Valuation Using a Balance Sheet Multiple
McDonald’s Inc. reports total book value of $660 million and common shares outstanding of 853.36 million. The average PB ratio for restaurant companies is 10.9. Using the industry average PB ratio, estimate the intrinsic value of McDonald’s equity.
Round answer to two decimal places.
$Answer
Book value per share = Book value / Total number of share = $660,000,000 / 853360000
Book value per share = $0.773413331
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Intrinsic value per share = Book value x PB ratio
Intrinsic value per share = $8.43020530608 or $8.43
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Intrinsic value of total equity of McDonald = Intrinsic value per share x Total number of shares
Intrinsic value of total equity of McDonald = 8.43020530608 x 853360000
Intrinsic value of total equity of McDonald = $7,194,000,000.00
(660,000,000 x 10.9 = $7,194,000,000.00)
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