Question

Edelman Engines has $17 billion in total assets—of which cash and equivalents total $100 million. Its balance sheet shows $1.7 billion in current liabilities—of which the notes payable balance totals $1 billion. The firm also has $10.2 billion in long-term debt and $5.1 billion in common equity. It has 300 million shares of common stock outstanding, and its stock price is $20 per share. The firm’s EBITDA totals $1.368 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?

Answer 1

Answer:

      1.176       12.50

Explanation:

We are given;

The No. of shares outstanding = 300,000,000

Price per share = $20

Long-term debt = $10.2 bn

Notes payable = $1 bn

Book value of common equity=$5.1 billion

EBITDA = $1.368 billion

The market value of common stock

  = The No. of shares outstanding * Price per share

  =  300,000,000 * $20 =6,000,000,000 = $6 billion

Thus, Elderman's Market-Book value = $ 6.0 bn / $5.1 bn

                                  = 1.176

EV/EBITDA ratios:

EV, short for enterprise value, is a measure of a company's total value. It is an alternative to equity market capitalization. In the calculation of EV, the market capitalization of the company, short-term and long-term debt as well as any cash on the company's balance sheet are included.

Thus, EV = Debt- Cash + Market Value

          Debt = Notes payable + Long term debt

                    = 1 bn +$10.2 bn = $11.2 bn

       EV = $11.2 bn - 0.1 bn + 6 bn

              = $17.2 bn - 0.1 bn

               = $17.1 bn

EV/EBITDA ratio = $$\frac{17.1}{1.368}$ =12.50

          = 12.50