Question

Q1.

Use the EV/EBITDA multiple of General Motors to value the Tesla share. Use information in the table below to complete this question.

Company (period ending date) General Motors (GM) (30th Dec, 2019) $22.38 Tesla (TSLA) (30th Dec, 2019) | $746.36 Closing share price (20th April, 2020) 1,430 million 184.39 million $19,069 million $6,268 million Number of shares outstanding Cash and Cash Equivalents (as of period ending date) Short Term Investments (as of period ending date) Current Debt (as of period ending date) $4,174 million N/A $37,400 million $1,785 million Long Term Debt (as of period ending date) $65,924 million $11,634 million Revenue (12 months to period ending date) $24,578 million | EBITDA (12 months to period ending date) $137,237 million $12,771 million $23,996 million | CAPEX (12 months to period ending date) $4.62 $2,174 million $1,432 million - $4.87 0.73 7.5% EPS (12 months to period ending date) Beta (5 year monthly) WACC | Growth Estimates (per annum, for next 5 years) 1.51 7% 8.5% 389%

a) What is the per share value of Tesla based on the EV/EBITDA multiple of General Motors?'

b) Would you consider Tesla to be over-valued relative to General Motors and recommend that investors sell shares of Tesla based on your answers to part of this question? Briefly explain.

Answer 1

Answer :

#	Gneral motors	Tesla
EV = Enterprise value It is an entire value rather than just equity value. It includes	-	-
Equity = No. of shares*share price	$32003.4 (22.38*1430)	$137621.3 (184.39*746.36)
Current Debt	$37400	$1785
Long term debt	$65924	$11634
Less : Cash and cash equivalents	$19069	$6268
EV	$116258.4	144772.3
EBITDA = Earnings before interest, taxes deoreciation / amortisation	$12771	$2174
EV/EBITDA = $144772.3/$2174	9.10	66.59

(b).

EV/EBITDA multiple used to determine value of company. High multipl shows company having high growth rate and low risk

Investors mainly use companies multiple to determine whether the company is overvalued or undervalued. A low multiple indicates company is undervalued and high multiple shows company is overvalued. It is determined that high mulptipes in high growth industires and low multiples in slow growth industries.

Multiples of tesla is $66.59 and that of Genral motors multiples is 9.10 it means Telsa has high multiles state that overvalued and general motors low multiples indicates under valued

Valuing stock based on multiples is not diligent method because it involves may flaws that makes misleading due to EV multiple ignores real cost, liabilities and taxes applicable to companies

EV multiples does not provide assurance that business equity has value in market. Therefore it is riskey to invest based on EV multiple. However with EV multiples it is not possible perform in the stock market.

Therefore it is recommended that based only on EV multiples is dangerous to trade in stockmarket.