An analyst gathered the following information regarding Violet Inc Market value

Question

An analyst gathered the following information regarding Violet Inc Market value of common shares outstanding $7 million Market value of preferred stock = $2 million Market value of debt- $10.5 million Non-controlling interest - $1.5 million Cash and short-term investments $1.2 million Revenues $9 million . Depreciation and amortization expense $0.8 million Interest expense $0.25 million Taxes = $0.4 million Net income- $3.2 million The EV/EBITDA ratio for the company is closest to: Select one: O a. 3.94 O b. 4.26 ?. 477

Explanation / Answer

Answer = b. 4.26

Calculation of EV/EBITDA

1) Calculation of EV

EV (Enterprise Value) = Market value of Equity + Preference + Debt + Non Controlling Interest - Cash and Cash Equivalents

EV (In Million) = ($7 + $2 + $10.5+ $1.5 - $1.2) = $19.8

2) EBITDA

EBITDA is earnings before Interest, Tax and Depreciation and amortisation

EBITDA (In Million) = ($3.2 + $0.4 + $0.25 + $0.8) = $4.65

3) Calculation of EV/EBITDA

= ($19.8 Million/$4.65 Million) = 4.26

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