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The capital structure of super Trading Company consist of an equity shares capital rupees 10 lakh shares of rupees hundred each and rupees 10 lakh of 10% debentures sales are increased by 20% from 1 lakh units to 120000 unit the selling price is rupees 10 per unit variable cost is rupees 6% per unit and fixed cost amount of rupees 200000 the income tax rate is 50% you are required to calculate Earning per share financial leverage and operating leverage?
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The capital structure of super Trading Company consist of an equity sh...
Capital Structure of Super Trading Company:
- Equity Share Capital: Rs. 10 lakh (100,000 shares of Rs. 100 each)
- Debentures: Rs. 10 lakh of 10% debentures
Calculation of Earnings per Share (EPS):
Earnings per Share (EPS) is a measure of the company's profitability per share. It is calculated by dividing the net income (earnings after taxes and interest) by the number of outstanding equity shares.
To calculate EPS, we need to determine the net income first.
1. Calculation of Net Income:
- Selling Price per Unit: Rs. 10
- Variable Cost per Unit: Rs. 6
- Fixed Cost: Rs. 200,000
- Sales Increase: From 100,000 units to 120,000 units
Total Sales Revenue:
= Selling Price per Unit * Number of Units
= Rs. 10 * 120,000
= Rs. 1,200,000
Total Variable Cost:
= Variable Cost per Unit * Number of Units
= Rs. 6 * 120,000
= Rs. 720,000
Total Contribution Margin:
= Total Sales Revenue - Total Variable Cost
= Rs. 1,200,000 - Rs. 720,000
= Rs. 480,000
Total Fixed Cost: Rs. 200,000
Operating Income (EBIT):
= Total Contribution Margin - Total Fixed Cost
= Rs. 480,000 - Rs. 200,000
= Rs. 280,000
Income Before Taxes and Interest:
= Operating Income (EBIT) - Interest on Debentures
= Rs. 280,000 - (10% of Rs. 10,00,000)
= Rs. 280,000 - Rs. 100,000
= Rs. 180,000
Net Income:
= Income Before Taxes and Interest - Income Tax Expense
= Rs. 180,000 - (50% of Rs. 180,000)
= Rs. 180,000 - Rs. 90,000
= Rs. 90,000
2. Calculation of EPS:
EPS = Net Income / Number of Equity Shares
= Rs. 90,000 / 100,000
= Rs. 0.90 per share
Calculation of Financial Leverage:
Financial leverage measures the extent to which a firm uses debt financing. It is calculated using the debt-to-equity ratio.
Debt-to-Equity Ratio:
= Total Debt / Total Equity
= Rs. 10,00,000 / Rs. 10,00,000
= 1:1
Calculation of Operating Leverage:
Operating leverage measures the fixed costs in a company's cost structure. It is calculated using the contribution margin ratio.
Contribution Margin Ratio:
= Contribution Margin / Sales Revenue
= Rs. 480,000 / Rs. 1,200,000
= 0.4 or 40%
Explanation:
- Earnings per Share (EPS) is a measure of the company's profitability per share. It indicates the amount of profit available to each equity shareholder.
- Financial leverage measures the use of debt financing in a company's capital structure. A higher debt-to-equity ratio indicates higher
- Equity Share Capital: Rs. 10 lakh (100,000 shares of Rs. 100 each)
- Debentures: Rs. 10 lakh of 10% debentures
Calculation of Earnings per Share (EPS):
Earnings per Share (EPS) is a measure of the company's profitability per share. It is calculated by dividing the net income (earnings after taxes and interest) by the number of outstanding equity shares.
To calculate EPS, we need to determine the net income first.
