In: Finance
I am given the following problem and solution. Can someone just explain where the BOLD values in part B are coming from? ($60,000,000, $80,000,000, $200,000,000)
EastTek SouthTek NorthTek |
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Net sales $25,000,000 $37,500,000 $80,000,000 |
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EBITDA 12,500,000 20,000,000 37,500,000 |
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Net Income 2,500,000 3,000,000 10,000,000 |
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Equity Value 45,000,000 60,000,000 160,000,000 |
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Interest-bearing 15,000,000 20,000,000 40,000,000 |
A. Calculate the enterprise value to net sales ratios for each of the three competitors (EastTek, SouthTek, and NorthTek), as well as the average ratio for the competitors.
Enterprise value = equity value + interest-bearing debt
Equity value = market capitalization (i.e., stock price times shares outstanding)
EastTek: ($45,000,000 + $15,000,000)/$25,000,000 = 2.40
SouthTek: ($60,000,000 + $20,000,000)/$37,500,000 = 2.13
NorthTek: ($160,000,000 + $40,000,000)/$80,000,000 = 2.50
Average: (2.40 + 2.13 + 2.50)/3 = 7.03/3 = 2.34
B) Calculate the enterprise value to EBITDA ratios for each of the three competitors, as well as the average ratio for the competitors.
EastTek: $60,000,000/$12,500,000 = 4.80
SouthTek: $80,000,000/$20,000,000 = 4.00
NorthTek: $200,000,000/$37,500,000 = 5.33
Average: (4.80 + 4.00 + 5.33)/3 = 14.13/3 = 4.71
Enterprise Value = Total Capital Employed |
Enterprise Value = Equity Value + Debt (Interest bearing Capital) |
Computation of Enterprice Value: | ||||
EastTek | SouthTek | NorthTek | ||
a. | Equity Value | 45,000,000 | 60,000,000 | 160,000,000 |
b. | Interest Bearing | 15,000,000 | 20,000,000 | 40,000,000 |
c. | Enterprise Value(a+b) | 60,000,000 | 80,000,000 | 200,000,000 |