NISM Certifications · NISM-Series-XV: Research Analyst · Valuation Principles
A firm has an enterprise value of Rs 5,400 crore, cash of Rs 300 crore, and debt of Rs 1,200 crore. Its EBITDA is Rs 600 crore. What is its EV/EBITDA multiple, and what is the equity value implied by the enterprise value?
EV/EBITDA is 9x (5,400/600), and equity value is Rs 4,500 crore, found by subtracting debt of Rs 1,200 crore from enterprise value and adding back cash of Rs 300 crore. Cash is added because it is a non-operating asset belonging to shareholders.
- AEV/EBITDA 9x; equity value Rs 4,500 croreCorrect
- BEV/EBITDA 9x; equity value Rs 4,200 crore
- CEV/EBITDA 7x; equity value Rs 4,500 crore
- DEV/EBITDA 9x; equity value Rs 6,900 crore
Explanation
EV/EBITDA = 5,400 / 600 = 9x. Equity value = EV - debt + cash = 5,400 - 1,200 + 300 = Rs 4,500 crore. Rs 4,200 crore subtracts cash instead of adding it, and Rs 6,900 crore adds debt and subtracts nothing wrong direction.
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