26 July Financial Analysis

FINANCIAL ANALYSIS AFTERSCHOOOL – DEVELOPING CHANGE MAKERS CENTRE FOR SOCIAL ENTREPRENEURSHIP PGPSE PROGRAMME – World’ Most Comprehensive programme in social entrepreneurship & spiritual entrepreneurship OPEN FOR ALL FREE FOR ALL

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FINANCIAL ANALYSIS Dr. T.K. Jain. AFTERSCHOOOL Centre for social entrepreneurship Bikaner M: 9414430763 [email protected] www.afterschool.tk www.afterschoool.tk www.afterschoool.tk

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CALCULATE COST OF EQUITY, RISK FREE RATE 10%, BETA 1.75% RETURN ON MARKET PORTFOLIO 15%.  Ke

= RISK FREE RATE + BETA(MARKET RATE – RISK FREE RATE)  =10 + 1.75 (15-10)  =10 +8.75  =18.75

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A COMPANY’S CAPITAL STRUCTURE CONSISTS OF 50% EQUITY, 30% DEBT AND 20% RESERVES. COSTS ARE 25% ON EQUITY 20% ON RESERVES AND 15% ON DEBT. WHAT IS WACC?  Weighted

average cost of capital (WACC) : (.5*.25)+(.3*.15)+(.2*.2)  =.21 or 21%.

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EBIT = 5 lakhs. Company has 10% 20 lakh debentures. Equity capitalisation rate is 16%, what is overall cost of capital (NI approach)?        

NI = Net income approach verall cost of capital = EBIT / Market value of the firm. Market value of the firm = (debt + equity market value). Debt = 20 lakh. Equity market value = Shareholders’ share in EBIT / capitalisation rate. =(500000-200000)/16% =1875000. Thus market value = 20+18.75 lakhs. Thus overall cost = 5 / 38.75 =.12 or 12%answer.

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Income 5 lakh, cost of debt 10%, debt = 15 lakhs, overall cost of capital 15%. What is cost of equity (NOI approach)?  NOI

= net operating income approach  Cost of equity=earnings for shareholders/market value of equity  Market value of equity=value of firm – total debt  Value of firm = EBIT / overall cost of capital

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Answer continued . . . .  Overall

cost of capital = 15%.  Value of firm 500000/15% = 33,33,333  Market value of equity= 33,33,333-15,00,000 = 18,33,333  Earnings for shareholder: 500000-(10% of 15 lakh) =3.5 lakhs  Cost of equity = 3.5 / 18.33333 = 19.09%ans

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A company’s income increased by 20%, but its EPS increased by 100%, what is the level of leverage in the company?   

Degree of financial leverage = % change in EPS / % change in EBIT. = 100/20 = 5 times. This means that the company is highly leveraged. Highly leveraged company may be little bit risky (be we have to see all the aspects.). If financial leverage is higher, operating leverage should be reduced. Thus this company should focuc on reducing operating leverage.

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There are 2 firms, A with EBIT of 50 lakh & Interest liability of Rs. 25 lakhs, and B with EBIT of 20 lakhs and interest liability of 2 lakhs. Which company will you prefer for giving loan?  Coverage

ratio = EBIT / interest liability.  A has coverage ratio of 2, but B has coverage ratio of 10, we shall definitely prefer B, because coverage ratio is better. www.afterschoool.tk

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What is the market value of equity, if total earnings are 1 lakh, debt 10 lakh, with 8% rate, market equity capitalisation rate = 25%? (NI approach)  Market

value of equity = NI (for shareholders) / equity capitalisation rate  = (100000-80000)/.25  =20000/.25  =80000 answer. www.afterschoool.tk

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Calculate operating leverage of ABC. Its sale is 10 lakh units, selling price Rs. 20, variable cost Rs. 6. Fixed cost is Rs. 4 lakhs.  Operating

leverage = N (P-V) / N((P-V)-F  N = no of units sold  P = price, V = variable cost  F = fixed cost  =10(20-6)/10(20-6) -4  =140/136  =1.02 www.afterschoool.tk

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Calculate operating leverage of ABC. Its sale is 10 lakh units, selling price Rs. 20, variable cost Rs. 4. Fixed cost is Rs. 15 lakhs.       

Operating leverage = N (P-V) / N((P-V)-F N = no of units sold P = price, V = variable cost F = fixed cost =10(20-4)/10(20-4) -15 =160/145 =1.1 (thus this company is more leveraged in comparison to previous company).

