In: Finance
In 2018, Chevelle Company has sales of $39,500, cost of $18,400, and depreciation of
$1,900 and interest expense of $1,400. Its tax rate is 35%. It has a stock market value
of $250,000 and debt borrowing of $100,000. It has little cash on balance sheet and
pays a dividend of $3,470 in 2018.
a) Construct an income statement;
b) What’s the retained earnings?
c) What’s its EBITDA?
d) What’s its Enterprise Value (EV)?
e) What’s its EV /EBITDA valuation?
a) income statement
Income statement | ||
Sales | $39,500 | |
Less: | Cost | $18,400 |
Less: | Depreciation | $1,900 |
Operating profit (EBIT) | $19,200 | |
Less: | Interest expense | $1,400 |
Earnings before tax | $17,800 | |
Less: | Tax at 35% | $6,230 |
Earnings after tax | $11,570 | |
Less: | Dividend paid | $3,470 |
Retained earnings | $8,100 |
Calculations
b) the retained earnings are $8,100.
c) EBITDA = Sales - cost = $39,500 - $18,400 = $21,100
d) Enterprise Value = Total market value of the stock + Book value of all liabilities – Cash
Amount of cash has not been given in the question.
Enterprise Value = $250,000 + $100,000 - $0 = $350,000
e) its EV /EBITDA valuation = EV/EBITDA = $350,000/$21,100 = 16.6 or 16.6x