: EPS/EBIT ANALYSIS OFEBIT FOR EFU

Using EPS/EBIT analysis we check the flexibility in EFU capital structure. Capital
structure required for the future capital need. EFS and EBIT are the two major
.components on which we can test the projected financial statement
For that first we need to analysis the FUTURE Strategy o EFU
: FUTURE STRATEGY OF EFU

: STRATEGIC OBJECTIVE
The main strategic objective behind the EFU future strategy is

: OUR PROPOSED ALTERNATIV STATEGY

On the basis of QSPM we proposed that they have to invest in R&D and
. marketing locally

: EVALUATION OF ABOVE STATEGY

R&D INVESTMENT: On the basis on their strategic objective to diversify the

product and improvement the technology they need hug capital means they
. have to invent in the R&D

MARKETING: EFU need huge capital in future as they are not spending much on
advertisement. It will increase their expanses and their profit will decrease in
.near future
: RETAININ LEADESHIP POSITION

This the important point before implementing the strategy currently they are the
.market leader with the revenue of written premium over 31 billion PKR
To retain this position there are some key point
Insurance market is growing at the rate of 13% .1

.Previously year 2014 their growth is above 28% .2

Now on the basis of that we estimate that EFU have to grow in next YR2016 with
the rate of 30%. The reason behind is that the market growth rate is 13% and
their previous year growth rate is 28% we estimate that they perform nearly the
same growth next year as investment in R&D and advertisement increase their
. expenses allot

: Current situation

Currently they have EBIT of 5116Million PKR and EPS of 14.58 which is good and
.their EAT is 4805 Million PKR
.With the estimate growth of 30% in next year their EBIT will be 6658
.Now we perform EPS/EBIT to find out the situation

: ANALYSIS

DATA*: (M=Million PKR)

Amount Needed: 6656 M
EBIT Range: 3000 M, 5120 M, 7000 M
Interest Rate: 6%
Tax Rate: 16%
Stock price: 198
of share Outstanding=278 M#

. Data taken from EFU Annual Report 2015 *

DEBT
Financing

Common Stock
financing

Boom

Normal Recessi
on

Boom

Normal Recessi
on

7000
400

5120
400

3000
400

7000
0

5120
0

3000
0

6600
1056
5544
278
19.94245

4720
755.2
3964.8
278
14.26187

2600
416
2184
278
7.856115

7000
1120
5880
311.59
18.87095

5120
819.2
4300.8
311.59
13.80275

3000
480
2520
311.59
8.087551

Debt-30% Stock 70%

Boom

Normal Recessi
on

Stock-30% Debt 70%

Boom

Normal Recessi
on

7000
280

5120
280

3000
280

7000
120

5120
120

3000
120

6720
1075.2
5644.8
288.08
19.59456

4840
774.4
4065.6
288.08
14.11275

2720
435.2
2284.8
288.08
7.93113

6880
1100.8
5779.2
301.52
19.16689

5000
800
4200
301.52
13.92942

2880
460.8
2419.2
301.52
8.023348

: CHART

EB
IN
T
EB
Taxes (16%
EA
Sh
EP

EB
IN
T
EB
Taxes (16%
EA
Sh
EP

: PLOT

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gnicnani f TBED

f TBED) raeniL

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0003 0053 0004 0054 0005 0055 0006 0056 0007 0057

: CONCLUSION
WHAT EFU HAVE TO DO
In Recession: EFU should used common stock to raise capital EPS of 8.08
.IN NORMAL AND BOOM CONDITION: EFU used debt financing
POSITIVETHING FOR EFU: their current EBIT and EPS is ABOVE THAN breaking
.point which is EBIT =3750 and EPS 9.8