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EBIT - EPS Break even chart for three different financing alternatives

EBIT - EPS Break even chart for three different financing alternatives

The EPS Break even chart analyzes the relationships among three different financing alternatives as follows:

DR = Debt Ratio

C1, C2, C3 = Indifference Point

X1, X2, X3 = Financial BEP

[Post Image Courtesy of Stuart Miles at FreeDigitalPhotos.net]

Financial BEP

It is the level of EBIT which covers all fixed financing costs of the company. It is the level of EBIT at which EPS is zero.

Indifference Point

It is the point at which different sets of debt ratios (percentage of debt to total capital employed in the company) gives the same EPS.

About Author Mohamed Abu 'l-Gharaniq

when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has survived not only five centuries.


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