Profit & Loss Account of Company M & N

Income Amount (RS) M Amount (RS) N

A Sales Revenue 800,000.00 800,000.00
i) Expenditure
a) Fixed Operating Cost 240,000.00 250,000.00
b) Variable cost 320,000.00 300,000.00
B Cost of Good Sold (COGS) 560,000.00 550,000.00
C EBIDTA (A-B) 240,000.00 250,000.00
ii) Interest on term loan 60,000.00 20,000.00
iii) Interest on Debentures 60,000.00 30,000.00
D Total Interest 120,000.00 50,000.00
E EBT (earning before taxes) C-D 120,000.00 200,000.00
iv) Taxation 36,000.00 60,000.00
F EAT (Earning After Tax) E-F 84,000.00 140,000.00
G Total Share of face valaue of Rs 10 20,000.00 20,000.00
H EPS ( Earning per share) F/G 4.20 7.00

Company N is performing better beacuse earning per share is Rs 7 compare to Company M of Rs 4 .20
majorily due to Equity to debt ratio is very High in Company Mresulting high outflow of Interest
of Rs 4 .20
Sr.No. Options A B C
1 Equity 100% 50% 50%
2 Preference Shares 0% 0% 50%
3 Debt 0% 50% 0%
4 Amount Raised under each of th options
Equity Shares issued @ FV of Rs.10 &
i) premium of Rs.10/- Total Rs 20/share 400,000 200,000 200,000
ii) No. of equity shares 20000 10000 10000
iii) Debt 0 200,000 0
iv) Preference Shares 0 0 200,000
Total 400,000 400,000 400,000
Earnings Before Interest & Tax @ 40% of
5 Investment (EBIT) 40% 160,000 160,000 160,000
i) Interest on Debt 8% 0 16,000 0
ii) Cash Earnings Before Tax 160,000 144,000 160,000
iii) Tax 50% 80,000 72,000 80,000
iv) Cash Earnings After Tax 80,000 72,000 80,000
v) Earnings Per share 4.0 7.2 8.0
6 Appropriation Account
i) Cash Earnings After Tax 80,000 72,000 80,000
ii) Less : Preference Dividend 10% 0 0 20,000
iii) Amount carried forward to reserves account 80,000 72,000 60,000

Observations & Conclusions :-

a) Based on the cash EPS, it can be concluded that Funding Option "C" is better

b) Since Company C has issued preference shares, post preference dividend, amount c/f
to reserves account is high for Option "A" resulting in higher networth
, amount c/f
 Cash Ledger (Rs)
Sr.no Particulars Amount ( Dr) Amount ( Cr)
1 Cash Balance 50.00
2 Sales Revenue 100.00
3 Loan repayment 5.00
4 Asset purchsed 20.00
5 Interest Paid 5.00
6 Tax paid 7.00
37.00 150.00
Cash Balance 113.00

Profit and Loss Statement

Expendtures Amount (Rs) Income Amount (Rs)
COGS 50.00 Sales Revenue 100.00

EBIDTA 50.00
Interest 5.00
EBDTA 45.00
Depreciation 10% 10.00
EBT 35.00
Tax 7.00
EAT 28.00
 Balance Sheet
Liabialities Amount (Rs) Income Amount (Rs)
Equity Share Capital 100 Fixed Asset 90
Reserve and surplus 70 Addtion to FA 20
Surplus transferred 28 Inventory FG 50
Term Loan (50-5) 45 Cash 113
Current Liab 30

Total 273 273

reserve & surplus
term loan
current liabilities
fixed assets
finished goods