Category Archives: DESIGNING CAPITAL STRUCTURE

Interpretation of Cash Flow Analysis in Recession

Interpretation of Cash Flow Analysis in Recession It can be seen from Table, that interest on element debt is 8 per cent a year, that is, the same in all alternatives. However, dividends, payment of principal and tax payments change as a result of change in the amount of debt or various alternatives. The conclusions that emerge from the cash flow analysis in Table are 1. Under the current financing plan, with 20

LIQUIDITY ASPECT

LIQUIDITY ASPECT Cash Flow Analysis EBIT-EPS analysis and coverage ratios are very useful in making explicit the impact of leverage on EPS and on the firm’s ability to meet its commitments at various levels of EBIT. But the EBIT is interest ratio is less than a perfect measure to analyse the firm’s ability to service fixed charges because the firm’s ability to do so depends on the total payment

Coverage Ratio

Coverage Ratio Apart from the EBIT – EPS, EBIT – EPS analysis, the ability of a firm to use debt, from the profitability point of view, can also be judged in terms of a coverage ratio, namely. The ratio measures the size of the interest payments relative to the EBIT. The reciprocal of this  ratio (EBIT) measures the proportion of EBIT devoted to interest payments. The higher the coverage ratio, the gr

PROFITABILITY ASPECT

PROFITABILITY ASPECT Earnings Before Interest and Tax (EBIT) – Earnings per Share (EPS) Analysis Keeping in view the primary objective of financial management of maximizing the market value of the firm, the F.BIT-EPS analysis should be considered logically as the first step in the direction of designing a firm’s capital structure. As discussed in detail, the EBIT-EPS analysis hows the impact of vario

DESIGNING CAPITAL STRUCTURE

DESIGNING CAPITAL STRUCTURE INTRODUCTION The preceding chapter, focusing on the theoretical relationship between capital structure, cost of capital and valuation, has shown that although the empirical evidence is not conclusive, theoretically a judicious combination of debt and equity does affect the cost of capital as also the total value of the firm. There is, in other words, an optimum capital structure. The