HiCo Veeland, Inc. published its financial results for the past year, showing th

Question

HiCo Veeland, Inc. published its financial results for the past year, showing that it had $10mm in sales, $2mm in gross profit, $1.5mm in operating expenses/SG&A (including $250k in depreciation and amortization), and net income of $300,000. Appropriate valuation multiples for HCV would be 15x earnings, 1x sales, and 4x EBITDA. What would each of these multiples imply as a valuation of HCV? Note: they will each result in different numbers.

Value as a multiple of earnings:

Value as a multiple of sales:

Value as a multiple of EBITDA:

Explanation / Answer

We have Sales = $ 10,000,000

Net income or Earning = $ 300,000

EBITDA = gross profit - operating expenses/SG&A + depreciation and amortization

EBITDA = $ 2,000,000 – $1,500,000 + $ 250,000 = $750,000

Value by using the multiples

Value as a multiple of earnings: 15X earning = 15 X $ 300,000 = $ 4,500,000

Value as a multiple of sales:1 X sales = 1 X $10,000,000 = $ 10,000,000

Value as a multiple of EBITDA: 4 X EBITDA = 4 X $ 750,000 = $ 3,000,000

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