Calculating costs (common mistake)

[Robbie Bhathal]

All,

So I have been working with of our classmates who have not been getting the answers to foot to what the Primer says.  The main reason for this in looking at the models is that the Ops Comps-For Class section is a bit confusing.  For example the materials cost says 41.12% of total revenue.  Most people (including myself!) just used this number as the material cost every year from 1997-2001.  However in the primer it states that these percentages are just for 2001 since we are only certain of year 5 numbers.  For all costs you have to do the same thing as you did with revenue, use the percentage to calculate 2001 costs, take the difference between 1996 and 2001 and straighline the growth over the 5 year period.  This vastly changes the EBITDA numbers in the earlier years leading to a lower EBITDA. 

I hope this helps!

Robbie

[philip...@gmail.com]

Robbie,

Thank you very much for the clarification. I apologize for not having done so during the webinar.

All, you do need to the straight line calculation as Robbie described for both revenue and costs.

Thanks again Robbie for bringing that up.

Please continue to post these questions to the Google group so we can answer things as quickly as possible.

Good luck to everyone. You are almost done.

Phil

Sent from my iPad