Question

In: Finance

A firm that operates in chemical sector decides to go public in Borsa İstanbul. Operating profit...

A firm that operates in chemical sector decides to go public in Borsa İstanbul. Operating profit of this firm is 322 000 000 TL and depreciation and amortization is 16 000 000 TL.

Short term Financial Debt: 52 000 000 TL, Long Term Financial Debt: 16 000 000 TL

Short Term Payables: 10 000 000 TL, Long Term Payables: 0,

Cash and Cash Equivalents: 17 000 000 TL, Share capital : 140 000 000 TL.

If the average of EV/EBITDA multiple of comparable firms in chemical sector is 9, estimate the value per share for initial public offering according to the average EV/EBITDA.

that s the whole question given.

Solutions

Expert Solution

EV= Market Value of Common Stock + Market Value of preferred Stocks + Short Term Debt + Long Term Debt + Minority Interest - Cash and Cash Equivalents

Thus As per Data Given we have

EBIT 322000000
D&A 16000000
Short Term Debt 52000000
Long Term Debt 16000000
Short Terms Payables 10000000
Cash and Cash Equivalents 17000000
Share capital 140000000

Thus EV= Share Capital ( Market Value of Common Stock) + Short Term Debt(Which also Includes Account Payable)+Long Term Debt - Cash and Cash Equivalents

=140000000+52000000+10000000+16000000-17000000=

201000000

(EV of the Firm)

EBITDA=EBIT(Operating Profit + D&A)=

322000000+16000000

=

338000000

USING COMPARABLE VALUATION METHOD

We have Average EV/EBITDA=9 (Industry)

To Calculate= The value per share for initial public offering

PS-Face Value of the Shares not Mentioned , No of Shares Not Mentioned

Thus Assuming Face Value of Shares to be 10

Comparing EV/EBITDA of Industry to that of company

Thus 9(INDUSTRY AVERAGE)=EV/EBITDA(COMPANY)

9*338000000=EV=3042000000

But we Know that EV=Share Capital ( Market Value of Common Stock) + Short Term Debt(Which also Includes Account Payable)+Long Term Debt - Cash and Cash Equivalents

3042000000= Share Capital (It will Increae because we are going for IPO) + 52000000+10000000+16000000-17000000

Share Capital Required=

2981000000

Initial Investment we have is 140 000 000 and we require

2841000000

Initially No. Of share Capital was 140 000 000 Considering Face Value of 10Rs No of Shares =140 000 000/10=140 000 00

Thus Diluting it to Furture more investment we require

2981000000/140 000 00

=

212.9285714

Would be the per share Price during IPO The Value Depends on the Face Value thus changing it would change IPO Value as well


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