Week 6 Finc 351 and 440
barkersbaseball
homework_9.22.14_enterprise_value_peg_model.xlsInstructions
| Enterprise Value: | Adjusts market cap for balance of cash and debt | |
| EV = Market Cap + Total Debt - Total Cash | ||
| Components | Common Stock Oustanding | |
| Share Price | ||
| Total Debt = LT Debt + ST Debt (includes bank loans, O/Ds, medium and long- term loans, bonds) | ||
| Cash = cash and liquid investments | ||
| Uses | Used to compare companies on measures that exclude interest | |
| Allows investor to compare companies in underlying terms, disregarding the impact of their capital structure | ||
| Companies with radically different capital structures can be compared | ||
| EV/EBITDA | Similar to P/E ratio | |
| EBITDA is operating income | ||
| Worthwhile using EBITDA TTM | ||
| Means of comparing companies with high levels of debt and lots of cash, or those that are making losses at the net income level | ||
| Note: Debt is added back in market cap in EV and interest on debt is added in EBITDA | ||
| Using pre-tax figures means international tax rate differences can be ignored (ADR's) | ||
| This ratio is widely used by major companies | ||
| needs to be treated with care, especially where it is used to justify stock market valuations of loss-making companies | ||
| should be considered relative to competitors | ||
| Basically, EV is how much capital it would take to buy entire company | ||
| If 2 companies have same profit, company with less debt would look cheaper | ||
| Examples |
EV Model
| Enterprise Value/EBITDA and PEG Ratio | ||||||||||
| Source of Data: MSN.com | Data As Of: | April 5, 2010 | ||||||||
| FIRM NAME(S) | McCormick MKC | Campbell CPB | General Mills GIS | PepsiCo PEP | Heinz HNZ | Average | ||||
| COMMON STOCK OUTSTANDING | 132.3 | 358.0 | 343.5 | 1,577.0 | 318.1 | 545.8 | Number of Shares (Diluted Weighted Average) | |||
| RECENT SHARE PRICE | $38.44 | $35.58 | $71.15 | $66.29 | $45.95 | $51.48 | Current Stock Price | |||
| TOTAL DEBT | $991.1 | $2,624.0 | $7,075.0 | $7,864.0 | $5,141.8 | $4,739.2 | L/T, S/T & Current Portion of L/T | |||
| TOTAL CASH AND LIQUID INVESTMENTS | $39.5 | $51.0 | $773.2 | $4,135.0 | $373.2 | $1,074.4 | Cash & S/T Investments | |||
| EBITDA | $565.2 | $1,509.0 | $2,727.2 | $9,643.0 | $1,765.3 | $3,241.9 | Normalized EBITDA | |||
| NET INCOME | $299.8 | $736.0 | $1,304.4 | $5,946.0 | $923.1 | $1,841.9 | Net Income | |||
| L/T GROWTH RATE | 10.00% | 6.00% | 8.00% | 10.00% | 8.00% | 8.40% | Earnings Growth Rate - Next 5 years | |||
| COMPUTER-GENERATED CALCULATIONS | ||||||||||
| COMPANY | McCormick MKC | Campbell CPB | General Mills GIS | PepsiCo PEP | Heinz HNZ | Average | ||||
| MARKET CAPITALIZATION | $5,085.6 | $12,737.6 | $24,440.0 | $104,539.3 | $14,614.9 | $32,283.5 | ||||
| ENTERPRISE VALUE | $6,037.2 | $15,310.6 | $30,741.8 | $108,268.3 | $19,383.5 | $35,948.3 | ||||
| EV/EBITDA RATIO | 10.68 | 10.15 | 11.27 | 11.23 | 10.98 | 10.86 | ||||
| P/E RATIO | 16.96 | 17.31 | 18.74 | 17.58 | 15.83 | 17.28 | ||||
| PEG RATIO | 1.70 | 2.88 | 2.34 | 1.76 | 1.98 | 2.13 |
All figures in millions
All Data Required
