Concepts of depreciation
I learned the concepts of depreciation, Leverage, and capital structure in this week. These are core financial concepts. I learned about capital structures, operating break-even point, break-even point, how the changing costs impact the break-even point, the concepts of operating Leverage, Financial Leverage, and total Leverage. In this week’s learning, I learned about the general income format and the types of leverages. I was also exposed to concepts of EBIT for various levels of sales revenues. I learned the formula to calculate the degree of operating Leverage. I also learned the concepts of financial Leverage, calculation of EPS for various levels of EBIT levels, and total leverage calculation. I understood the relationship between the operating, financial, and total Leverage and how all these three leverages impact a firm’s decision. EPS determines a firms’ financing decision. I learned the technique of EBIT-EPS to select the most appropriate capital structure, which would maximize the earnings per share (EPS) for certain expected earning before the calculation of interest and tax (EBIT). The shortcomings of the EBIT-EPS approach are also examined. All these concepts are new to me as I did not taste the flavor of finance in my previous education. In the same week, I learned the concept of depreciation. I heard the concept of depreciation from my friend. My friend was a chartered financial analyst, and he used to advise me on the asset purchase. He used to advise me what kind of assets would appreciate and which assets would depreciate. I could connect some of the theoretical concepts to my friend’s advice. I learned the various depreciation concepts, along with their advantages and disadvantages. We were taught these concepts along with examples for easy understanding of the subject. I did not ask questions as I am completely new to the concepts.