Question

Estimation of a company's stock price from another company's EV/EBITDA multiple:


Assume the following
Comps Inc. (EV/EBITDA) multiple = 7.7


Target Inc. EBITDA = $10,000,000
Target Inc. Debt = $5,000,000
Target Inc. outstanding shares = 1,000,000


Use the information above to estimate Target's implied stock price from Comps Inc.

Answer 1

Total value of the company should be calculated first.

Total value = EBITDA × (EV/EBITDA)

                        = $10,000,000 × 7.7

                        = $77,000,000

Equity value = Total value – Debt

                        = $77,000,000 - $5,000,000

                        = $72,000,000

Stock price = Equity value / Number of outstanding shares

                        = $72,000,000 / 1,000,000

                        = $72 (Answer)