⑰

Leverages.
① Ince statement
sales
-
VC

contribution
FC
Coperating) ->
operating EC
-

EBIT

Interest-on
97ntrge
en
-

--
EBT
-

Tax

EAT

ref Dir
-

availabletoes shareint

Estancing
-
Measure
-- afleisk
④ -
Leverges

her
financial bene
wage
Leverage

pating
combined
DCL DOLYDFL
=

in
contribution
DFL=
DCL= -

EBIT--utpic
I t
-

(1-t

if Prefsiv missing
is

DOL-
BIT DELE
DFL=
DCL-EPS
.win sales
so in contribution %Win EBIT ↳Contributio
or %in sales
 sales
AssetTurnover Ratio--
0
3
a Assets

5-
I
t

eat CA
3 =-
Sales
10L
CL

30L
- -

TotalLiabilities TotalAsset
loL - -
-
-
-
<

④ Pluratio- duties, as
sales
rationplusatio
⑤ Breakevens Point
BER Financial BEP Combined BEP
operating
That Level asales at
->
That
Level of 1 That
Level ofsales at
atwhich EPS 0 which EPS 0
which EBITO
=

= =

Combined BEP
operating BEP Financial
BEP= Inttepin
linnits)
-> FCT Inter
->

( E)
=

It
⑫ Gont u
#xSP CinES
Centu =>
FCTEnt+Relpiv

aut),
s

moratio (int)

t)
->

plucatio
⑥

cran-
aniesten
bee

(ROI
favorablewage, Intrate

> RoI
unfavorable severages Intrate

Dewerage magiggengty

S
IM lesting ->
OBT

n ene
nme
⑧
mm
of RoE ⑰0
company Business
Equity->s00

Bripic
&%
prefsnares
Debt
aut
->

->
Soc

low e
ROE
(Roz)(1-t) E(02)(1-t) pD] [RO1-Int(1-t)
-

+
=
+

sam24-0-19t [20%-Bit
-

cm,20; (130) + (1-30%

20ce

sie
2x
->

Loo 1yytm (nyulatm

14%
=>
+0.5/ + 42;

E
ROEf -
⑪ ↳Analysis
① Ratio are should be linked
they
-

Denominatal

ous sales
As pectors

② Income statement sale= 500

-
1095 =-120
Sales XXX
>380
-cons I
GP D

operating exp -> ex:

(Admin/officeexp/selling exp/Distribution exp
↑

op elating Incmel-er:Realty etc.

- profit
operating
Non
operating exp
-

(ex:Rentreceived. Int received,Divided rec

T Non
operating Incomes
Profit
Net

are least
ene
sprations
a
gator t -
 operating
stratio ep/Adeed)
-

alo
sales

operating pretation operating

stratio-10s

④ Contribution sale ratio (PV ratio) -tioy10

sales
sales
E
contribution (radio 100
-

Coverage
-
Ratios

①
EBIT
Interest coverage ratio:
terest
#

② EAT
Prefpiv crelage ratio: ReefDix

③ Div EAES
Equity Evelage ratio-
Div
Equity

④ Dividend CoverageNatio - EAT

Equity Diriv
-
-

EBIT
⑯ Find
charge bilage ratio- --

Interest - Prepir

⑧ Debtservice Grelay ratio-AT+ Interest-anaping

Interest - Instalment(principalamount)
 ⑬TI
&tent

egehagit -
-
5

Payable ->

reciation
Ar t lash
Nanapraxi/N
+

Instalme
Interest
 Turnwer Ratios
--
(time)
① StockTunnel Ratio: COGS Corsales)
Average Stock

⑦ Debtors Tunervation-creditsales
Average/peptoly+BIR) AU Al Receivable

credit Purchases
③ creditors TrnwerRatio--
Average (creditor B10)
+
Ar AK Payable

