Question

The following financial data of two firms in the same industry are obtained from Yahoo Finance Statistics as of October 2019.

	Firm A	Firm B	S& P 500
Market price per share	120	298
Market Cap	342B	131B
Enterprise value	415B	129B
P/E (trailing)	27.2	36.0	22.1 (S&P 500)
EPS	4.42	8.26
EV/Revenue	0.80	0.85
EV/EBITDA	12.76	20.70
Profit margin	2.48%	2.4%
Operating margin	4.20%	3.1%
Total cash	9.28B	9.44B
Long-term debt	44.4B	5.1B
Beta	0.65	0.93
Short % of Float	1.29%	1.15%
Stock price change in last 1 year	28.2%	32.6%	8% (S&P 500)
Dividend yield (trailing)	1.76%	0.82%	1.93% (S&P 500)
Payout ratio	47.5%	29.5%

1. (1) Briefly explain/define

   1. EBITDA

   2. Dividend yield

   3. Payout ratio

2. Based on the data only how would you compare these two companies financially?

Answer 1

EBITDA = earnings before interest, taxes, depreciation and amortization. It is the operating profit before non-cash items.

Dividend yield is the dividend per share divided by the current market price per share. It measures the return on investment, measure in terms of diviend earnings only.

Payout ratio is the proportion of earnings paid out as dividends. It is the dividend per share divided by the earnings per share.

Based on the data, the comparison is as follows :

• Firm A is much larger, both in terms of market value and EV
• Firm B has lower profitability, but higher EPS
• Firm B has lower financial leverage because its debt is much lower