Page 25 - FINAL CFA SLIDES DECEMBER 2018 DAY 14

LOS 49.k: Describe enterprise value
multiples and their use in estimating Session Unit 14:

equity value., p.302 49. Equity Valuation: Concepts and Basic Tools

Example: Calculating EV/EBITDA multiples: Daniel, Inc., is a manufacturer of small refrigerators and

other appliances. The following figures are from Daniel’s most recent financial statements except
for the market value of long-term debt, which has been estimated from financial market data.

Add the MV of long-term debt to get the

market value of total debt: $800,000 +
$1,500,000 = $2,300,000.

tanties
MV of equity is the stock price multiplied by the
number of shares: $30 × 300,000 = $9,000,000.

The enterprise value = $2,300,000 + $9,000,000 –
$300,000 = $11,000,000.

EV/EBITDA = $11,000,000 / $1,200,000 = 9.2.

First, estimate the MV of short-term debt and If the competitor or industry average

liabilities (BV total debt – BV of long-term: EV/EBITDA is above 9.2, Daniel is relatively
$2,600,000 – $1,100,000 = $1,500,000. undervalued. If the competitor or industry

average EV/EBITDA is below 9.2, Daniel is

relatively overvalued.