Following is the Balance Sheet of EXIM Ltd. as on 31 st March, 2024: Liabilities ₹ Assets ₹ Equity Share Capital of 100 each 20,00,000 Fixed Assets…

CA Intermediate · Financial Management and Strategic Management · PYQS · January 2025
Following is the Balance Sheet of EXIM Ltd. as on 31 st March, 2024: Liabilities ₹ Assets ₹ Equity Share Capital of 100 each 20,00,000 Fixed Assets 50,00,000 Retained Earnings 4,00,000 Current Assets 30,00,000 12.5% Debenture 40,00,000 Current Liabilities 16,00,000 80,00,000 80,00,000 The additional information is given as under: Fixed costs per annum (exclusive interest) :16,00,000 Variable operating cost ratio : 70% Total Assets turnover ratio : 2.5 Income tax rate : 30% You are required to calculate: (i) Earnings Per Share (ii) Operating Leverage (iii) Financial Leverage (iv) Combined Leverage

Suggested Answer and Working Notes:

Workings: Total Assets = 80 lakhs Total Asset Turnover Ratio = 2.5 Hence, Total Sales = 80 x 2.5 = 200 lakhs Computation of Profit after Tax (PAT) (₹ in lakhs) Sales 200.00 Less: Variable Operating Cost @ 70% 140.00 Contribution 60.00 Less: Fixed Cost (other than Interest) 16.00 EBIT 44.00 Less: Interest on Debentures (12.5% × 40 lakhs) 5.00 PBT 39.00 Less: Tax @ 30% 11.70 PAT 27.30 (i) Earnings per Share EPS = PAT / Number of Equity Shares = 27.30 lakhs / 20,000 = 136.5 (ii) Operating Leverage Operating Leverage = Contribution / EBIT = 60 lakhs /44 lakhs = 1.363 (iii) Financial Leverage Financial Leverage = EBIT / PBT = 44 lakhs /39 lakhs = 1.128 (iv) Combined Leverage Combined Leverage = Contribution / EBIT × EBIT / PBT Or, = Operating Leverage × Financial Leverage = 1.363 x 1.128 = 1.538

Topics: Part-A: Financial Management

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