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Reviewed by CA Nikhil Gupta · Last reviewed 11 October 2026
Enter interest, preference dividend and share count for two financing plans to see EPS at several EBIT levels and the EBIT at which they are equal.
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Compare two debt/equity capital structures and calculate EPS sensitivities, the interest tax shield and an analytical indifference EBIT.
If Plan A has ₹2 lakh interest and 50,000 shares and Plan B has ₹4 lakh interest and 40,000 shares, higher EBIT does not always favour the lower-debt option: share-count dilution can reverse the EPS comparison.
EPS equals profit available to equity shareholders divided by equity shares. Interest reduces profit before tax; preference dividends reduce profit available to ordinary shareholders. Solve EPS(A)=EPS(B) to determine a possible positive-tax indifference EBIT.
An indifference EBIT outside the positive taxable income region is not a valid single straight-line crossing because actual tax does not become a cash refund automatically when taxable income is negative. Actual leverage decisions require risk analysis, covenant scrutiny and cost of capital.
Test EBIT sensitivity at a realistic downside, base and upside rather than using only one point. If a more leveraged structure has a higher EPS above the crossing EBIT, it may also be more fragile when the operating margin falls. Review interest coverage, covenant headroom, cash-interest timing, projected issue price, preference dividend rights and prospective equity issuance. An EPS-neutral financing plan can still have a lower enterprise value or higher distress risk. The indifference number is one financing decision input, not the sole capital-structure recommendation.
Debt term sheets, share-capital table, interest cash-flow schedule, tax regime memo, budget EBIT bridge, covenant certificate, proposed preference share rights.
A negative algebraic crossing is usually not decision-useful for a positive-tax comparison. No. EPS omits risk, cash-flow timing, valuation multiples and cost of capital. Only with the same earnings available to those shares; financing interest and tax costs matter.
The EBIT at which two financing plans give the same EPS. Above it the plan with more debt gives higher EPS; below it the equity plan does.
EPS ignores risk and the cost of financial distress. Use it with coverage ratios such as interest cover and DSCR.
No. Tax is applied only to positive taxable profit in this model.
Rates and rules were checked against these sources on 11 October 2026. Notifications and standards change; confirm on the official site before you file, book or advise.
Educational working tool. Results follow the scope and assumptions above and the figures you enter; they are not tax, audit, legal or accounting advice. Tax and accounting treatment depends on facts and on the law or standard in force for the relevant period, so verify the official source or consult a professional before you rely on a result.
Background, worked examples and the rules behind these numbers.