B.
COM 5 FINANCIAL MANAGEMENT
SESSION-32
CHAPTER-3
CAPITAL STRUCTURE
COMPUTATION AND ANALYSIS OF LEVERAGES
Problem 1:
Determine the three types of leverages from the following information.
Selling price per unit Rs. 10
Variable cost per unit Rs. 6
Fixed Cost Rs. 1,20,000
10% debt capital Rs. 3,00,000.
Number of units sold 90,000.
Solution:
Statement showing calculation of EBT
Particulars Amount
Sales (90,000 x 10) 9,00,000
Less: Variable Cost (90,000 x 10) 5,40,000
Contribution 3,60,000
Less: Fixed Cost 1,20,000
EBIT 2,40,000
Less: Interest (3,00,000 X 10/100) 30,000
EBT 2,10,000
DIGITAL LEARNING - DCE KUVEMPU UNIVERSITY
B.COM 5 FINANCIAL MANAGEMENT
𝐂𝐎𝐍𝐓𝐑𝐈𝐁𝐔𝐓𝐈𝐎𝐍
1) OPERATING LEVERAGE = 𝐄𝐁𝐈𝐓
3,60,000
OPERATING LEVERAGE = = 1.5 Times
2,40,000
𝐄𝐁𝐈𝐓
2) FINANCIAL LEVERAGE =
𝐄𝐁𝐓
2,40,000
FINANCIAL LEVERAGE = = 1.142 times
2,10,000
3) COMBINED LEVERAGE = Operating Leverage X Financial Leverage
COMBINED LEVERAGE = 1.5 X 1.142 = 1.71 Times
Problem 2:
The following information is available in respect of a product:
Units sold 1,80,000
Units sales price Rs.5
Fixed Cost Rs. 2,40,000
Variable cost per unit Rs. 1
Tax rate 50%
10% debt capital of Rs. 6,00,000
Calculate operating leverage, financial leverage and combined leverage.
Solution:
Statement showing calculation of EBT
Particulars Amount
Sales (1,80,000 x 5) 9,00,000
Less: Variable Cost (1,80,000x 1) 1,80,000
Contribution 7,20,000
Less: Fixed Cost 2,40,000
EBIT 4,80,000
Less: Interest (6,00,000 X 10/100) 60,000
EBT 4,20,000
DIGITAL LEARNING - DCE KUVEMPU UNIVERSITY
B.COM 5 FINANCIAL MANAGEMENT
𝐂𝐎𝐍𝐓𝐑𝐈𝐁𝐔𝐓𝐈𝐎𝐍
1) OPERATING LEVERAGE = 𝐄𝐁𝐈𝐓
7,20,000
OPERATING LEVERAGE = = 1.5 Times
4,80,000
𝐄𝐁𝐈𝐓
2) FINANCIAL LEVERAGE =
𝐄𝐁𝐓
4,80,000
FINANCIAL LEVERAGE = = 1.14 times
4,20,000
𝐂𝐎𝐍𝐓𝐑𝐈𝐁𝐔𝐓𝐈𝐎𝐍
3) COMBINED LEVERAGE =
𝑬𝒂𝒓𝒏𝒊𝒏𝒈𝒔 𝑩𝒆𝒇𝒐𝒓𝒆 𝑻𝒂𝒙
7,20,000
COMBINED LEVERAGE = = 1.71 Times
4,20,000
REFERENCES
• Shashi K Gupta and R K Sharma, Financial management.
• B.S Raman, Financial management.
• Laxmisha A.S, Madhu, Akshatha M, Financial Management.
• Dr. G B Baligar , Finanacial Management
DIGITAL LEARNING - DCE KUVEMPU UNIVERSITY
B.COM 5 FINANCIAL MANAGEMENT
DIGITAL LEARNING - DCE KUVEMPU UNIVERSITY
