PLANNING AND

ALTERNATIVES
AND EBIT AND
EPS
REALTIONSHIP

FINANCIAL
PLANNING

FINANCIAL PLANNING
In business, a financial plan can refer to the

three primaryfinancial statements created

within abusiness plan.
Financial forecastor financial plan can also refer
to an annual projection of income and expenses
for acompany, division or department.
A financial plan can also be an estimation of
cash needs and a decision on how to raise the
cash, such as through borrowing or issuing
additional shares in a company.

DEFINITION OF FINANCIAL
PLANNING
Financial Planning is the process of estimating

the capital required and determining its

competition. It is the process of framing
financial policies in relation to procurement,
investment and administration of funds of an
enterprise.

OBJECTIVES OF FINANCIAL
PLANNING
Determining capital requirements- This will

depend upon factors like cost of current and

fixed assets, promotional expenses and longrange planning. Capital requirements have to
be looked with both aspects: short- term and
long- term requirements.

OBJECTIVES OF FINANCIAL
PLANNING
Determining capital structure- The capital

structure is the composition of capital, i.e., the

relative kind and proportion of capital required
in the business. This includes decisions of
debt- equity ratio- both short-term and longterm.

OBJECTIVES OF FINANCIAL
PLANNING
Framing financial policies with regards to cash

control, lending, borrowings, etc.

A finance manager ensures that the scarce
financial resources are maximally utilized in
the best possible manner at least cost in order
to get maximum returns on investment.

IMPORTANCE OF FINANCIAL
PLANNING
Adequate funds have to be ensured.
Financial Planning helps in ensuring a

reasonable balance between outflow and

inflow of funds so that stability is maintained.
Financial Planning ensures that the suppliers

of funds are easily investing in companies

which exercise financial planning.

IMPORTANCE OF FINANCIAL
PLANNING
Financial Planning helps in making growth and

expansion programmes which helps in long-run

survival of the company.
Financial Planning reduces uncertainties with regards

to changing market trends which can be faced easily

through enough funds.
Financial Planning helps in reducing the uncertainties

which can be a hindrance to growth of the company.

This helps in ensuring stability an d profitability in
concern.

MISSION
GOAL

STRAGEGY

R&D POLICY

R&D
BUDGET

MARKETING
POLICY

MARKETING
BUDGET

FINANCIAL
PLANNING

PRODUCTIO
N

PRODUCTIO
N BUDGET

PERSONAL

PERONAL
BUDGET

FINANCIAL
ALTERNATI
VE

MEANING
An investment that is not one of the three

traditional asset types (stocks, bonds and

cash). Most alternative investment assets are
held by institutional investors or accredited,
high-net-worth individuals because of their
complex nature, limited regulations and
relative lack of liquidity. Alternative
investments include hedge funds, managed
futures, real estate, commodities and
derivatives contracts.

SOURCES OF CAPITAL
Equity
Preference shares
Debentures (debt )
Borrowings from bank
Angel investors
Seed capital
Venture capital
Private equity

ALTERNATIVE SOURCES OF
CAPITAL
Angel Investors

Angel investors are affluent individuals who provide

capital for a business start-up, usually in exchange for
ownership equity. These individuals are looking for a
higher rate of return than would be given by more
traditional investments (typically 25% or more).
Angel investors are an excellent source of early stage

financing and high-growth start-ups. They are often

willing to tread where there is too much risk for banks
and not enough profit potential for venture capitalists

VENTURE CAPITAL
Venture capital is not suitable for all entrepreneurs. It is an option

for small companies that have a seasoned management team and

very aggressive growth plans; however, venture capitalists will
rarely invest in small businesses that have no intention of going
public.
If a company does have the qualities venture capitalists seek such

as a solid business plan, a good management team, investment

and passion from the founders, a good potential to exit the
investment before the end of their funding cycle, and target
minimum returns in excess of 40% per year, it will find it easier to
raise venture capital.
The venture capitalist objective is to invest in a company for a

short period of time say 5 years and then cash out of the business
while making a significant return on their investment

SEED CAPITAL
The initial capital used to start a business. Seed

capital often comes from the company founders'

personal assets or from friends and family.
The amount of money is usually relatively small
because the business is still in the idea or conceptual
stage.
Such a venture is generally at a pre-revenue stage
and seed capital is needed for research &
development, to cover initial operating expenses
until a product or service can start generating
revenue, and to attract the attention of venture
capitalists.

