Revenues COGS Gross Profit SG&A Operating Income Depreciation EBITDA Debt 500 300 200 100 100 30 130 536 314 515 306 209 102 107 30 137 104 118 30 148 300 300 Notes: (1) revenue growth in years 2 and 3 is all volume driven (2) COGS in year 1 is 67% variable 1. In the above example (which is the same historical information as the previous problem) assume the biggest risk to this company is customer concentration. Assume one customer accounts for 25% of sales. Assume the company loses this customer. Project revenue, CoGS and EBITDA in year 4. Calculate Debt/EBITDA and interest coverage in year 4. 2. Now assume the largest risk to this customer is rising costs that cannot be passed along to the customers. Specifically, assume that the variable component of COGS rises in price by 30% in year 4, Project revenue, COGS and EBITDA in year 4. Calculate Debt/EBITDA and interest coverage in year 4 Calculating Interest Coverage and Fixed When calculating interest expense: 1. Use 6% multiplied by debt outstanding when: A. It is an Investment Grade company and/or B. Debt/EBITDA is less than 3x 2. Use 10% multiplied by debt outstanding when: A. It is a High Yield company and/or B. Debt/EBITDA is greater than 3x