Question

A. You are trying to value a company using the relative valuation approach. Suppose comparable companies are trading at an average trailing EV/EBITDA multiple of 6.6. The company you are valuing generated an EBITDA of $257 million over the last twelve months, has $429 million of debt, $47 million in cash, and 14 million shares outstanding. What is the company's implied share value? Round to one decimal place.

b. Frank Martin Inc. has earned $3.43 per share in the past year and is forecasted to earn $4.57 per share next year. Comparable companies are trading at a trailing P/E ratio of 21.4. What is the implied value of Frank Martin Inc.'s shares using relative valuation? Round to one decimal place.

Answer 1

a. To calculate the implied share value of the company using the relative valuation approach, we need to determine the Enterprise Value (EV) and then divide it by the number of shares outstanding.

First, let's calculate the EV. EV is calculated by subtracting the cash and adding the debt to the market value of equity. In this case, the market value of equity is the implied share value we are trying to find.

Given:
- Trailing EV/EBITDA multiple of comparable companies: 6.6
- EBITDA of the company: $257 million
- Debt of the company: $429 million
- Cash of the company: $47 million
- Shares outstanding: 14 million

Step 1: Calculate the EV
EV = (EBITDA * EV/EBITDA) + Debt - Cash
= ($257 million * 6.6) + $429 million - $47 million

Step 2: Calculate the implied share value
Implied Share Value = EV / Shares Outstanding
= (EV) / (14 million)

Now you can plug in the values from Step 1 and Step 2 to find the implied share value. Round the result to one decimal place.

b. To calculate the implied value of Frank Martin Inc.'s shares using the relative valuation approach, we need to use the Price-to-Earnings (P/E) ratio.

Given:
- Trailing P/E ratio of comparable companies: 21.4
- Earnings per share (EPS) for the past year: $3.43
- Forecasted EPS for next year: $4.57

Step 1: Calculate the implied share value
Implied Share Value = EPS * P/E ratio
= $4.57 * 21.4

Now you can calculate the implied value of Frank Martin Inc.'s shares using the values from Step 1. Round the result to one decimal place.

Remember to use the appropriate formulas and values to calculate the implied share value for each scenario.