Question

Competitor Landscape

Competitors	Enterprise Value	Free Cash Flow
Lammle’s Boot	$8,032,000	$848,092
Canada Boot Apparel	$9,243,000	$275,466
Stampede Boot Company	$6,503,000	$909,200
Boots Boots Boots	$7,434,000	$450,950

The competitor landscape refers to comparable investments for Beauty Boots Inc. (BB Inc.). BB Inc. has expected EBIT of $500,000 and a Free Cash Flow of $555,555 next year. The interest expense is $2,000 and the tax rate is 30%. The company has $3,900,000 of Debt and $200,000 of Cash and 300,000 Shares Outstanding. What is your best estimate of the share price of Beauty Boots Inc.?

Answer 1

Since no other information is given, we would assume that the capital structure of all the competitors is same as our target company. Hence, we will calculate the EV/Cashflow ratio of all the companies and then average it to get the industry EV/Cashflow ratio.

Hence, the average will be = (8,032,000/848,092 + 9,243,000/275,466 + 6,503,000/909,200 + 7,434,000/450,950) /4 = 16.665.

Hence, the total enterprise value of our target company becomes = 16.665 x 555,555 = $9,258,324.

EV = Debt + Equity - Cash.

Hence, the equity of the company becomes = 9258324 + 200000 - 3900000 = $5,558,324.

Hence, the share price = 5,558,324/300000 = $18.528 per share.