Question

Edelman Engines has $16 billion in total assets — of which cash and equivalents total $120 million. Its balance sheet shows $3.2 billion in current liabilities — of which the notes payable balance totals $0.84 billion. The firm also has $7.2 billion in long-term debt and $5.6 billion in common equity. It has 400 million shares of common stock outstanding, and its stock price is $27 per share. The firm's EBITDA totals $1.404 billion. Assume the firm's debt is priced at par, so the market value of its debt equals its book value. What are Edelman's market/book and its EV/EBITDA ratios? Do not round intermediate calculations. Round your answers to two decimal places.

Answer 1

market/book ratio = 1.93

EV/EBITDA ratio = 15.01

Step-by-step explanation:

market/book ratio = market price per share / book price per share

• market price per share = $27
• book value per share = $5,600,000,000 / 400,000,000 = $14

market/book ratio = $27 / $14 = 1.93

EV/EBITDA ratio = EV (enterprise value) / EBITDA

• enterprise value = market value of equity + total liabilities - cash & cash equivalents = $10,800,000,000 + $10,400,000,000 - $120,000,000 = $21,080,000,000
• EBITDA = $1,404,000,000

EV/EBITDA ratio = $21,080,000,000 / $1,404,000,000 = 15.01