". It summarizes some of Rawls' key ideas including the original position, veil of ignorance, difference principle, and justice as fairness. Rawls proposes two principles of justice: 1) equal basic liberties for all, and 2) inequalities must benefit the least advantaged and arise from fair equality of opportunity. He argues justice should be defined by impartial principles that would be agreed to from an initial position of equality.
CONCEPTUAL FRAMEWORK OF FASB:OBJECTIVES, PROFESSIONAL ETHICSAman Thakur
This document discusses the conceptual framework of the Financial Accounting Standards Board (FASB). It defines the conceptual framework as a coherent system that provides guidance for developing consistent accounting standards. It discusses the objectives of the conceptual framework, which are to provide useful information to decision makers. The key issues in developing conceptual frameworks are discussed, including principles-based versus rules-based standards, information for decision making, and users of accounting information. The document also covers definitions of elements in financial statements such as assets, liabilities, and equity.
Approaches to determine appropriate capital structure - EBIT-EPS Approch
anybody can join my google class (financial Mangement)
by entering class code : avkkvj5
The document discusses capital structure and its theories. It defines capital structure as the proportion of long-term debt and equity used to finance a company's assets. It then discusses various determinants of capital structure and different capital structure theories, including the net income, net operating income, traditional, and Modigliani-Miller approaches. The document also covers the concept of point of indifference in capital structure and how to calculate earnings per share under different financing alternatives using an example company.
An accepting house is a British financial institution that specializes in accepting and guaranteeing bills of exchange, facilitating lending. They guarantee bills, using their financial reputation to charge fees. Accepting houses provide liquidity to secondary markets and banking services domestically and abroad. The Accepting Houses Committee represents accepting houses to coordinate with the Treasury and Bank of England on policy.
This document discusses corporate-level strategy, which involves selecting different businesses and industries for a firm to compete in order to gain a competitive advantage. It defines diversification and different levels and types. Reasons for diversification include gaining market power, capturing synergies between business units, and financial motives. Related diversification seeks economies of scope while unrelated diversification pursues financial synergies. The document analyzes strategies of companies like P&G, J&J, Campbell Soup, United Technologies, and Textron. It also discusses portfolio analysis tools for evaluating a firm's mix of businesses.
Situational theory focuses on follower characteristics as the key situational element in determining effective leadership. The theory proposes that a leader's style should depend on follower readiness, with telling, selling, participating, and delegating styles being used for followers with low, moderate, high, and very high readiness respectively. The Hersey-Blanchard model depicts leadership styles based on the amount of task-oriented and relationship-oriented behavior a leader exhibits, with the optimal style dependent on follower willingness and ability.
This document describes different types of cash books used to record cash transactions. A cash book is a book of primary entry that records all cash receipts on the debit side and cash payments on the credit side. It serves as both a journal and ledger for the cash account. The key types discussed are simple, double-column, and triple-column cash books. A simple cash book records cash transactions in one column, while double-column and triple-column cash books record cash and additional accounts like discounts or bank in multiple columns. Petty cash books are also mentioned for recording small expenses.
The document discusses the key aspects of a cash book, which is used to record all cash receipts and payments. It notes that a cash book has two parts - cash receipts and cash payments. Transactions are recorded chronologically with receipts on the debit side and payments on the credit side. The cash book serves as both a journal and ledger. It allows the business owner to ascertain cash and bank balances without physically counting amounts. The document also discusses features of double-column and triple-column cash books, which include additional columns for discounts, and contra entries that affect both cash and bank balances.
The document discusses ledgers and their role in accounting. It defines a ledger as the principal book of accounting that contains accounts where transactions are recorded. A ledger collects all accounts from journals and allows the net result of transactions for a particular account on a given date to be ascertained. It provides details on ledger format and maintenance, including how ledgers are composed by posting transactions from other books, can include subsidiary ledgers, and are balanced to maintain the accounting equation.
