Edelman Engines has $20 billion in total assets of which cash and equivalents to

Question

Edelman Engines has $20 billion in total assets of which cash and equivalents total $100 million. Its balance sheet shows $1 billion in current liabilities of which the notes payable balance totals $0.88 billion. The firm also has $13 billion in long-term debt and $6 billion in common equity. It has 400 million shares of common stock outstanding, and its stock price is $21 per share. The firm's EBITDA totals $1.26 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

Explanation / Answer

BOOK VALUE OF EQUITY = 6 BILLION = 6000 MILLION

MARKET VALUE OF EQUITY = 400 MILLION X 21 = 8400 MILLION

MARKET TO BOOK RATIO = MARKET VALUE OF EQUITY/BOOK VALUE OF EQUITY

ANS 1 : MARKET TO BOOK RATIO = 8400/6000 = 1.4

(NOTE WE CAN ALSO CALCULATE MARKET TO BOOK BY FINDING BOOK VALUE PER SHARE, BOTH WILL HAVE SAME ANSWERS. SO NOT TO WORRY. THERE ARE 2 WAYS)

EV = ENTERPRISE VALUE = MARKET CAPITALISATION + DEBT - CASH

ENTERPRISE VALUE = (400 X 21) + (13000) - 100 = 21300

EBITDA = 1.26 BILLION = 1260 MILLION

ANS 2 : EV/EBITDA = 21300/1260 = 16.90

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