1. Calculation of Net Income:
- Selling Price per Unit: Rs. 10
- Variable Cost per Unit: Rs. 6
- Fixed Cost: Rs. 200,000
- Sales Increase: From 100,000 units to 120,000 units
Total Sales Revenue:
= Selling Price per Unit * Number of Units
= Rs. 10 * 120,000
= Rs. 1,200,000
Total Variable Cost:
= Variable Cost per Unit * Number of Units
= Rs. 6 * 120,000
= Rs. 720,000
Total Contribution Margin:
= Total Sales Revenue - Total Variable Cost
= Rs. 1,200,000 - Rs. 720,000
= Rs. 480,000
Total Fixed Cost: Rs. 200,000
Operating Income (EBIT):
= Total Contribution Margin - Total Fixed Cost
= Rs. 480,000 - Rs. 200,000
= Rs. 280,000
Income Before Taxes and Interest:
= Operating Income (EBIT) - Interest on Debentures
= Rs. 280,000 - (10% of Rs. 10,00,000)
= Rs. 280,000 - Rs. 100,000
= Rs. 180,000
Net Income:
= Income Before Taxes and Interest - Income Tax Expense
= Rs. 180,000 - (50% of Rs. 180,000)
= Rs. 180,000 - Rs. 90,000
= Rs. 90,000
2. Calculation of EPS:
EPS = Net Income / Number of Equity Shares
= Rs. 90,000 / 100,000
= Rs. 0.90 per share
Calculation of Financial Leverage:
Financial leverage measures the extent to which a firm uses debt financing. It is calculated using the debt-to-equity ratio.
Debt-to-Equity Ratio:
= Total Debt / Total Equity
= Rs. 10,00,000 / Rs. 10,00,000
= 1:1
Calculation of Operating Leverage:
Operating leverage measures the fixed costs in a company's cost structure. It is calculated using the contribution margin ratio.
Contribution Margin Ratio:
= Contribution Margin / Sales Revenue
= Rs. 480,000 / Rs. 1,200,000
= 0.4 or 40%
Explanation:
- Earnings per Share (EPS) is a measure of the company's profitability per share. It indicates the amount of profit available to each equity shareholder.
- Financial leverage measures the use of debt financing in a company's capital structure. A higher debt-to-equity ratio indicates higher
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The capital structure of super Trading Company consist of an equity shares capital rupees 10 lakh shares of rupees hundred each and rupees 10 lakh of 10% debentures sales are increased by 20% from 1 lakh units to 120000 unit the selling price is rupees 10 per unit variable cost is rupees 6% per unit and fixed cost amount of rupees 200000 the income tax rate is 50% you are required to calculate Earning per share financial leverage and operating leverage?
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The capital structure of super Trading Company consist of an equity shares capital rupees 10 lakh shares of rupees hundred each and rupees 10 lakh of 10% debentures sales are increased by 20% from 1 lakh units to 120000 unit the selling price is rupees 10 per unit variable cost is rupees 6% per unit and fixed cost amount of rupees 200000 the income tax rate is 50% you are required to calculate Earning per share financial leverage and operating leverage? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about The capital structure of super Trading Company consist of an equity shares capital rupees 10 lakh shares of rupees hundred each and rupees 10 lakh of 10% debentures sales are increased by 20% from 1 lakh units to 120000 unit the selling price is rupees 10 per unit variable cost is rupees 6% per unit and fixed cost amount of rupees 200000 the income tax rate is 50% you are required to calculate Earning per share financial leverage and operating leverage? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for The capital structure of super Trading Company consist of an equity shares capital rupees 10 lakh shares of rupees hundred each and rupees 10 lakh of 10% debentures sales are increased by 20% from 1 lakh units to 120000 unit the selling price is rupees 10 per unit variable cost is rupees 6% per unit and fixed cost amount of rupees 200000 the income tax rate is 50% you are required to calculate Earning per share financial leverage and operating leverage?.
The capital structure of super Trading Company consist of an equity shares capital rupees 10 lakh shares of rupees hundred each and rupees 10 lakh of 10% debentures sales are increased by 20% from 1 lakh units to 120000 unit the selling price is rupees 10 per unit variable cost is rupees 6% per unit and fixed cost amount of rupees 200000 the income tax rate is 50% you are required to calculate Earning per share financial leverage and operating leverage? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about The capital structure of super Trading Company consist of an equity shares capital rupees 10 lakh shares of rupees hundred each and rupees 10 lakh of 10% debentures sales are increased by 20% from 1 lakh units to 120000 unit the selling price is rupees 10 per unit variable cost is rupees 6% per unit and fixed cost amount of rupees 200000 the income tax rate is 50% you are required to calculate Earning per share financial leverage and operating leverage? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for The capital structure of super Trading Company consist of an equity shares capital rupees 10 lakh shares of rupees hundred each and rupees 10 lakh of 10% debentures sales are increased by 20% from 1 lakh units to 120000 unit the selling price is rupees 10 per unit variable cost is rupees 6% per unit and fixed cost amount of rupees 200000 the income tax rate is 50% you are required to calculate Earning per share financial leverage and operating leverage?.
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