④ Working capital Tunnellatio-

Average WC CCA-C

⑤ FA Tunnel Ratio= -
sales -

Average FA

⑥ Capital sales
Tunnel Ratio-- -

Average capitalemployed
 structure
Ratios

ige
Eerier
Pref
Debt
Shares PSC

Dett
EquityRatio
ity(ESMETPSC) =
① -
as

②
funds-Eamiy-
Debt to total = 0.33

funds-
Equity to
equy
③ Total = 0.67

Debt
->
find finance
④ Capital Gearingratio- +Prefse a
ESHF -> wor fixedcost
sources of finance

- Hans
use

equptiRE=>
Equity -> ESH7+PSC

Equity
=

ES17*Y
 Licenidity Ratio
① Ratio-
Current Asset
current singility

② QuickRatio -
Asset -> CA-Stock -

Prepaidexp
testRation currentLiabilities
(Alid Liability
Current

Ciauidityration
③ Absolute castratio-Absolute land
asset
CL

④ Basic
Deffenceinterval measure-sets = 136000
⑳
cash
exp per day
days
int
grabso
the
-

dayadayo
E
⑳
sagne
- Absoluteliquid Asset
Marketablesecurities

re -> QuickAsset

Stock
- CA
prepaid exp

A AA
A 22
CL
 canal
day, June

·
Return on Investment Return an
Enginee
Return on capital employed
CROCE)

i
egrets
= -

ESHETPSC+Debt ESHF+PSC
⑪

CE= FA+ CA-CL

Dett
CL
-
-

-
I -
-

Debt
CapitalEmplyed-Equity +
-
ESNF+PSC
Debt
ESHI +PSC+
=

o
FA + CA-CL
=

Ete
 RoE
e RONO

EBIT(1-t)

espect as
--

or Int
 Miscellaneous Ratio
available to Equityshares
⑦ EPS=
Earning
No of equity shares

⑧
Dividendrate Dividedout ratio Dividendyield

Dividend
-- 3/00 Dividend
- I 100 Dividend
--- 100

Falvalue Price
Market
Earning

⑭ easy a

③ Book valuepershareCasper BIs) -

woag Equity share

-
Bookvalue -
Market value Fale value
↑ D X

Balance sheet The value written

value
At
which price
includes the trading as instrument
it
market
&S/pressin occurs in

④ MVTOBV=
⑭Analysis

onRaton Raton
①
NetProfit MangixAssetsuevery multiplier
Equity
a
-

Equity

- Profit x
Net -
- Profit
Net
sales Assets Shareholders Equity shareholdersEquity

② Capitaltunnery Netoperating - Return on Investment

ratio
profitratio
Sales it-Net Profit
x

cast
-
sales
Capitalemployed employed

Savathai hati Samyho Daghatha Chati

Tuneer ratio
① FA us & FA D Tuneerdatio

-
sales VS F
FA sales

TEN
GURU I EpugI
 Times Times
Fre
STR =
COGS
-
DTR qreditsales
-

- -
CTR=Credit Purchases
AUStock AuA(Receivables Au Alpayable

So 65452/12
3
Stok - -
365752/12 Debtor - meditar--
CTR
velocity &TR
Velocity velocity

atio-te
⑭Chapter of
Capital
Ke
Equity -

3
Retained we c weighted
Earning
- >

itgene
KP
⑩ ofcapital)
Fa
Coverall cost
shares
Pref
-
pett
tens
[Debentures/arg
⑰ (Dekentwey/Longteam leans)
ebt
Approximationmethod
①
It)
Freemable Debt->Id=
⑰
⑪-> Netproceeds

FVtRe-Expenses dise
2100

Seeing"
5
+ -

2) =

(ane
 Seeing t
x
t).
=

I
⑱eng
⑰m 9000D
--
A
NP ⑪
 et g
lofnt [7 &
&I

HiI
AP 100
=

RV 120
=

54 percent
=
->
R
IC17)
② YTM (Yield to Maturity
Method) 109-50%) =
taprate 50y, Ent 10%, timeleyeu
=

