Technical Question: Share Price
Can anyone walk through this question?
A company has a P/E pf 20, 25% Tax Rate, $2000 Revenue, 100 S/O, EV/EBITDA of 7.5, $1000 debt, interest rate of 10%, and SG&A is $500. What is the share price?
I figured we just start at revenue, subtract SGA and debt interest to get to 1400 pre-tax income. Net-income=1050.
With Net Income, solve for equity value using P/E=20 to get Equity Value of 21000, divided by 100 shares to get a share price of $210.
Is this correct? I was thinking it might be possible to use the EV/EBITDA multiple instead, and backout to equity value...but wasn't sure if Ebitda could be solved as being Revenue-SG&A (2000-500) since no other figures are given.
Yes. But only because you are missing COGS. However, $210 is clearly wrong because that would imply this company generates 75% EBIT margins and >50% net margins. Maybe the interviewer expects candidates to say that this does not make any sense and then expect them to come up with a more realistic margin assumption. In any case, let's say $210 is correct. The EBITDA multiple was clearly thrown in there to confuse people who might think they need to use it for something.
Suscipit qui harum rerum voluptatem voluptates incidunt ipsam. Dolorum fugit aut consequatur minima sequi fugiat. Voluptate sit placeat quia sequi aperiam.
Provident quasi velit perferendis omnis provident explicabo eius. Cumque nulla ut occaecati laudantium magnam nesciunt sed asperiores. Impedit totam labore ea quo. Ea sed ea quia quia voluptatem vitae.
Repellendus facilis quidem iure aut. Repellendus hic quidem aliquam. Sapiente vel aut asperiores dicta aspernatur ut. Quidem tempora illo vel. Delectus quibusdam iure qui error. Dolorum aliquid ut quis voluptatem veritatis ut sapiente.
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...