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Alternative Example 2.5<br />
• Problem<br />
– Assess Rylan’s ability to meet its interest<br />
obligations by calculating interest coverage<br />
ratios using both EBIT and EBITDA.<br />
Income Statement<br />
2012 2011<br />
Revenues $500,000,000 $450,000,000<br />
Less: Cost of Goods Sold $225,000,000 $200,000,000<br />
Gross Profit $275,000,000 $250,000,000<br />
Less: Operating Expenses $150,000,000 $140,000,000<br />
EBITDA $125,000,000 $110,000,000<br />
Less: Depreciation $25,000,000 $22,500,000<br />
EBIT $100,000,000 $87,500,000<br />
Less: Interest Expense $10,000,000 $9,000,000<br />
EBT $90,000,000 $78,500,000<br />
Less: Taxes (40%) $36,000,000 $31,400,000<br />
Net Income $54,000,000 $47,100,000<br />
Copyright ©2014 Pearson Education, Inc. All rights reserved. 2-64
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