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# 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

## www.afterschoool.tk AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

FINANCIAL ANALYSIS
Dr. T.K. Jain.
AFTERSCHOOOL
Centre for social entrepreneurship
Bikaner
M: 9414430763
tkjainbkn@yahoo.co.in
www.afterschool.tk
www.afterschoool.tk

## www.afterschoool.tk AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

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

## www.afterschoool.tk AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

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%.

## www.afterschoool.tk AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

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.

## www.afterschoool.tk AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

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

## www.afterschoool.tk AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

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

## www.afterschoool.tk AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

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.

## www.afterschoool.tk AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

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 AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

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

## www.afterschoool.tk AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

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 AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

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).

## www.afterschoool.tk AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

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.
www.afterschoool.tk AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS
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.

## www.afterschoool.tk AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

Why such a programme?
 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

## www.afterschoool.tk AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

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.

## www.afterschoool.tk AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

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

## www.afterschoool.tk AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

Workshops from
AFTERSCHOOOL
 IIF, Delhi
 CIPS, Jaipur
 Gyan Vihar, Jaipur
 Apex Institute of Management, Jaipur
 Aravali Institute of Management, Jodhpur
 Xavier Institute of Management, Bhubaneshwar
 Pacific Institute, Udaipur

## www.afterschoool.tk AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

Flexible Specialisations:
 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

## www.afterschoool.tk AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

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

## www.afterschoool.tk AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

Components
 Pedagogy curriculum and approach based on IIM Ahmedabad and ISB
 Meditation, spiritualisation, and self development
 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)

## www.afterschoool.tk AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

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

## www.afterschoool.tk AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

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.

## www.afterschoool.tk AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

Case Studies
 We want to write case studies on social
entrepreneurs, first generation
entrepreneurs, ethical entrepreneurs.
to be in touch with entrepreneurs, so that
we may develop entrepreneurs.

## www.afterschoool.tk AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

Basic values at afterschoool
 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

## www.afterschoool.tk AFTERSCHOOOL MATERIAL FOR PGPSE PARTICIPANTS

www.afterschoool.tk
social entrepreneurship for better
society