A company had total revenues of $500 million, operating margin of 40%, and depreciation and amortization...

A company had total revenues of $500 million, operating margin of 40%, and depreciation and amortization expense of $80 million over the trailing twelve months. The company currently has $600 million in total debt and $100 million in cash and cash equivalents. If the company's market capitalization (total value of its equity) is $2 billion, what is its EV/EBITDA multiple? Round to two decimal places (Assume EBIT = Operating income).

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Expert Solution

Solution:-

Enterprise value = Market capitalization + Total debt - Cash and Cash equivalents

Given,

Market capitalization = 2 billion or 2,000 million

Total debt = $600 million

Cash and Cash equivalents = $100 million

Enterprise value = $2,000 million + $600 million - $100 million

= $2,500 million

EBIT = Total revenue * Operating profit margin

Given,

Revenue = $500 million

Operating margin = 40%

EBIT = $500 million * 40%

= $200 million

EBITDA = EBIT + Depreciation and Amortization expense

Given,

Depreciation and amortizatin expenses = $80 million

EBITDA = $200 million + $80 million

= $280 million

EV/EBITDA = $2,500 MILLION / $280 MILLION

= 8.92857

Therefore the EV/EBITDA multiple is 8.93

jeff jeffy answered 2 years ago

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