Enterprise Value

What Is Enterprise Value (EV)? Enterprise value (EV) is an economic measure reflecting the market value of the whole business. It is also called ‘Entity Value’ or ‘Firm Value’. It is the sum of claims of all the security holders, i.e., debt holders, preference shareholders, minority shareholders, common equity shareholders and others. Enterprise value is … Read more

Carrying Value or Book Value

What Is Carrying Value? Carrying value or book value is the value of an asset according to the figures shown (carried) in a company’s balance sheet. Carrying value is calculated as the original cost of the asset less any depreciation, amortization, or impairment costs. Formula to Calculate Carrying or Book Value Book Value or Carrying … Read more

Indifference Analysis

What Is Indifference Analysis? It is through ‘debt-equity mix’ that financing decision are made to increase EPS of a company, EBIT-EPS analysis involves determining the ‘crossover’ or ‘indifference’ EBIT at which the EPS is the same between two financing alternatives. In other words, the use of a financial break-even level, and the return from alternative … Read more

Combined Leverage

What Is Combined Leverage (CL)? Combined leverage (OL + FL) represents a company’s total risk related to operating leverage, financial leverage, and the net effect on the EPS.  Operating leverage affects the operating risk (i.e., the percentage change in EBIT due to the percentage change in sales), and financial leverage impacts the financial risk (i.e., … Read more

Financial Leverage

What Is Financial Leverage? If operating leverage results from the existence of operating expenses in the enterprise’s income stream, then financial leverage results from the presence of fixed financial charges in the firm’s income stream. In fact, financial leverage relates to financing activities, i.e., the cost of raising funds from different sources carrying fixed charges … Read more

Operating Leverage

What Is Operating Leverage? The leverage associated with investment activities or asset acquisition is called operating leverage. In fact, the relationship between sales revenue and EBIT is termed as operating leverage because when the sales level increases or decreases, EBIT also changes. That means, the operating leverage measure the relationship between sales revenue and EBIT. … Read more

What Is Leverage

Definition of Leverage Leverage refers to employment of an asset or source of funds for which the enterprise has to pay a fixed cost or fixed return. In other words, it refers to a relationship between two variables. Such variables may be cost, output, sales, revenue, earnings before interest and taxes (EBIT), earnings per share … Read more

DuPont Analysis

DuPont Analysis – A Significant Measure For Investment Decisions The proponents of DuPont analysis believe that ‘measuring assets at ‘ gross value’ removes the incentive to avoid investing in new assets. Explanation During 1970s DuPont Corporation used a performance measurement different from the common measurement applied by business enterprises for measuring their investment projects. The … Read more

Trend Analysis of Financial Statements

What is Trend Analysis of Financial Statements? Trend analysis of financial statements helps information users to discern percentage changes over time in the selected data. For example, users can see whether a firm’s net profit is increasing, decreasing, or stable, or whether there are fluctuations over the years. Explanation Horizontal analysis of financial statements can … Read more

Accounting for Sales Tax

What Is the Sales Tax? The tax, called a sales tax, is collected from the customer by the seller and later paid to the appropriate tax official in the state government. Explanation Most state governments and some county and city governments in a country levy a tax on the retail price of goods and services … Read more