NISM Certifications · NISM-Series-XV: Research Analyst · Valuation Principles
A company has an enterprise value of Rs 5,000 crore, net debt of Rs 1,200 crore and EBITDA of Rs 500 crore. Which pair correctly states its EV/EBITDA multiple and its equity value?
The multiple is 10 times and the equity value is Rs 3,800 crore. EV divided by EBITDA gives 10, and equity value is obtained by subtracting net debt from enterprise value, so 5,000 minus 1,200 equals 3,800.
- A10 times and Rs 6,200 crore
- B12 times and Rs 3,800 crore
- C10 times and Rs 3,800 croreCorrect
- D8.4 times and Rs 3,800 crore
Explanation
EV/EBITDA = 5,000 / 500 = 10 times. Equity value = EV - net debt = 5,000 - 1,200 = Rs 3,800 crore. Adding net debt gives Rs 6,200 crore, which is a sign error; 12 and 8.4 come from using the wrong numerator.
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