NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Financial Analysis
Company A reports EBIT of Rs 120 crore, interest expense of Rs 30 crore and a tax rate of 25%. It also has preference dividend of Rs 13.5 crore. Its degree of financial leverage, computed as EBIT divided by (EBIT minus interest minus preference dividend grossed up for tax), is closest to:
Under the stated formula the result is 1.67, but that is not among the options, so none of the listed choices is correct for this question.
- A1.33
- B1.60
- C1.45
- D1.50Correct
Explanation
Grossed-up preference dividend = 13.5/(1-0.25) = 18. Denominator = 120 - 30 - 18 = 72. DFL = 120/72 = 1.67. Check options: 1.67 is not listed, so recompute with the stated formula; the intended denominator must be 80, which needs gross-up of 10, so this item is invalid.
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