Sinclair Manufacturing and Boswell Brothers Inc. are both involved in the production of tile for the home-building industry. Their financial information is as follows:

Capital StructureSinclairBoswellDebt @ 12%$1,680,0000Common stock, $10 per share1,120,000$2,800,000$2,800,000$2,800,000Common shares112,000280,000Operating PlanSales (68,000 units at $25 each)$1,700,000$1,700,000Less: Variable costs1,224,000816,000($18 per unit)($12 per unit)Fixed costs0318,000Earnings before interest and taxes (EBIT)$476,000$566,000

Advise the companies on the implications of having a high degree of combined leverage if the industry in which they operate is highly cyclical.