NISM Certifications · NISM-Series-XV: Research Analyst · Terminology in Equity and Debt Markets
A stock has a market price of Rs 500 with 10 crore shares outstanding. Net debt is Rs 1,000 crore, and the company's EBITDA is Rs 800 crore. What is the EV/EBITDA multiple?
The EV/EBITDA multiple is 7.5. Market capitalisation is Rs 500 times 10 crore shares, or Rs 5,000 crore. Adding net debt of Rs 1,000 crore gives enterprise value of Rs 6,000 crore, which divided by EBITDA of Rs 800 crore equals 7.5.
- A6.25
- B7.5Correct
- C5.0
- D4.0
Explanation
Market cap = 500 x 10 crore = Rs 5,000 crore. EV = 5,000 + 1,000 net debt = Rs 6,000 crore. EV/EBITDA = 6,000/800 = 7.5. 6.25 uses market cap only (5,000/800). 5.0 subtracts net debt wrongly... 4,000/800 = 5.0. 4.0 is an unrelated figure.
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