Question

a. A company generated revenues of $286 million during the last twelve months, with an operating margin of 42.8% and net margin of 28.9%. Its current market capitalization (equity value) is $506 million and it has 12 million shares outstanding. What's its trailing PE ratio? Round to one decimal place.

b. What is the free cash flow of a firm with revenues of $59 million, operating margin of 39.5%, net margin of 15.2%, tax rate of 10.1%, and reinvestment rate of 35.1%?

Answer 1

Answer A

		Last 12 months
	Revenues	286.00	mn $
	Op margin %	42.80%
	Op margin	286*42.80%
	Operating Profit	122.408	mn $
	Net margin %	28.90%
	Net profit	286*28.90%
	Net profit	82.654	mn $
	Earning per share	=	Net profit / shares outstanding
		=	82.654/12
	12 months trailing EPS	=	6.89
	Market cap	506	mn $
	Shares outstanding	12	mn shares
	Current Market price	=	Market capitalisation/shares outstanding
		=	506/12
		=	42.17
	12mnth trailing P/E ratio	=	Current market price / trailing 12 months earning per share
		=	42.17/6.89
Answer	12mnth trailing P/E ratio	=	6.12 times

Answer B

	Revenues	=	59	mn $
	Op margin %	=	39.50%
	Op margin	=	59*39.5%
	Operating Profit	=	23.31	mn $
	Net margin %	=	15.20%
	Net profit	=	59*15.2%
	Net profit	=	8.97	mn $
	Tax rate	=	10.10%
	Tax amount	=	8.97*10.1%
		=	0.91	mn $
	Profit after tax	=	8.97-0.91
		=	8.06	mn $
	Re-investment rate	=	35.10%
	Free cash flow to firm	=	Net operating profit after taxes + Depreciation & amortisation - capital expenditures - working capital
	Net operating profit after tax
		=	Net operating profit * (1-tax rate)
		=	23.31*(1-0.101)
		=	23.31*0.899
		=	20.96	mn $
	As depreciation & amortisation and working capital figures are not given
	we have capital expenditure
		=	Profit after tax * re-investment rate
		=	8.06*35.10%
		=	2.83	mn $
	FCFF	=	20.96-2.83
Answer B	FCFF	=	18.13	mn $