Question

A company had total revenues of $500 million, operating margin of 40%, and depreciation and amortization expense of $80 million over the trailing twelve months. The company currently has $600 million in total debt and $100 million in cash and cash equivalents. If the company's market capitalization (total value of its equity) is $2 billion, what is its EV/EBITDA multiple

Answer 1

8.92857

Step-by-step explanation:

Market capitalization = $2,000 million

Total debt = $600 million

Cash and Cash equivalents = $100 million

Enterprise value = $2,000 million + $600 million - $100 million = $2,500 million

EBIT = Total revenue * Operating profit margin

EBIT = $500 million * 40%

EBIT = $200 million

EBITDA = EBIT + Depreciation and Amortization expense

EBITDA = $200 million + $80 million

EBITDA = $280 million

EV/EBITDA = $2,500 million / $280 million

EV/EBITDA = 8.92857

Hence, its EV/EBITDA multiple is 8.92857.