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 return on capital employed is [...]
After reading this article you will learn about Capital Gearing:- 1. Meaning of Capital Gearing 2. Significance of Capital Gearing 3. Trade Cycles. Meaning of Capital Gearing: The term 'capital gearing' refers to the relationship between equity capital (equity shares plus reserves) and long-term debt. It may be planned or historical, the latter describing a state of affairs where the [...]
This article throws light upon the top four theories of capital structure. The theories are: 1. Net Income Approach 2. Net Operating Income Approach 3. Traditional Approach 4. Modigliani and Miller Approach. Theory # 1. Net Income Approach: According to this approach, a firm can minimise the weighted average cost of capital and increase the value of the firm as [...]