CFA Level I · CFA Level I Exam · Relative Value Equity Valuation Approaches
A company has a market capitalization of $800 million, total debt of $300 million, preferred shares of $50 million, cash and short-term investments of $150 million, and EBITDA of $100 million. Its EV/EBITDA is closest to:
The EV/EBITDA is about 10.0x. Enterprise value equals market capitalization plus debt plus preferred shares minus cash, which is 800 + 300 + 50 - 150 = $1,000 million. Dividing by EBITDA of $100 million gives 10.0 times.
- A8.0x
- B10.0xCorrect
- C11.0x
Explanation
EV = 800 + 300 + 50 - 150 = 1,000. Dividing by EBITDA of 100 gives 10.0x. Omitting preferred shares and cash gives 11.0x (800+300=1,100/100), and using market cap only gives 8.0x.
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