Question

In: Finance

Assume you have operated your business for 20 years.  Sales for the most recent fiscal year were...

  1. Assume you have operated your business for 20 years.  Sales for the most recent fiscal year were $15,000,000.  Net income for the most recent fiscal year was $2,000,000.  Your book value is $12,500,000.  A similar company recently sold for the following statistics:

Multiple of Sales:                               1.2x

Multiple of Net Income:                     8x

Multiple of Book Value:                     0.7x

  1. What is an appropriate range of value for your company?

b. If you know that your company has future investment opportunities that are far more profitable than the company above, what does that say about your company’s likely valuation from section (a)?

Solutions

Expert Solution

a. Appropriate range of value for this company
Multiple of Sales: 1.2
Enterprise Value/Sales=1.2
Enterprise Value/15000000=1.2
Enterprise Value=15000000*1.2=
18000000
Multiple of Net Income: 8
Enterprise Value/Net income=8
Enterprise Value/2000000=8
Enterprise Value=2000000*8=
16000000
Multiple of Book Value:  0.7x
Enterprise Value/Book Value=0.7
Enterprise Value/12500000=0.7
Enterprise Value=12500000*0.7=
8750000
so, the appropriate range of value for this company
$ 8750000 to $ 18000000
b.Knowing that this company has future investment opportunities that are far more profitable than the company above, it can be concluded that this company’s enterprise values are likely to be greater , as per the net income mutiple & book value multiple statistic used in section (a)-----if not very sure about the sales multiple.

jeff jeffy answered 1 year ago
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