Question
A company reports an EBIT (Earnings Before Interest and
Tax) of ₹10,00,000. It incurs interest charges of ₹2,00,000. The company also pays a Preference Dividend of ₹1,00,000 and an Equity Dividend of ₹7,00,000. On the basis of this information, calculate the Financial Leverage.Solution
Financial Leverage = EBIT / EBT = 10,00,000 / 8,00,000 = 1.25.
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