40 million shares outstanding, $2.50 share price, leverage cash flow yield of 10%, EBITDA margin of 20%, Coverage ratio of 2x, and interest rate of 5%. Calculate the levered free cash flow and the total debt.
I know levered FCF is 2.50 into 40 into 10% = 10 mil. How do I get to total debt?
| +206 | Downfall of Qatalyst | 40 | 8h |
| +166 | UBS IB 26Q2 a Disaster! Advisory Revenue Down 23%, Capital MarketsDown 5% | 22 | 2d |
| +103 | UBS Americas IB: The Kids’ Table of Wall Street | 12 | 17h |
| +81 | Lincoln International Return Offers | 42 | 17h |
| +49 | so confused about 28 SA timeline | 27 | 5d |
| +42 | London IB BB is a challenge | 28 | 1d |
| +36 | momentum of Rx groups | 11 | 17h |
| +35 | Fired during interview | 5 | 1d |
| +33 | [WSO MODS] Please Delete This BS Host Books Spam! | 2 | 4d |
| +22 | Associate 3 in ECM - Worth Moving to Broader Advisory? | 8 | 1d |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
Houlihan Lokey asked me a similar question and I had no fuckin idea.
Yeah I got asked that in an interview as well and it's killing me to not know the answer and I can't seem to figure it out lol.
use coverage ratio to get total debt
Yeah I would, but I don't have the EBITDA value so how am I supposed to use the coverage ratio, assuming coverage ratio is EBITDA/Debt Expense and that is EBITDA / (int. rate. * total debt) so that can be rearranged as
Total Debt = EBITDA / (int. rate * coverage ratio) = EBITDA / (0.05 * 2) = EBITDA / 0.10
I get stuck here so idk what to do because I have the EBITDA margin but not the EBITDA (cuz I don't have total revenue).
What if I use lev. FCF as a proxy for EBITDA and then solve to get to Total debt?
.
cash flow coverage not EBITDA coverage
I could be wrong, but I think the formula is:
($10,000,000+0.05x)/0.05x = 2
x = debt amount = $200,000,000 (assuming 5% interest only)
Check work below:
EBITDA = $20,000,000
Interest payment = 5%*$200,000,000 = $10,000,000
$20,000,000/$10,000,000 = 2x DSCR
$20,000,000 - $10,000,000 = $10,000,000
$10,000,000/$100,000,000 = 10% yield
What formula are you using here?
It's not a "financial formula," it's just algebra. EBITDA/Debt Service = DCSR. The main trick is that we know the the Cash Flow to Equity After Debt Service, but we do not know EBITDA.
Let's break down ($10,000,000+0.05x) first, which solves for EBITDA. We know that the formula for Cash Flow to Equity After Debt Service is
EBITDA - Debt Service and we know that Cash Flow to Equity After Debt Service is $10,000,000, so that means if you add the Debt Service back to Cash Flow to Equity After Debt Service then you get EBITDA hence $10,000,000 (which is the Cash Flow to Equity After Debt Service) + 0.05x (which is the Debt Service, 5% of the Debt Amount)
Now that we have EBITDA, we just take the EBITDA and divide by the Debt Service, which we know must equal 2
How did you get EBITDA to 20mil?
Read ^ you actually don't need EBITDA to solve what is being asked for, but if you wanted to solve for it, it would be solved for last, but basically once we solve for the debt amount, then we can solve for the debt service and then you just add the debt service to the $10,000,000 cash flow to equity
Might need to make some assumptions around tax rate. Not sure
Why? Isn't everything being asked about before taxes?
Ipsum commodi eius laboriosam autem saepe at modi cupiditate. Eveniet sed et quis quia ut. Doloribus quos accusamus et. Blanditiis rerum iste laudantium vel. Dolorem autem repellendus placeat odit aut. Est ipsum architecto nisi consectetur eum at consequatur.
Tempora enim dolor et. Quisquam quibusdam eos hic minus at beatae. Harum id nobis dolore. Quibusdam officiis inventore voluptas possimus. Perferendis laudantium aut totam itaque et a a.
Tempora reiciendis corporis non quia iusto modi ut. Recusandae repellendus fugit dolore modi accusantium asperiores voluptatem. Incidunt ab hic aut quae velit ratione.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...