Tag Archives | Financial Management

Calculation of Point of Indifference | Capital Structure

After reading this article you will learn about Calculation of Point of Indifference. The EPS, earnings per share, ‘equivalency point’ or ‘point of indifference’ refers to that EBIT, earnings before interest and tax, level at which EPS remains the same irrespective of different alternatives of debt-equity mix At this level of EBIT, the rate of […]

Top 8 Problems on Break-Even Analysis (With Solution)

Here is a compilation of top eight problems on break-even analysis with their relevant solutions. Break-Even Analysis: Problem with Solution # 1.  From the following particulars, calculate: (i) Break-even point in terms of sales value and in units. (ii) Number of units that must be sold to earn a profit of Rs. 90,000. Solution:   […]

Over-Trading: Meaning, Consequences and Remedies

After reading this article you will learn about Over-Trading:- 1. Meaning of Over-Trading 2. Causes of Over-Trading 3. Signs 4. Consequences 5. Remedies. Contents: Meaning of Over-Trading Causes of Over-Trading Signs of Over-Trading Consequences of Over-Trading Remedies for Over-Trading 1. Meaning of Over-Trading: In simple words, over-trading means, “a situation where a company does more […]

Calculating Contribution and Marginal Costing

Contribution is the difference between sales and variable cost or marginal cost of sales. It may also be defined as the excess of selling price over variable cost per unit. Contribution is also known as Contribution Margin or Gross Margin. Contribution being the excess of sales over variable cost is the amount that is contributed […]

Under-Capitalisation: Causes, Effects and Remedies

After reading this article you will learn about the Under-Capitalisation:- 1. Meaning of Under-Capitalisation 2. Causes of Under-Capitalisation 3. Effects 4. Remedies. Meaning of Under-Capitalisation: In the words of Gersrtenberg, “A company may be under-capitalised when the rate of profits it is making on the total capital is exceptionally high in relation to the return […]

Managerial Problems and Marginal Costing

This article throws light upon the ten major managerial problems in application of marginal costing. The problems are: 1. Pricing Decisions 2. Profit Planning and Maintaining a Desired Level of Profit 3. Make or Buy Decisions 4. Problem of Key 5. Selection of a Suitable or Profitable Sales Mix 6. Effect of Changes in Sales […]

Capitalisation: Meaning, Need and Theories

After reading this article you will learn about Capitalisation:- 1. Meaning of Capitalisation 2. Modern Concept of Capitalisation 3. Need 4. Theories 5. Fair. Contents: Meaning of Capitalisation Modern Concept of Capitalisation Need of Capitalisation Theories of Capitalisation Fair Capitalisation 1. Meaning of Capitalisation: Capitalisation is one of the most important constituents of financial plan. […]

Break Even Analysis: Formula and Calculations

This article provides an overview on Break Even Analysis:- 1. Meaning of Break-Even Analysis 2. Assumptions of Break-Even Analysis 3. Break Even Point 4. Types of Break-Even Point 5. Graphic Method 6. Assumptions Underlying Break-Even Charts 7. Advantages of Break-Even Charts 8. Limitations of Break-Even Charts 9. Margin of Safety 10. Angle of Incidence 11. […]

Comparison between Book Value and Real Value

The over and under capitalisation situations of a company can also be ascertained by comparing the book value and real value of equity shares of the company. The book value of equity shares is calculated on the basis of net assets available for equity shareholders. It can be computed by dividing the net assets available […]

Profit Volume Ratio (With Formula and Calculation)

After reading this article you will learn about Profit-Volume Ratio. The Profit/volume ratio, which is also called the ‘contribution ratio’ or ‘marginal ratio’, expresses the relation of contribution to sales and can be expressed as under: P/V Ratio = Contribution/Sales Since Contribution = Sales – Variable Cost = Fixed Cost + Profit, P/V ratio can […]

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