Financial

Analysis
project

Joydeep Bhattacharjee (14PGP020)

Garima Khurana (14PGP018)
Harsh Kumar (14PGP019)
Kavin Anup Desai (14PGP020)

Leverage analysis
Leverage is the ratio of the net rate of return on
shareholders equity and net rate of return on total
capitalization.
Two types of Leverage.
1 . Financial leverage
2 . Operating leverage
Financial Leverage: financial leverage exists whenever
a firm has debts and other sources of funds that carry
fixed charges.
Computation: Degree of financial leverage (DFL) =
(%change in EPS) / (% change in OP or EBIT)
Operating Leverage: operating leverage is the
tendency of the operating profit to vary
disproportionately with sales.
Computation: Degree of operating leverage (DOL)= (%
change in OP or EBIT)/ (% change in Sales)

TIL:
Leverage Calculation for TIL
Column
1
Sales
PBT
Interest
exp
EBIT
PAT
EPS
DFL

2014

2013

2012

2011

2010

287.51

267.89

237.79

235.6

863.76

3.71

57.48

42.01

75.49

29.82

18.01

4.74

4.12

19.17

2.51

2.67

52.98

31.2

46.86

2.51

2.67

52.98

31.2

46.86

2.5

2.66

52.82

31.1

46.72

8.4270
36

2.7389
1

3.4118
39

67.233
4

0.9996
95

DOL

0.6441
6

1.6682
76

1.6461
6

3.7181
4

6.4162
6

Ratios for Capital Structure Analysis (TIL)

ROA (%)
1.5
0.5
0.73
8.07
-20.67
ROE (%)
6.32
2.17
3.06
33.18
-26
D/E
1.85
2.45
2.4
1.65
0
DPS(Rs)
0
0
0
0
0
Earnings
Per Share
(Rs)
17.56
5.78
7.93
42.36
-1.43
Debt % in
Capital
0.4700 0.4324 0.2950 0.1698 0.3638
Structure
02
84
59
77
36
12.05
12.05
12.05
12.05
WACC
%
%
%
% 12.05%

Value of
the Firm

20.82
988

22.15
768

439.6
68

258.9
212

388.8
797

Dabur:
Column1
Sales
PBT
Interest
exp
EBIT
PAT
EPS

Leverage Calculation for Dabur

2014
2013
2012

2011

2010

4,870.08

4,349.39

3,759.33

3,274.43

2,867.42

861.33

749.67

587.53

596.28

528.62

19.35

18.4

13.4

12.93

13.28

841.98

731.27

574.13

583.35

515.34

672.1

590.98

463.24

471.41

433.33

3.85

3.39

2.66

2.71

4.99

0.89629100
9

1.00268545
6

1.16734437
4

3.46222573
1

0.86972768
5

1.26461464
9

1.74377635
2

0.10672968
9

0.92974778
4

12.2548750
6

DFL

DOL

Ratios for Capital Structure Analysis (Dabur)

ROA (%)
ROE (%)
D/E
DPS(Rs)
Earnings
Per Share
(Rs)

20.50

19.70

17.65

22.71

26.31

40.68

44.87

45.31

57.72

60.44

0.02

0.16

0.24

0.29

0.15

1.75

1.50

1.30

1.15

2.00

3.85

3.39

2.66

2.71

4.99

0.109

WACC

Va
lu
e
of
th
e
Fir
m

7724.5
87156

6708.8
99083

0.109

5267.2
47706

0.109

5351.8
34862

4727.8
89908

Philips India:
Leverage Calculation for Philips India
Colum
n1
Sales

2014
3241.2

2013
3076

2012
2837.2

2011
2594.4

2010
2780.7

0.109

0.109

190.1

226.4

297.4

308.3

105

5.1

7.4

8.6

9.2

195.2

233.4

304.8

316.9

114.2

117.5

135.1

190.3

213

80.7

18.53

19.23

27.08

30.32

11.49

0.1577
02128

0.1423
39008

0.1423
01629

0.1423
47418

0.1423
79182

1237.7
76579

1639.7
4727

2141.9
29099

2226.2
43404

802.08
35509

PBT
Interes
t exp
EBIT
PAT
EPS
DFL
DOL

ROA (%)

Ratios for Capital Structure Analysis (Philips India)

7.57
4.87
6.13
4.86
7.01

ROE (%)
D/E
DPS(Rs)
Earnings
Per Share
(Rs)

11.67

14.25

10.55

13.92

0.11

0.06

0.23

0.01

0.02

2.00

2.00

2.50

2.00

2.00

36.43

21.36

23.27

15.46

20.43

0.081

WACC

Val
ue
of
the
Fir
m

17.38

2409.87
6543

2881.48
1481

0.081

3762.96
2963

0.081

3912.34
5679

0.081

1409.87
6543

Bajaj:
Leverage Calculation for Bajaj
Column
1

2014

2013

2012

2011

2010

0.081

Sales
PBT
Interest
exp
EBIT
PAT
EPS

20,149.51

19,997.25

20,475.74

17,386.51

12,420.95

4,632.05

4,266.23

4,026.17

4,353.54

2,427.15

0.49

0.54

22.24

1.69

5.98

4,811.66

4,430.20

4,127.33

4,431.75

2,536.73

3,243.32

3,043.57

3,004.05

3,339.73

1,702.73

112.08

105.18

103.81

115.42

117.69

0.55

0.526453
64

0.046834
54

4.380939
302

2.127046

2.245833
333

0.362493
45

1.881383
855

8.631578
947
DFL
11.27631
579
DOL

ROA (%)

Ratios for Capital Structure Analysis (Bajaj)

23.82
25.83
29.55
34.77
37.05

ROE (%)
D/E
DPS(Rs)
Earnings
Per Share
(Rs)

54.86

85.21

73.83

0.11

0.06

0.23

0.01

0.02

2.00

2.00

2.50

2.00

2.00

36.43

21.36

23.27

15.46

20.43

10.65

WACC

Val
ue
of
the
Fir
m

43.66

21.51

451.7990
61

414.0373
832

10.7

384.2951
583

10.74

430.2669
903

10.3

245.5692
159

10.33

Leverage calculation helps in:

The ratio shows that the higher the degree of financial leverage, the more
volatile is EPS. Since interest is a fixed expense, leverage magnifies
returns and EPS, which is good when operating income is rising, but it can
be a problem during tough economic times when operating income is under
pressure.
DFL therefore is invaluable in helping a company assess the amount of
debt or financial leverage it should opt for in its capital structure. If
operating income is relatively stable, then earnings and EPS would be
stable as well, and the company can afford to take on a significant amount
of debt. However, if the company operates in a sector where operating
income is quite volatile, it may be prudent to limit debt to easily manageable
levels.
The higher the financial leverage, more is the financial risk of the company.