=
=

ps-5555e
NP E96
=

RV 1/2
=

Statemental NPV
Amount

Been tolerateupre
Particulars year At 5%

rese
r

PV PV
NetProfe 0 -
96 -
96

Interest

a
*-
5%
FaRY,
10.699 26.202
=
 yim Lowerate dowel rateaprx
=
+

rates
Rigfg Nov
5% +
=
10.699x(x)
10.699*26,202

5% 10.699*
+

6.901
3

- ⑰6045%
③ Id for zero
campon Band/peep Discount Band

I
NPE 3750
=

-1,50,00
PV Fr

compoundinterestformulae
Rt =
PV (Hr= Fo

3750(1 2)25
+
=
150,00
1x
s
=

kd=

Essenting aserie
$

⑰ble
Debentures

O 5years

ND EICO
=

tims
X->
DebentureRedemption & into
Convent
F EICO
=
5 Equity shares
EPS=Ees

total o 5x28
Total:

-
Higher
Ru

in
I
snale:Er Appreciate. 2.
↓
end share Price
20(1+2,5 E29.08 =

⑭
 YTM
↑

7 Ft

#**

⑪af
Drfshe
NP
=
=

ene
⑰ rredemable -> KP= #
NP
⑱ Redemable

KP=
->

or
kp -> Sameas Id

&
F(-t) us
Pacif
EPS

Equity g
① Dividendprice model

made
②

At Earning
the

③ DividendGoth model ⑭ Earning Goth Model

I +
ke
b g
= +

git
I

⑪
 -irnoturate
business
earning
-> g
amoturate share
=

-
D1 D0 (1+g)
=
I Price
Growthrate
of Dividend
Do-Presentsividend did(Pasttense)
Di bead
=
Divided(future Ten)=dD.

it
- 3

I
Do D3
e.
- 1
nats
Retentim-la
nindtree ↓

+
RE
s

⑳es*
-
e Gust

I
① Type E45 (x)
② Press 12 times ⑧ is Times
③ -
1 =

④ =u [16 3
= =
 Risk Premium
-

Bx(ERM -Rg)
Ke =

Ry #

Bx :- s
+
Note:

itand
-

we need Ihave price

Campividend price
-
Dividend
clend
price - Now use it
in question

⑤5
CAPM (Capital Asset model)
Pricing
-

ke=
Rg +B (ERm-RI)
·free
Rate
/Itsecurity
"Pipangy--traf Risk premium

⑥ed
approach
ke=
(S,-MPSO
-Morlu) I
x5=

MPSo MDs, =
No
⑩
 stained
tanning
Company

7
Esca e Livestment
Div
Real
Tax -Roz 20
↳ Retained

grest
Ea Earning

Cet=2%
Flotation
Method
-

wrk(1-4)(1
B)
Beverage
-

Personal
Tax

Method If we have
to calculate

capital rate
-
FreshEquity sharerate.
Retained Earning We
issued Retained
Earning
Equity
share

I
Fresh

Re 1
=
+ 9 pee= D +

g
--

NP PO (MPS)
I
Po-Flatalie
 weighted Average of
cost

WACC- Capital (Ko-oelallast

ofcapital).
E

Bere 3 ↳tedavelage
->

x-②
⑪ By using
By using BookMarket
value
value cosignts weights
⑰ Estimation
of WAC By Bookvalue weights)
souce Bookvane weight Rate E
ESC 100 199300 Ke -

RE 50 5%/300 Kee -

PSC 50 5%300 Ap -
Delt 100 100/300 Kol -

S
-

WA
- -
⑬Estimation
of WA
(By Market value
wrightsWACC
source ar weights Rate

Esca ⑩ 400Total Ke -

↳ Kre
RE VasueRatio2 hopotal -

PSC
4MP- Opotal k -

⑧
Bett
xmp= Todtal Ka -

⑳
--
-

Total
- --

waggedorginal cost
of Capital
->

E
Additional

↳
combined
->

E=50L

⑳
Debt 50L
=

WACC

nee
k
ture
&

Capital
-1x
structure
is O
structure
Tracie
Decision
·
making · N1

Financial BEP N07

· ~

Traditional
Incliff point
· ·

Analysethe MM (without Tax)

EPEBIT
·

· Md lalith Tax)

emere
⑰
T o Decide
Capital structure
⑰ ⑪ ⑭
Particulars Equity lock Equith=Icocr
Favity Croce Debt loc PS2 -> 10c

Capital structure -

Equity oldthew - -

PIC old +wend - - ~

~
Debt Gld +wew] W ~

500+200) ⑳Te
⑦ropzo; In0
Nor 10-
New Total EBIT(WWD) -

crotal
T
capital)
x 2y
-
Interest
old (-3 (-> -3
New X Ex -

EBI
Tax [S If -
30%
-

EAT - - -

Prefividend
old [S [] ->
New X X EC
EAES - v -

=NoofEquityshares
- I
I

EPS A S *

XP/E ratio 10Time.