The document defines what a journal is and describes the different types of accounts. It then provides more details about each type:
- A journal is a book of original entry where transactions are first recorded before being posted to ledgers. It defines three types of accounts: personal, real, and nominal.
- Personal accounts record transactions with individuals or entities. Real accounts relate to assets. Nominal accounts relate to income/expenses and increase/decrease equity.
- The document outlines rules for debit and credit entries. Assets and expenses are increased by debits, and liabilities/equity/revenues are increased by credits. Total debits must equal total credits for each transaction.
A workshop hosted by the South African Journal of Science aimed at postgraduate students and early career researchers with little or no experience in writing and publishing journal articles.
Main Java[All of the Base Concepts}.docxadhitya5119
This is part 1 of my Java Learning Journey. This Contains Custom methods, classes, constructors, packages, multithreading , try- catch block, finally block and more.
Assessment and Planning in Educational technology.pptxKavitha Krishnan
In an education system, it is understood that assessment is only for the students, but on the other hand, the Assessment of teachers is also an important aspect of the education system that ensures teachers are providing high-quality instruction to students. The assessment process can be used to provide feedback and support for professional development, to inform decisions about teacher retention or promotion, or to evaluate teacher effectiveness for accountability purposes.
Exploiting Artificial Intelligence for Empowering Researchers and Faculty, In...Dr. Vinod Kumar Kanvaria
Exploiting Artificial Intelligence for Empowering Researchers and Faculty,
International FDP on Fundamentals of Research in Social Sciences
at Integral University, Lucknow, 06.06.2024
By Dr. Vinod Kumar Kanvaria
Physiology and chemistry of skin and pigmentation, hairs, scalp, lips and nail, Cleansing cream, Lotions, Face powders, Face packs, Lipsticks, Bath products, soaps and baby product,
Preparation and standardization of the following : Tonic, Bleaches, Dentifrices and Mouth washes & Tooth Pastes, Cosmetics for Nails.
ISO/IEC 27001, ISO/IEC 42001, and GDPR: Best Practices for Implementation and...PECB
Denis is a dynamic and results-driven Chief Information Officer (CIO) with a distinguished career spanning information systems analysis and technical project management. With a proven track record of spearheading the design and delivery of cutting-edge Information Management solutions, he has consistently elevated business operations, streamlined reporting functions, and maximized process efficiency.
Certified as an ISO/IEC 27001: Information Security Management Systems (ISMS) Lead Implementer, Data Protection Officer, and Cyber Risks Analyst, Denis brings a heightened focus on data security, privacy, and cyber resilience to every endeavor.
His expertise extends across a diverse spectrum of reporting, database, and web development applications, underpinned by an exceptional grasp of data storage and virtualization technologies. His proficiency in application testing, database administration, and data cleansing ensures seamless execution of complex projects.
What sets Denis apart is his comprehensive understanding of Business and Systems Analysis technologies, honed through involvement in all phases of the Software Development Lifecycle (SDLC). From meticulous requirements gathering to precise analysis, innovative design, rigorous development, thorough testing, and successful implementation, he has consistently delivered exceptional results.
Throughout his career, he has taken on multifaceted roles, from leading technical project management teams to owning solutions that drive operational excellence. His conscientious and proactive approach is unwavering, whether he is working independently or collaboratively within a team. His ability to connect with colleagues on a personal level underscores his commitment to fostering a harmonious and productive workplace environment.
Date: May 29, 2024
Tags: Information Security, ISO/IEC 27001, ISO/IEC 42001, Artificial Intelligence, GDPR
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Training: ISO/IEC 27001 Information Security Management System - EN | PECB
ISO/IEC 42001 Artificial Intelligence Management System - EN | PECB
General Data Protection Regulation (GDPR) - Training Courses - EN | PECB
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Article: https://pecb.com/article
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How to Build a Module in Odoo 17 Using the Scaffold MethodCeline George
Odoo provides an option for creating a module by using a single line command. By using this command the user can make a whole structure of a module. It is very easy for a beginner to make a module. There is no need to make each file manually. This slide will show how to create a module using the scaffold method.
