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.

Solutions

Expert Solution

EV/EBITDA multiple = Enterprises value / EBITDA

where,

Enterprises value is the companies market capitalisation + Preference share +Debt - Cash and Cash Equivalents.

Market capitalisation = Total shares issued by the company x share Price

EBITDA means Earnings Before Interest, Taxes, Depreciation and Amortization

Solution

EBITDA can also be computed as = Operating profit + Depreciationand amortisation

= 322 000 000 TL +  16 000 000 TL

= 338 000 000 TL

Average EV/EBITDA multiple of industry is 9

Therefore Enterprises value    = 9 x EBITDA

= 9 x 338 000 000 TL

= 3042 000 000 TL   

Enterprises value = Market capitalisation + DEBT fund - Cash and cash Equivalents

3042 000 000 TL = Market capitalisation+[52 000 000 TL + 16 000 000 TL +10 000 000 TL]

- 17 000 000 TL

3042 000 000 TL = Market capitalisation + 61 000 000 TL

Market capitalisation = 2981 000 000 TL

  Market capitalisation = No of shares x price per share

  price per share = 2981 000 000 TL / 140 000 00

= 212.93 TL

Note: assuming shares are of 10 TL each.


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