* 8 Tile
4 37times

MPS - - -

Select
Highest EPsAntiquestMPS
x e got
)
-

⑳o
coculate
and use this to

O
Calculate NewRo]

-
scoc

ratio of a
zo
optionEquity

opticality,

EPS=
P82100
MPS

How to find dierence

Level
X&↓ Eps
A Level of which two
at plans provide
Es
StepO
EPS, - EPS2
EBIT-Inti)(1-t)-PD, Ex-Intz)
=
(1-1) PD2 -

x, 22

step now
cross
multiply and salve a
get
EBIT:
Indifference Level EBIT H
=

IOL
-

putIndifference EBIT in LHS ORMS

Steps ↳getIndiffrente Es
=
 met
line
aside
step
where
Step Draw
-

⑪
ya
⑧ ⑪

Eps

- Indifferentre
3 - -
->

-
-

Indifferente
⑳ ⑳ !L >X

EBIT
Indiffere
·anal =BIT

Hi
Table

Situation

fir
-

A EBITA IOL Asitgives higher Epis

B EBIT =
IOL PlanPlan, As both give equal EPS

C EBIT) IOL Plan , As itgives

higher Eps
 Thedies
Structure

⑦
NI(Net Income
Approach)
a

-ke
-d

>Leverage

Kel Constant
He constant

KaL Ke

when
severage increase ⑩falls
<Debt Content increases

UI wish

⑪proach (Net
Operating Income Arach)

-Ke
Ko
ko remains

remains
constant
constant
UI
-

Ka

↳Leerage
⑪ Traditional Apparach ↳o initially falls, then
Ke Ko rises
-
a

~
-Ko Verises initially, then
I starts falling
↳Leverage
⑭mmAppoon (without Tax) -> same as Not Appeach

-r
- Ko
Ko Gustaut
UI constant
-
Id

⑪ MM
Approach (with Tax

Tax rate
Debt x
varwaftword:
+
value
of
unlevered
firm
Earningsof
severed fire =
Earningof
unlevered fire (at Taxat
rmules
VE
ES >VE -T =
=

Ko

=
E V2

EBIT
-

Int
-

EES

Leverage, Ratio, Gstagcapital, Capitalstructure aDecision

t
↓

Capital Budgeting
 I
went
Decisions
-
⑰ NonDiscounted methods ⑪Modern methods
<Traditional) Discounted)

Payback period (PBD)

① 8 NetPretential(PU)
④ Index (PI)
Pritability
②
Accounting RateafReturn Index
Desirability
⑤ Internal RateReten (RR)
⑥ Discounted PBP

Modified Internal RateofReten

⑦
⑧ No Index
⑨ PaybackRecipital

-
Basics

profit
ene
①
Accounting

↳open
raiyarapetax
De
fre
Tax MBTXD
-
PBT PBT
-

TaX E
- PAT PAT
Deft + Taxsawing on sep
↓ ↓ appreciation
x Taxratet

in
only
used
I It's
used
everywhere
Celse exceptAR
 Lower is Better
-> -
a
period -

in how much time

will wereverback one
period
Investment.

