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?
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.
What is Earnings Before Interest and Taxes-Earnings Per Share (EBIT-EPS) analysis?