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NISM Certifications · NISM-Series-XV: Research Analyst · Qualities of a Good Research Report

A report on a company uses an EV/EBITDA multiple. Enterprise value is Rs 6,000 crore, with market capitalisation Rs 5,000 crore and cash Rs 400 crore. The report claims net debt is Rs 1,000 crore and EBITDA is Rs 750 crore. Which finding is correct about the report's internal consistency and the multiple?

The report is consistent. Net debt implied by EV minus market cap is Rs 1,000 crore, matching the claim, so gross debt is Rs 1,400 crore after adding Rs 400 crore cash. EV/EBITDA is 6,000 divided by 750, which equals 8 times.

  1. ANet debt should be Rs 1,000 crore less nothing, so multiple is 8 times and consistent
  2. BNet debt implied is Rs 1,000 crore, so gross debt is Rs 1,400 crore and the multiple is 8 times; the report is consistentCorrect
  3. CNet debt implied is Rs 1,000 crore, so gross debt is Rs 600 crore and the multiple is 6.67 times
  4. DNet debt implied is Rs 1,400 crore and the multiple is 8 times

Explanation

EV = market cap + net debt, so net debt = 6,000 - 5,000 = Rs 1,000 crore, matching the report. Gross debt = net debt + cash = 1,400 crore. EV/EBITDA = 6,000/750 = 8 times. Hence the report is consistent.

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