Suppose Rocky Brands has earnings per share of $2.37 and EBITDA of $30.5 million

Question

Suppose Rocky Brands has earnings per share of $2.37 and EBITDA of $30.5 million. The firm also has 5.2 million shares outstanding and debt of $135 million (net of cash). You believe Deckers Outdoor Corporationis comparable to Rocky Brands in terms of its underlying business, but Deckers has no debt. If Deckers has a P/E of 13.5 and an enterprise value to EBITDA multiple of 7.47 estimate the value of Rocky Brands stock using both multiples. Which estimate is likely to be more accurate?

The value of Rocky Brands stock using the P/E ratio is

Explanation / Answer

Value of Share using P/E Ratio = Earning per share * P/E Ratio

Value of Share using P/E Ratio = $2.37 * 13.5

Value of Share using P/E Ratio = $31.995

Value of Share using EBITDA Ratio = (EBITDA * EBITDA Multiplier) - Debt

Value of Share using EBITDA Ratio = ($30.5 million * 7.47) - $135 million

Value of Share using EBITDA Ratio = $92.835 million

Etimation using EBITDA is most appropriate.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.