P/E is 20 Rev 2000 Gross Margin 50% EV/EBITDA 7.5x Debt 1000
Number of Shares = 100
Interest rate 10% Operating Expense 500
Above is the all the information I was given.
What is Equity Value?
A)
Is it 2000-1000-500 = 500 (EBIDTA) x 7.5 = 3,750 (Enterprise Value)
3,750 - 1000 = 2,750 Equity Value?? So, stock price being $27.50???
B)
P/E * Net income = Market Cap.
20*(2000-1000-500-100) = 8000.... divide by 100 shares... So $80?
I am lost...
| +125 | UBS Accused of Favoring H-1B Workers While Cutting U.S.-Born Employees | 22 | 15m |
| +85 | Incompetent and annoying co-intern | 23 | 1d |
| +70 | Getting Laid in IB? | 28 | 3d |
| +67 | Intern keeps sleeping at work - what to tell them | 28 | 1d |
| +55 | Living in greenwich as an analyst? | 12 | 23h |
| +42 | NYC Associate Budget | 14 | 1d |
| +40 | UBS Promotion or Lateral to Boutique? | 9 | 45m |
| +36 | Nauseous every morning for past 3 years in IB, anyone else? | 21 | 2d |
| +36 | Quick Thoughts on CVC AI Sale Process | 7 | 1d |
| +35 | PJT M&A Group Selection 2026 | 5 | 1h |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
Second equation is lacking both the taxes (40% assumed for simplicity) and other expenses in the net income calculation. A) looks right...
As mentioned above, you've omitted tax from your Net Income calc. You've also omitted excess cash from your EV calculation.
The EV/EBITDA approach is missing existing cash balance. The difference in implied share price could be explained by how much of that per share price is cash in the business.
Tax rate could be whatever, and that would moderate the difference in share price you've calculated.
I'd assume the "debt" is really "net debt" (inclusive of cash impact). The exercise above is high level and if they don't explicitly list cash and the corresponding balance, i imagine they baked it into debt. at which point your calculation in A is correct
I think you are approaching it wrong, you should be getting to one answer only.
The way to go, i think, is:
NI = (Revenue * GrossMargin - Opex - Interest ) * (1 - TaxRate) = (2,000 * (0.5) - 500 - (0.1) * 1,000) * (1-0.4) = 240
Equity Value = Market Cap = NI * P/E = 240 * 20 = 4,800
Share Price = Equity Value / Shares = 48
EV = Equity Value + Net Debt = 4,800 + 1,000 = 5,800
EBITDA = EV / Multiple = 773.3
Now, why do I believe you can't you calculate EBITDA the way you did it? Because you are not told to assume operating expense excludes D&A.
buddy you're wrong asf
Vero dolore sint eum nam et. Numquam et sed repellat incidunt autem alias quis. Optio esse porro natus est natus dolores autem. Et sit debitis hic. Minima quidem eos unde omnis iste. Rerum quo consequatur ex fugit assumenda id.
Libero dignissimos alias et sint. Quae eum cupiditate provident saepe vero consectetur. Dolor officia ex ut qui est qui eos mollitia. Consequatur aliquid nisi impedit atque et. Explicabo tenetur asperiores libero sit magnam. Voluptatibus iusto aut ducimus velit eum.
Dolor ipsa tempore voluptatem laboriosam. Delectus est architecto recusandae facere sequi. Odit architecto reprehenderit soluta dolores aut.
Qui illum quae est fuga. Distinctio et quo odit hic. Consequatur reiciendis omnis eos reprehenderit modi est. Enim non nihil et.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...