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Our company’s sales is Rs. 24 lakhs, variable costs are 50%, fixed costs are 10 lakhs. We have loan of Rs. 10 lakhs @ 10% and equity capital of 10 lakhs (100 rupees each) . What is our leverage? 50% tax rate       

Financial leverage = EBIT / EBT = 2 lakh / 1 lakh = 2 times. Operating leverage = Contribution / EBIT = 12 / 2 = 6 times Combined leverage = 2 * 6 = 12 times ans. Contribution = sales – variable cost EBT = EBIT – interest.

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ABOUT AFTERSCHOOOL Afterschoool conducts three year integrated PGPSE (after class 12th along with IAS / CA / CS) and 18 month PGPSE (Post Graduate Programme in Social Entrepreneurship) along with preparation for CS / CFP / CFA /CMA / FRM. This course is also available online also. It also conducts workshops on social entrepreneurship in schools and colleges all over India – start social entrepreneurship club in your institution today with the help from afterschoool and help us in developing society.

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Why such a programme? 

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To promote people to take up entrepreneurship and help develop the society To enable people to take up franchising and other such options to start a business / social development project To enable people to take up social development as their mission To enable people to promote spirituality and positive thinking in the world

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Who are our supporters?  Afterschoolians,

our past beneficiaries, entrepreneurs and social entrepreneurs are supporting us.  You can also support us – not necessarily by money – but by being promotor of our concept and our ideas.

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About AFTERSCHOOOL PGPSE – the best programme for developing great entrepreneurs       

Most flexible, adaptive but rigorous programme Available in distance learning mode Case study focused- latest cases Industry oriented practical curriculum Designed to make you entrepreneurs – not just an employee Option to take up part time job – so earn while you learn The only absolutely free course on internet

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Workshops from AFTERSCHOOOL         

IIF, Delhi CIPS, Jaipur ICSI Hyderabad Branch Gyan Vihar, Jaipur Apex Institute of Management, Jaipur Aravali Institute of Management, Jodhpur Xavier Institute of Management, Bhubaneshwar Pacific Institute, Udaipur Engineering College, Hyderabad

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Flexible Specialisations:          

Spiritualising business and society Rural development and transformation HRD and Education, Social Development NGO and voluntary work Investment analysis,microfinance and inclusion Retail sector, BPO, KPO Accounting & Information system (with CA / CS /CMA) Hospital management and Health care Hospitality sector and culture and heritage Other sectors of high growth, high technology and social relevance

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Salient features:            

The only programme of its kind (in the whole world) No publicity and low profile course For those who want to achieve success in life – not just a degree Indepth knowledge and expertise Professional approac: World class approach Strong intellectual and business capabilities Flexible – you may stay for a month and continue the rest of the education by distance mode. / you may attend weekend classes Scholarships for those from poor economic background Latest and constantly changing curriculum – keeping pace with the time Placement for those who are interested Admissions open throughout the year Latest and most advanced technologies, books and study material

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Components              

Pedagogy curriculum and approach based on IIM Ahmedabad and ISB Hyderabad (the founder is alumnus from IIMA & ISB Hyderabad) Meditation, spiritualisation, and self development Essential softwares for business Business plan, Research projects Participation in conferences / seminars Workshops on leadership, team building etc. Written submissions of research projects/articles / papers Interview of entrepreneurs, writing biographies of entrepreneurs Editing of journals / newsletters Consultancy / research projects Assignments, communication skill workshops Participation in conferences and seminars Group discussions, mock interviews, self development diaryng Mind Power Training & writing workshop (by Dr. T.K.Jain)

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Pedagogy          

Case analysis, Articles from Harvard Business Review Quiz, seminars, workshops, games, Visits to entrepreneurs and industrial visits Presentations, Latest audio-visuals Group discussions and group projects Periodic self assessment Mentoring and counselling Study exchange programme (with institutions out of India) Rural development / Social welfare projects

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Branches  AFTERSCHOOOL

will shortly open its branches in important cities in India including Delhi, Kota, Mumbai, Gurgaon and other important cities. Afterschooolians will be responsible for managing and developing these branches – and for promoting social entrepreneurs.

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Case Studies  We

want to write case studies on social entrepreneurs, first generation entrepreneurs, ethical entrepreneurs. Please help us in this process. Help us to be in touch with entrepreneurs, so that we may develop entrepreneurs.

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Basic values at afterschoool        

Share to learn more Interact to develop yourself Fear is your worst enemy Make mistakes to learn Study & discuss in a group Criticism is the healthy route to mutual support and help Ask fundamental questions : why, when, how & where? Embrace change – and compete with yourself only

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www.afterschoool.tk social entrepreneurship for better society

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