Question

Company X has 10,000,000 shares listed at $ 45 a gross debt of $ 240000000 and...

Company X has 10,000,000 shares listed at $ 45 a gross debt of $ 240000000 and a balance of cash, banks and financial applications of $ 50,000,000. Considering that company X has an EBITDA of $ 64000000 calculate the EV / EBITDA of the company. Additionally, considering that the average EV / EBITDA of the X sector is 8, analyze whether X's shares are undervalued or overvalued and what the fair value of the shares would be.

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Answer #1

Market value of equity = 10,000,000 × $45

= $450,000,000

Market value of equity is $450,000,000.

Value of debt = $240,000,000

Cash and Cash Equivalent = $50,000,000

Enterprise value of Firm X = Value of equity + Value of debt - Cash

= $450,000,000 + $240,000,000 - $50,000,000

= $640,000,000

Enterprise value of Firm X is $640,000,000.

EBITDA = $64,000,000

EV / EBITDA ratio = $640,000,000 / $64,000,000

= 10

EV / EBITDA ratio is 10.

Average EV / EBITDA of the X sector is 8, it mean X's shares are Overvalued.

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