3. EBI T – EPS Approach –
• The EPS-EBIT approach to capital structure involves selecting the
capital structure that maximizes EPS over the expected range of
EBIT.
• Using ths approach, the emphasis is on maximizing the owners
returns (EPS).
• The EBIT-EPS approach can help balance a company's debt with its
equity.
• Effective business management requires careful planning and
decision-making about the balance of debt and equity used in
financing the business.
4. EBI T – EPS Approach –
• The EBIT-EPS approach is one method available to managers
to guide them in making decisions about capital structure.
• The EBIT-EPS approach is one tool managers use to decide on
the right mix of debt and equity financing in a business's
capital structure.
• To benefit from the EBIT-EPS approach, it helps to understand
the basics of how it works, as well as its advantages and
drawbacks.
5. EBI T – EPS Approach –
• In the EBIT-EPS approach, the business plots graphs of its
performance at different possible debt-to-equity ratios, such as
40 percent debt to 60 percent equity.
• In a basic graph, the earnings per share as a data point is
plotted for each level of earnings before interest and taxes at
different debt-to-equity ratios.
• The graph is then analyzed to determine the ideal level of debt-
to-equity for the business.
6. EBIT/EPS ANALYSIS
• It design various alternatives of debt, equity and preference shares in
order to maximize the EPS at a given level of EBIT.
• It examines how different capital structures affect earnings available
to shareholders (Earning Per Share).
• It is the analysis of the effect of financing alternatives on earnings
per share.
• To design the capital structure of the firm in such a way so as to
minimize the cost of capital.
• EBIT-EPS analysis is a method to study the effect of leverage under
alternative methods of financing.
8. CALCULATION OF EPS:
EBIT : xxxxx
(-)INTERSET : xxx
=EBT : xxxxx
(-)TAX : xx
=Earning for ESH : xxxxx
(÷) No. of E.S : xxx
= EPS {Earning Per Share} xxx
9. EBIT – EPS BREAK EVEN ANALYSIS:
• The EBIT level at which the EPS is the same for two
alternative financial plan is referred to as the indifference
point/level.
• Financial break even point obtained by a company at a given
level of EBIT for which the firm’s EPS is zero.
• If EBIT is less than financial break even point, then the EPS is
negative.
• If EBIT is more than the financial break even point, then more
and more fixed cost financing option can be used by a firm.
10. DRAWBACKS
• The EBIT-EPS approach is not always the best tool for making
decisions about capital structuring.
• The EBIT-EPS approach places heavy emphasis on maximizing
earnings per share rather than controlling costs and limiting risk.
• It's important to keep in mind that as debt financing increases,
investors should expect a higher return to account for the greater
risk; this is known as a risk premium.
• The EBIT-EPS approach does not factor this risk premium into the
cost of financing, which can have the effect of making a higher level
of debt seem more advantageous for investors than it actually is.
11. LEVERAGE
Leverage is the employment of an asset/source of finance for
which firm pay fixed cost/fixed return. It may of three types:
• Operating Leverage
• Financial Leverage
• Combined Leverage
12. OPERATING LEVERAGE
• It may be defined as the firm’s ability to use fixed operating
costs to magnify the effects of changes in sales on its earnings
before interest and taxes.
• Operating leverage is associated with investment (assets
acquisition) activities.
• Degree of Operating Leverage (DOL) = Percentage change in
EBIT / Percentage change in sales
13. FINANCIAL LEVERAGE
• Financial leverage is the ability of the firm to use fixed
financial charges to magnify the effects of changes in EBIT on
the firm’s earnings per share.
• Degree of financial leverage (DFL)= Percentage change in
EPS divided by Percentage change in EBIT
14. COMBINED LEVERAGE
• The degree of combined leverage may be defined as the
percentage change in EPS due to the percentage change in
sales.
• Thus the combined leverage is:
CL
%Changein EBIT
%changein sales
*
%Changein EPS
%Changein EBIT
%changein EPS
%Changesales
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