Stepscompute tent
amount At
CIAT Cumulative(FAT
Stepyear
1 100 100
200 300

④
·

70 1000
300 130
5 500

Initial Investment =
1/00 paise abhaue
Kite
-> chaiye
--

Initial
PBP completedyears -
C
=
Investment -Cummulative
CFAT uptic
- - completed
ear x 12

⑰Taf year
next

3
= + 100 x 12

300

3+
=
x12

-years 3
years 4 Monty
 ->Better
Methodacted
PBP
Annual
O Initial Investment & CFAT
Step

Step ris!" Discouted CAAT

Disconted
xoufactor culative
year CATE ⑪ Pafcasz -T

1 A
o=0.90g a a

in,2
= 0.86
2 B 6 a +
6

⑪ C is a be *
-

Y D
= a b c
+ + d
+

I 0.621
5 E 1+10,5
=

e
CumulativeDisanted

(investment-date (
Initial CFAT Til
Discounted completed
PBP
-

years
- x 12
Discounted (As jog
nextgeal

PCI=A

PVCI+=Fv
is constantal/orfactor
ov:

sugar
 Rate 10
=

Try
-
Initial Investment [1,00,000
=

Annual CAAT pofactor pistouted(ATcommulative(AAs

/
year
I 40,000 0.90936360 36360

2 30,000 0826 24780 61140

3 55,000 26285 87425

e

Y 50,000 0.6850 121575

5 50,000 0621 49680 171255

DiscountedPBP= 3years 87425)

34150

-years
3 M
 od ARR= Rated Return t
AccountingRate Reten
Average of
InitialInvestment Terminal value
- *

es oben obes
Her

StepAverage Profit=(PAT, PAT2 tPATs +PATy+ATs

5

Step ②
Average Profit
ARR= --

InitialInvestment
de

ARR =

AverageProfit
-

AverageInvestment-
(Initial Inves Tuminal
test

C C
ARR ARRI
=+ ARRz +ARRs +ARRu +ARRI-
5

Rule- better
Decision HigherARRis
⑭
->
NetPresentvalue
statement for CPU
yr Art PV
Particulars
Mu
InitialInvestment 0 I 602 60,0,000
90L
Purchasey Mecomachine
old Machine Sh
salad
-

->

Sot svantsubsidy -
--
122
1 10L 10,00,000
workingcapital 0

present
value
of Cash outflow PUCOA

Engbus
Annual CFAT I 0.909 C -

⑨
0.826 O -
0.757 C -
0.683 d -
0:621 e -
I
ScrapsaleMachine 0.621 Scraprate -

working capital 50.62 Igot 6,21,000

Presentraleaf cash.Enge PVCI -

Value
Present
Net PUCI. AUCO
-

NOV
⑬ -

AAPUC1-PVCO
Decision NPUI o AcceptRest
->

NOW CO RejectRegit
 seditional
u con

I
↑
we original
wa Additional
Swap value

-
PVC1-PUGO,
NOV

!
=co PVCI=
-PVCO--GSt
Rere

Profit
-

&
X
NPV PUCI-PUCO
=

PVCo
NPV 10 Accept
PIII Accept
 Index/Resirability Index=PI
⑭ Profitability
PI
Prt ==
=
=

Rall PII 1 AcceptProposal

P141 Reject Refobal

⑰dex=
co-Goo=
=
e

AD Money saved is Moneyearned

②
Money which be earned is
could not
money expensed.

RR
=>
conflict

I
ProjectA Project
NOV= 10,000
14%
o- Desin setthe
IRR= 11% ligner NOV
* Reason Because IRR has
-

ofcashlaws.
Difference in timing manylimitations.
->

Reinvestmentassumpsif
⑱esternal
Rateof Return

5%
At At 10
Pu
Oufactor pe
Bufactur

i
-- -
waterpr- Higher Rateopv
-
t
⑰
-

IRR Lowerrate lowerate Nova

Rates
+
=

zijfgNor
5% x
x
+
-

=
7.5;

