Question

Big Z Chicken is a private fast food business located in Georgia. The company sells franchises in the chicken business and charges a 7.00% royalty on all sales of its stores. Here is a quick summary of Big Z company financials:

Company Data	Fiscal Year 2018
# of Stores	505.00
Revenues per store	$1,000,000.00
Royalty on sales	7.00%
EBITDA Margin on Sales	18.00%

Balance Sheet Data	Fiscal Year 2018
Interest bearing debt	$15,000,000.00
Shareholder equity	$12,000,000.00
Cash and Marketable Securities	$4,000,000.00

We will compare Big Z against Chick-Today, a leader in the fast food business, that has an enterprise value of $406.00 billion and EBITDA of $108.00 billion.

Using Chick Today's multiple and Big Z financial data, what is the value of Big Z’s equity?

Answer 1

The business of Big Z chicken can be summariseed as below

Company Data	Fiscal Year 2018	Explanation
# of Stores	505	Given Data
Revenues per store	$1,000,000	Given Data
Total Revenue from all stores	$505,000,000	No. of stores x Rev per store
Royalty on sales	7.00%	Given Data
Royalty Income from Stores (Royalty)	$35,350,000	It is considered that royalty is only income the Big Z will earn
EBITDA Margin on Sales	18.00%	Given Data
EBITDA	$6,363,000	Ebitda Margin x Royalty Income

Chick Today's :

Enterprise Value = $406 Billion

EBITDA = $108 Billion

Thus EV/ EBITDA = 406/108 = 3.76

We will use this ratio for BigZ Chicken

Big Z Chicken

EBITDA = $63,63,000

EV/ EBITDA = 3.76 (Rounded off), the comparable for Chick Today

EV = 3.76 x 63,63,000 = $239,24,880

EV = Market Value of Equity + Market Value of Debt - Cash & Cash Equivalent

For Big Z

Market Value of Debt = $150,00,000

Cash & Equivalent = Marketable Securities = $40,00,000

So Market Value of Equity = EV - Market Value of Debt + Cash & Cash Equivalent

= 239,24,880-150,00,000+40,00,000

= $129,24,880