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Earnings Before Interest

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What is Earnings Before Interest and Taxes-Earnings Per Share (EBIT-EPS) analysis? What is the indifference curve? How is risk factored into the EBIT-EPS analysis? What are basic shortcomings of EBIT's analyses?
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What is Earnings Before Interest and Taxes-Earnings Per Share (EBIT-EPS) analysis?

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EBIT-EPS analysis is basically used to ascertain the impact of financial leverage due to the use of debt and/or equity on the earnings per share of the organization. Basically, this analysis measures the level of EPS at a given EBIT for different capital structures. It helps financial managers to evaluate the impact of various financing methods by investing their impact on the earnings per share for a range of EBIT levels.

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Solution provided by:
Sandeep Bardia, MBA
Education
  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
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