↳
means
It is project me exactly 7.5;
Kari hai
earning 7.5% Ratelepar MPU compute
isliye
agarhum
Karageteh vo s'ayega,
note
-

outflow
only
was

ques geta

·avalanceagent
Particulars pu

I
t

Initial Investment La,as, o 20,00,000

--
-

380,000 (1-30j) =

Duco A

Life

Breed
Notes. Urenal
Project(yes
-

-
syst e

NOVA NPVB
I cummulative
Pofactory- 3.791 - 20486
Life

Annual
Equivalent NPV Ax BX

Annual NPV
Equivalent
Now select
higher
#
Mutually
exclusive. Ripsals-
only one of projectcan
the

be selected

Rationing
1-
Divisible Indivisible
- -

⑭ Payback Reciprocal -Average AnnualAnglow

InitialInvestment

=+
C5594 +CF1695)
CNTs
+

Initial Investment

MERR -

uting
rate

⑰ dIRR
L--
11
CFAT,
- -
I 1
CFAT CFATS CFATy CFAT5
Step
-
Y
CFAT, C1+ 2 -
- StepG
(1 233
Initial Totalseminal R,et
-
CFAT +
=
-

-
CFAT (1+22=
CFATy CH23' = -

=-
CAAT5 -

Total Terminal
- inglan
was
i

Dis
3 years

yeaus
invest
invest

mineen
 Risk
Analysis CapitalBudgeting
Statistical Methods
in

⑰
Marance
Coefficiental
(or standard deviations
variation (Cov)

probability
e I
Situation cashflow ①x
X- x)?8
⑪ ②
A a 0.1 0.1 a (a x320.1
-

b
B 0. 0.36 (b -x)2 0.3
C C 0.5 0.5C 2 x)20.5
-

D d 0. 1 0.1d G-x)? 0.1

Extente ↓

①mean/Expectationgx E(x) Expected value M x21x

= =
= =

& variance S(x-x)?I

=

Standard deviation -
valliance $x)?8
=
o
=

=Standard deviation) -
Variance
③
Cofficientof variation-deviation -
X

/
L

If
car is
high -
High variability
High Risk
->

20w
->
stability

⑭ Riskadjusted Discount rate

Riskadjusted
Disconting rate
Rf
=

+ Risk Premium
D

esiy djjects
Youi discoming he life
ke
life
⑪R Kous
Kiya Jata hai

⑧y
Equivalent

2
345
111
- lo CHAT, CAT2 CFAT CFATY CFAy

-
Certaienn
 uncertain
calfow X certainty - Certain Cash Flows
Equivalent ↓
coefficient weuse. These
To
casfloes
NPV
x
least
Englow
⑥Analysis I outflnohiguest
inglowhighest
"You
lowest
have calculate Vfr.wootcase outflow
to
->

·
Bestlate
Tent 8 Mostainly case
·

Senstivity
⑦
⑧ Analysis
Steps calculate Novas
pergiven situation

Stepchange actorcatonetime
 Statementof NOW
PresentCase

Salesvalue UniXSP= *
-
UC UnityVC=<->
-

FC -]

PEBTD. A
C)
-

Dep
PBT r
-

Tay I
PAT ⑰
+ Dep I

CFAT (Pelannum) *A
IV
factory5
years
ploy
(Cummulatines
3.79/

PVCI B A
-
DVCo (-)
InitialInvestment
NOV ⑰ ⑬

↳gla
-
 Dividend Decisions
- 1
ex
Relevance
Ed they Dividend relevance They
-
X- MM
Walter Model Gardenmodel Approach

Px

ext
nee ⑩
= +

Ke

~Ke · Dividend
UKe
Any Divided D1 Do (19)
=
=

Uck 100; Dividend 9 be2

=

Retention
Wat Dividend

I I
~Ke
UKe
Any Divided
=

Wake 100; Divided

②
-M Valueaffirm values firm later
-

originally
n x Po (n on)>P,-
-
+
Investment
tarnings
+

original cin ⑰Ke)

of begining
 ⑰
⑦oth
po-t-o-It
Gaon
⑰
tg Po-5 * e

Gra
⑭be
3 Grever

is
9 5%

e sets g
=

.
-

10%
Dividual pufautale
year Pu

I &1 DoCIIo;
=

0.909 -

2 D2 D, [Hoy,
=

0.826 v

3 D3 D2 (10%) 0.75t V
=

-
3 P3 0.55

⑳
-

-
Grahmbodd =>P
m(D E)
=>
= +

Lintel Model-
D1
Do+(EPsypaget--Dx8
=

speedly
adjustment

⑫-inque we don
Elo
->
numerical
-