Edelman Engines has $16 billion in total assets of which cash and equivalents to
ID: 2812287 • Letter: E
Question
Edelman Engines has $16 billion in total assets of which cash and equivalents total $80 million. Its balance sheet shows $3.2 billion in current liabilities of which the notes payable balance totals $0.91 billion. The firm also has $8.8 billion in long-term debt and $4 billion in common equity. It has 600 million shares of common stock outstanding, and its stock price is $29 per share. The firm's EBITDA totals $2.784 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?
Explanation / Answer
Market Value = Stock price x No. of shares = $29 x 600 million = 17,400 million or 17.4 billion
Book value of Common equity = Common Equity = $4 billion
Market to book ratio = Market Value / Book Value = $17.4 billion / $4 billion = 4.35
Debt = Long-term debt + notes payable = $8.8 billion + $0.91 billion = $9.71 billion
Enterprise Value = Market Value + Debt - Cash = $17.4 billion + $9.71 billion - $0.08 billion = $27.03 billion
EV/EBITDA = $27.03 billion / $2.784 billion = 9.709052 or 9.71
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