NISM Certifications · NISM-Series-XV: Research Analyst · Valuation Principles
A company's EBITDA is Rs 200 crore, total debt Rs 300 crore, cash Rs 100 crore, and market capitalisation Rs 1,400 crore. There are no minority interests or preference shares. What is its EV/EBITDA multiple?
The EV/EBITDA multiple is 8.0x. Enterprise value is market capitalisation of Rs 1,400 crore plus debt of Rs 300 crore minus cash of Rs 100 crore, equal to Rs 1,600 crore, which divided by EBITDA of Rs 200 crore gives 8.
- A7.0x
- B8.0xCorrect
- C8.5x
- D7.5x
Explanation
EV = market cap + debt − cash = 1,400 + 300 − 100 = Rs 1,600 crore. EV/EBITDA = 1,600/200 = 8.0x. Using market cap alone gives 7.0x; adding cash instead of subtracting gives 1,800/200 = 9x; ignoring cash gives 8.5x.
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