Question

Suppose Rocky Brands has earnings per share of $2.35 and EBITDA of $29.1 milion. The Frm also has 5.5 millon shares outstanding and debt of $115 million (net of cash). You boleve Jareds Ouldoor Comperation is comparable to Rocky Brands in terms of its undeching business, but Jared's has no debt. If Jared's has a P. of 13.2 and an antarprise value to EBITDA mutple of 7.1. estimate the value of Rocky Brands stock using both multiples. Which estimate is likely to be more accurate? Rocky Brands' stock value by ueing the PiE ratio is 5 per share. (Round to two decimal places.) The value of Rocky Brands by using the PIE ratio is: milion. (Round to one decimal place.) The value of Rocky Brands by using the EBITDA ratio is $ million. (Round to one decimal place.) Rocky Brands' stock value by using the EBITDA ratio is $ per share (Round to two decimal places.)

Answer 1

Rocky Brands' stock value estimated using a P/E ratio of 13.2, based on earnings per share of $2.35, is $31.02 per share, totaling $170.61 million in value. Using an enterprise value to EBITDA multiple of 7.1, after adjusting for debt, results in $16.66 per share, totaling $91.61 million. The EBITDA ratio may provide a more accurate picture as it accounts for company debt.

Step-by-step explanation:

To estimate the value of Rocky Brands stock using both the P/E ratio and the EBITDA multiple, we first need to calculate the stock value using the P/E ratio. Jared's Outdoor Corporation, which is comparable to Rocky Brands, has a P/E ratio of 13.2. Since Rocky Brands has earnings per share (EPS) of $2.35, we multiply the EPS by Jared's P/E ratio to find the estimated stock price for Rocky Brands: $2.35 × 13.2 = $31.02 per share. Therefore, the total stock value using the P/E ratio would be $31.02 × 5.5 million shares = $170.61 million.

Next, we calculate the stock value using the EBITDA multiple. Jared's has an enterprise value to EBITDA multiple of 7.1. We apply this multiple to Rocky Brands' EBITDA of $29.1 million: $29.1 million × 7.1 = $206.61 million as the enterprise value for Rocky Brands. To arrive at the equity value, we then subtract the debt net of cash: $206.61 million - $115 million = $91.61 million. Finally, we divide this by the number of shares to find the value per share: $91.61 million / 5.5 million shares = $16.66 per share.

In this case, the estimate using the EBITDA ratio might be more accurate as it takes into consideration the company's debt, providing a more comprehensive picture of the company's financial health.