Question

Edelman Engines has $18 billion in total assets of which cash and equivalents total $110 million. Its balance sheet shows $2.7 billion in current liabilities of which the notes payable balance totals $1.17 billion. The firm also has $8.1 billion in long-term debt and $7.2 billion in common equity. It has 600 million shares of common stock outstanding, and its stock price is $21 per share. The firm's EBITDA totals $1.512 billion. Assume the firm's debt is priced at par, so the market value of its debt equals its book value. What are Edelman's market/book and its EV/EBITDA ratios? Do not round intermediate calculations. Round your answers to two decimal places.

Answer 1

Hi,

Here

Firm's EBITDA = $1.512 billion

common equity(book value of equity) = $7.2 billion

number of share outstanding = 600 million

per share price = $21

so market cap = 21*600 = $12,600 million = $12. 6 billion

hence market/book ratio = market cap/book value of equity

=12.6/7.2 = 1.75 times

EV(Enterprise Value) is known as company's total value

formula for EV=market cap +total debt- cash and equivalents

here market cap = $12.6 billion

total debt = long term +short term debt = 1.17 + 8.1 = $9. 27 billlion

cash and equivalents = $110 million = $0.11 billion

hence EV = 12.6 + 9.27+0.11 = $21.98 billion

so EV/EBITDA = 21.98/1.512 = $14.537 times

Thanks