Question

jason has a total revenue of $418,300 earnings before interest and taxes of $102,600. depretition of 59,200 and a tax rate of 30 percent the firm is all equity fiances with 15,000 shares outstanding at a book balue of 38.03 a share and a price to book rationof 3.2 what is the firms ev/ebitda ratio if the firm has excess cash of 49,000?

Answer 1

EV/ EBITDA ratio is the measure of the company's value in comparison to the other companies of the same industry. It signifies the company's abiltiy to earn income before deducting the non cash and non operating expenses.

EV = Market Capitalization – Total Cash

Market Capitalization = Outstanding Shares x Market Price

Market Price = Price to Book ratio x Book Value

= $ 38.03*3.2

= $ 121.696

Market Capitalization = 15,000*121.696

= $ 1,825,440

EV = $ 1,825,440 - $ 49,000

= $ 1,776,440

EBITDA stands for Earnings before Interest, tax, depreciation and amortization. It is basically the operating income of the comany.

= Earnings Before Interest and Tax + Depreciation

= $102,600 + $ 59,200

= $ 161,800

EV/ EBITDA ratio = $ 1,776,440 / $ 161,800

= 10.98

Higher the value of the EV/ EBITDA ratio , higher the value of the firm. It suggests that the company is operating well.