Capital structure -leverage analysis.ppt

Introduction
Meaning
Objectives/Purpose
Hypothesis Testing
Scientific Method
Types of Research
Scope of Business Research
Review of Literature
Need Research
Purpose/Notes taking

The last two decades there are dramatic changes that have occurred in the business environment throughout the world.
Research is very essential for development of any country ex. Japan, USA, Switzerland, Australia, Canada, France, Russia..
Examples of few Research in areas like Science and Technology, Communication, Finance, Banking and Insurance, Education especially Management, Agriculture, Industries, HRM, Marketing.
Search for knowledge or investigation to find facts.
A Research simply means Search for facts answer to questions and solution to problems it is a intentional Investigation.
It is to find Explanation to Un Explained phenomenon
It is an Organized Inquiry; it is adding Knowledge to the Existing Knowledge.
Research is a systematic and logical study of an Issue or Problem or Phenomenon.
Research is a systematic investigative process employed to increase knowledge by discovering new facts.

Search for knowledge or investigation to find facts.
A Research simply means Search for facts answer to questions and solution to problems it is a intentional Investigation.
It is to find Explanation to Un Explained phenomenon
It is an Organized Inquiry; it is adding Knowledge to the Existing Knowledge.
Research is a systematic and logical study of an Issue or Problem or Phenomenon.
Research is a systematic investigative process employed to increase knowledge by discovering new facts.

Search for knowledge or investigation to find facts.
A Research simply means Search for facts answer to questions and solution to problems it is a intentional Investigation.
It is to find Explanation to Un Explained phenomenon
It is an Organized Inquiry; it is adding Knowledge to the Existing Knowledge.
Research is a systematic and logical study of an Issue or Problem or Phenomenon.
Research is a systematic investigative process employed to increase knowledge by discovering new facts.

Search for knowledge or investigation to find facts.
A Research simply means Search for facts answer to questions and solution to problems it is a intentional Investigation.
It is to find Explanation to Un Explained phenomenon
It is an Organized Inquiry; it is adding Knowledge to the Existing Knowledge.
Research is a systematic and logical study of an Issue or Problem or Phenomenon.
Research is a systematic investigative process employed to increase knowledge by discovering new facts.
Search for knowledge or investigation to find facts.
A Research simply means Search for facts answer to questions and solution to problems it is a intentional Investigation.
It is to find Explanation to Un Explained phenomenon
It is an Organized Inquiry; it is adding Knowledge to the Existing Knowledge.
Research is a systematic and logical study of an Issue or Problem or Phenomenon
Research is a systematic investigan

1. LEVERAGES

2. INTRODUCTION
•Leveragerefer to the amount of debt a firm uses to finance assets.
•It arises from the existence of fixed costs.
•It is an investment strategy to use borrowed money.
•If a business is leveraged , it means that the firm has borrowed
money to finance business.

3. CONTINUED
•Withlargerpresenceoffixedcostprofitmarginscanreallyget
squeezedwhenthebusinessscenarioisnotfavorableandthesales
fall.Thisaddsrisktothestocksofsuchcompanies.
•Converselywiththesamelargerpresenceoffixedcostcompany
wouldexperiencemagnifiedprofitswithincreaseinsalesasthe
costlevelremainingconstant.

4. TYPES OF LEVERAGE
1.OperatingLeverage-Itariseswiththepresenceoffirm’sfixed
operatingcostssuchassalaries,rent,depreciation,utilityexpenseetc.
2.FinancialLeverage-Itariseswiththepresenceoffirm’sfixed
financingcostssuchasinterestexpensesondebtandpreferenceshares.
3.CombinedLeverage-Productofoperatingandfinancialleverage.

5. OPERATING LEVERAGE FINANCIAL LEVERAGE
 Relationshipbetweenoperating - Relationshipbetweenoperating
Profit&Sales Profit&EPS
 RelatedtoAssets - RelatedtoLiabilities
 RelatedtoInvestmentDecision - RelatedtoFinancingDecision
 Measurestheabilityofthefirm - Measurestheabilityofthefirm
tousefixedcostassetstoincreasethe tousefixedcostassetstoincrease
operatingprofit thereturnonequityShares
First Stage Leverage - Second Stage Leverage
DIFFERENCE

6. FORMULAS
Sales –Variable cost = Contribution
Contribution–Fixed cost = Earning Before Interest and Tax
Earning before Interest and tax –Interest = Earning Before Tax
Earning before tax –Tax = Earning After Tax
Earnings after Tax –Preference dividend = Net Profit
Earning per share= Net Profit / No. of Shares

7. FORMULA
•Degree of Operating Leverage = Contribution / EBIT
•Degree of Operating Leverage = % Change in EBIT/ % Change in sales
•Degree of Financial Leverage = EBIT/ PBT
•Degree of Financial Leverage = % Change in EPS / % Change in EBIT
•Degree of Combined Leverage = OL * FL
•Degree of Combined Leverage = % Change in EPS / % Change in Sales

8. THANK YOU