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5.calculation of EPS

Plan 1 is better when EBIT is low and Plan 2 is better when EBIT is high. The break-even or indifference EBIT level at which EPS is equal for both plans is Rs. 28 lakhs.

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1K views6 pages

5.calculation of EPS

Plan 1 is better when EBIT is low and Plan 2 is better when EBIT is high. The break-even or indifference EBIT level at which EPS is equal for both plans is Rs. 28 lakhs.

Uploaded by

Vinitga
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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CALCULCATION OF EPS

EBIT ……………………………………………. xxx


LESS: INTEREST ………………………. xxx
EBT ……………………… xxx
LESS: TAX ……………………… xxx
EAT ……………………… xxx
LESS: PREF. DIVIDEND (if any) …. xxx
EAS ……………………… xxx
EPS = EAS
Ne
• EBIT  Earnings Before Interest and Tax

• EBT  Earnings Before Tax

• EAT  Earnings After Tax

• EAS  Earnings Available to Share holders

• EPS  Earnings Per Share

• Ne  Number of equity shares

• Interest  Interest for all Debentures and loans


EBIT – EPS ANALYSIS
A Company has in its Capital Structure as follows:
• 10,00,000 equity shares of Rs.10 each – 1,00,00,000
• The company wants additional finance of Rs.1,00,00,000
for expansion.
• Two plans for additional Fund.
 Plan 1 – Issue of equity shares (10,00,000 @10 each)
 Plan 2 – Issue of Debentures for 10,00,00,000 @
14% Interest.
• Advise which plan is the best plan by assuming different
level of EBIT.
• Assume Tax Rate = 50%
PLAN 1 PLAN 2
EBIT
(Assumed) 20,00,000 40,00,000 20,00,000 40,00,000
(-) Interest -- -- 14,00,000 14,00,000

EBT 20,00,000 40,00,000 6,00,000 26,00,000


(-) Tax 50% 10,00,000 20,00,000 3,00,000 13,00,000

EAT 10,00,000 20,00,000 3,00,000 13,00,000


(-) Pref. Dividend -- -- -- --

EAS 10,00,000 20,00,000 3,00,000 13,00,000


EPS 10,00,000 20,00,000 3,00,000 13,00,000

20,00,000 20,00,000 10,00,000 10,00,000


EPS 0.50 1 0.30 1.30

When EBIT is low, Plan 1 is good


 When EBIT is high, Plan 2 is good
So, Find Break even EBIT (or) indifference EBIT
1.4
PLAN 2
1.2

1 PLAN 1
EPS (IN RUPEES)

0.8
Series 1
0.6 Series 2
0.4

0.2

0
10 20 28 30 40
EBIT (IN LAKHS)

BREAK EVEN EBIT  28,00,000


EPS  0.70
PLAN 1 PLAN 2
EBIT 28,00,000 28,00,000
(-) Interest -- 14,00,000
EBT 28,00,000 14,00,000
(-) Tax 50% 14,00,000 7,00,000
EAT 14,00,000 7,00,000
(-) Pref. Dividend -- --
EAS 14,00,000 7,00,000
EPS 14,00,000 7,00,000

20,00,000 10,00,000
EPS 0.70 0.70

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