Question

You try to value a company that had revenues of $49 million throughout the past 12...

You try to value a company that had revenues of $49 million throughout the past 12 months. Depreciation and amortization expenses were $9 million. Operating margin is 25.4%. It has $32 million of debt, $9 million in cash, and 8 million shares outstanding. Comparable companies are trading at an average trailing EV/EBITDA multiple of 22. What is the company's share price using relative valuation? Round to one decimal place.

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Answer #1

Operating margin = Operating Income / Revenue

25.4% = Operating Income / $49,000,000

Operating Income = 25.4% * $49,000,000

Operating Income = $12,446,000

EBITDA = Operating Income + Depreciation and amortization expenses

EBITDA = $12,446,000 + $9,000,000

EBITDA = $21,446,000

EV/EBITDA = 22

EV = 22 * $21,446,000

EV = $471,812,000

EV = Equity value + Debt value - Cash

$471,812,000 = Equity value + 32,000,000 - $9,000,000

Equity value = $448,812,000

Share price = Equity value / Shares outstanding

Share price = $448,812,000 / 8,000,000

Share price = $56.1015 or $56.1

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