if there is prefrence shares how will be financial leverage will be calculated
as per complier of PE-II, it is
EBIT/(EBIT-INT-PREF. DIV.)
it this correct??
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financial leverage
Replies (2)
yes it is correct (a small variation is there)
EBIT/EBIT - int - pref div/1-t (this is because these are earnings before tax and there is no tax on pref. div.)
financial leverage shows a relation with change in EBIT and earnings available for equity share holders so there is no doubt regarding this
Formula is as follows:
EBIT/EBIT-INTT-(PREF. DIVIDENE/(I-TAX))
Here prefernce dividend will only be divided by (1-tax) to make this figure befors tax. because EBIT is earnings before intt & tax. Intt is also deducted before aplying the tax.
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