Question

Suppose Rocky Brands has earnings per share of $2.26 and EBITDA of $29.7 million. The firm also has 5.3 million shares outstanding and debt of $130 million (net of cash). You believe Jared's Outdoor Corporation is comparable to Rocky Brands in terms of its underlying business, but Jared's has no debt. If Jared's has a P/E of 13.6 and an enterprise value to EBITDA multiple of 7.5, estimate the Enterprise Value of Rocky Brands by using both multiples. Which estimate is likely to be more accurate?

Answer 1

The value using P/E multiple is computed as follows:

= Earnings per share x PE ratio x Number of shares outstanding

= $ 2.26 x 13.6 x 5.3 million

= $ 162.9008 million

Using EV/EBITDA, value is computed as follows:

= EBITDA x enterprise value to EBITDA multiple - Amount of debt

= $ 29.7 million x 7.5 - $ 130 million

= $ 92.75 million

EV/EBITDA estimate is more likely to be accurate