There are 2.5 million shares outstanding The follo wing are projected the end of
ID: 2643235 • Letter: T
Question
There are 2.5 million shares outstanding
The following are projected the end of year 1
Earning? ?$4.4 Million
EBITDA ?$13 Million
Book Value?$39 million
Sales ?$52.5 million
Cash flows to capital ?$9.2 million
Balance sheet cash?$2.1 million
Market value of the debt ?$ 25 million
You have determined the following comp companies average metrics
1.EV to EBITDA = 15.15
2.Price to Book Value = 4.65
3.Price to sales = 2.95
4.P/E = 31
5.Value to cash flow to capital = 18.5
What are the estimated prices of the stock of the firm today using the five multiples above? Note you should determine 5 prices for the firm.
Explanation / Answer
1. EV to EBITDA = 15.15,
you need the actual EBITDA number. With that you can multiply out to the Enterprise Value then add Cash and Cash Equivalents subtract Debt= Market Value of Equity. f you need a per share price, just divide your equity value by total shares outstanding.
EBITDA = 13 million, EV = 15.15*13 =196.95 million, cash is 2.1 million, debt is 25 million,
Market value of equity = 196.95+2.1-25 = 174.05 million,
Price per share = 174.05/2.5 = $ 69.21 per share.
2. P/B = Share Price / Book Value Per Share
4.65 = share price / 15.6 ( 39 million divided by 2.5 million)
Share price = $ 72.54
3. Price to sales ratio = share price divided by sales per share.
2.95 = share price / 21
share price = 2.95*21 = $ 6.95 per share
4. Price earnings ratio = market value per share / earning per share
31 = market value per share / 1.76 that is 4.4/2.5
market value per share = 31*1.76 = $ 54.56 per share
5. Price to cash flow = share price / cash flow per share
18.5 = share price / 3.68 ( 9.2 / 2.5)
share price = 18.5 * 3.68 = $ 68.08 per share
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