Question

Consider a company which had revenues of $34 million over the last twelve months. Depreciation and amortization expenses were $9 million. Operating margin was 31.5%. It has $34 million of debt, $5 million in cash, and 6 million shares outstanding. Comparable companies are trading at an average trailing EV/EBITDA multiple of 20. How much is each share worth using relative valuation? Round to one decimal place.

Answer 1

To calculate the value of each share using relative valuation, we need to determine the enterprise value (EV) of the company. EV is calculated by adding the market value of the company's debt to its market capitalization. Given that the average trailing EV/EBITDA multiple of comparable companies is 20, we can calculate the EBITDA of the company and multiply it by the EV/EBITDA multiple to get the enterprise value. Finally, we divide the enterprise value by the number of shares outstanding to get the per share value.

Step-by-step explanation:

To calculate the value of each share using relative valuation, we need to determine the enterprise value (EV) of the company. EV is calculated by adding the market value of the company's debt to its market capitalization. Market capitalization is equal to the number of shares outstanding multiplied by the current market price per share. In this case, the market value of the debt is $34 million and there are 6 million shares outstanding. Given that the average trailing EV/EBITDA multiple of comparable companies is 20, we can calculate the EBITDA of the company by dividing the revenue by the operating margin (31.5%) to get $107.936 million. Multiplying this by the EV/EBITDA multiple (20) gives us an enterprise value of $2.15872 billion. Finally, dividing the enterprise value by the number of shares outstanding (6 million) yields a per share value of $359.79.