Question

Edelman Engines has $18 billion in total assets — of which cash and equivalents total $110 million. Its balance sheet shows $2.7 billion in current liabilities — of which the notes payable balance totals $0.83 billion. The firm also has $9 billion in long-term debt and $6.3 billion in common equity. It has 300 million shares of common stock outstanding, and its stock price is $36 per share. The firm's EBITDA totals $1.62 billion. Assume the firm's debt is priced at par, so the market value of its debt equals its book value. What are Edelman's market/book and its EV/EBITDA ratios? Do not round intermediate calculations. Round your answers to two decimal places.

M/B:

EV/EBITDA:

Answer 1

Edelman’s market/book ratio

Market Value of Equity = Number of common shares outstanding x Market price per share

= 300 Million shares x $36.00 per share

= $10,800 Million or

= $10.80 Billion

Therefore, the Edelman’s market/book ratio = Market Value of equity / Book Value of equity

= $10.80 Billion / $6.30 Billion

= 1.71 Times

“Hence, the Edelman’s market/book ratio will be 1.71”

Edelman’s EV/EBITDA ratio

Total debt = Long-term debt + Notes payable

= $9.00 Billion + $0.83 Billion

= $9.83 Billion

Enterprises Value (EV) = Market value of equity + Total debt – Cash

= $10.80 Billion + $9.83 Billion – $110 Million

= $10.80 Billion + $9.83 Billion – $0.11 Billion

= $20.52 Billion

Therefore, the Edelman’s EV/EBITDA ratio = EV / EBITDA

= $20.52 Billion / $1.62 Billion

= 12.67 Times

“Hence, the Edelman’s EV/EBITDA ratio will be 12.67”