PRIVATE EQUITY
Private equity consists of investors and funds that make

investments directly into private companies or conduct buyouts

of public companies that result in a delisting of public equity.
Capital for private equity is raised from retail and institutional
investors, and can be used to fund new technologies, expand
working capital within an owned company, make acquisitions,
or to strengthen a balance sheet.
The majority of private equity consists of institutional investors
and accredited investors who can commit large sums of money
for long periods of time. Private equity investments often
demand long holding periods to allow for a turnaround of a
distressed company or a liquidity event such as an IPO or sale
to a public company.

EBIT AND EPS RELATIONSHIP

INCOME STATEMENT
SALES
LESS : VARAIABLE COST
CONTRIBUTION
LESS: FIXED COST
EBIT
LESS: INTEREST
EBT
LESS: TAX
PAT
EPS= PAT/ NO OF EQUITY
SHAREHOLDER

INTRODUCTION

INCOME STATEMENT

It examines how different capital

structures
affect
earnings
available to shareholders (Earning
Per Share).
It is the analysis of the effect of

financing alternatives on earnings

per share.
To design the capital structure of

SALES

LESS : VARAIABLE COST

CONTRIBUTION
LESS: FIXED COST
EBIT
LESS: INTEREST

the firm in such a way so as to

minimize the cost of capital.

EBT

EBIT-EPS analysis is a method to

PAT

study the effect

under alternative
financing.

of leverage
methods of

LESS: TAX

EPS= PAT/ NO OF EQUITY

SHAREHOLDER

EBIT
EBIT is usually listed on a

companys income
statement. It is near the
bottom of the statement
and indicates the
companys profit before it
pays interest and taxes.
It represents the
companys actual
operating profit and its
ability to produce
income.

INCOME STATEMENT
SALES
LESS : VARAIABLE COST
CONTRIBUTION
LESS: FIXED COST
EBIT
LESS: INTEREST
EBT
LESS: TAX
PAT
EPS= PAT/ NO OF EQUITY
SHAREHOLDER

EPS
EPS is also often

found on a
companys income
statement.
After deducting
Interest and Tax you
Profits after tax
which you divide by
number of Equity
shareholder.

INCOME STATEMENT
SALES
LESS : VARAIABLE COST
CONTRIBUTION
LESS: FIXED COST
EBIT
LESS: INTEREST
EBT
LESS: TAX
PAT
EPS= PAT/ NO OF EQUITY
SHAREHOLDER

ALTENATIVES

STATEMENT SHOWING THE EPS UNDER EXISTING &

Particular
i
ii
iii
PROPOSED
ALTERNATIVE
s

Present

Debenture P. Share

Eq. Share

EBIT
(-)Interest

1,00,000
20,000

1,20,000
30,000

1,20,000
20,000

1,20,000
20,000

EBT
(-)Tax 50%

80,000
40,000

90,000
45,000

1,00,000
50,000

1,00,000
50,000

EAT
(-)P.
Dividend

40,000
16,000

45,000
16,000

50,000
32,000

50,000
16,000

ESH

24,000
4,000

29,000
4,000

18,000
4,000

34,000
6,000

Rs 6.00
-

Rs 7.25
+1.25

Rs 4.50
-1.50

Rs 5.67
-0.33

() No.
Equity
Shares

EPS
Change in
EPS

of

PRICE EARNINGS
RATIO
A valuation ratio of a

INCOME STATEMENT

company's current share

price compared to its pershare earnings.
Market Value per Share
/Earnings per Share
(EPS)
For example, if a company
is currently trading at $43
a share and earnings over
the last 12 months were
$1.95 per share, the P/E
ratio for the stock would
be 22.05 ($43/$1.95).

SALES
LESS : VARAIABLE COST
CONTRIBUTION
LESS: FIXED COST
EBIT
LESS: INTEREST
EBT
LESS: TAX
PAT
EPS= PAT/ NO OF EQUITY
SHAREHOLDER

THANK YOU