, Solution manual for Investment Banking
Valuation, LBOs, M&A, and IPOs, 3rd Edition,
University Edition by Joshua Rosenbaum
Hello all ,
We have all what you need with best price
Our email :
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,Solutions Manual
,2 ANSWERS
CHAPTER 1 ANSWERS AND RATIONALE
_
1) Calculation of fully diluted shares outstanding
, Solutions Manual 3
a. 2.75 million. The total number of in-the-money options/warrants is
calculated by adding the in-the-money shares from the tranches which have
an exercise price lower than the current share price of $50.00. (1.250 million
shares + 1.000 million shares + 0.500 million shares)
b. $62.5 million. The total proceeds from in-the-money options/warrants is
calculated by adding the proceeds from the tranches which have an exercise
price lower than the current share price of $50.00. ($12.5 million + $30.0
million + $20.0 million)
c. 1.50 million. Under the TSM, the $62.5 million of potential proceeds
received by Gasparro is used to repurchase shares that are currently trading
at $50.00. Therefore, the number of shares repurchased is 1.25 million
($62.5 million / $50.00) of the options. To calculate net new shares, the
shares repurchased are subtracted from the total number of in-the-money
options/warrants. (2.75 million shares – 1.25 million shares)
d. 100.0 million. Fully diluted shares are calculated as net new shares plus basic
shares outstanding. (98.5 million shares + 1.50 million shares)
2) Calculation of equity value and enterprise value
($ in millions, except per share data; shares in millions)
Selected Market Data
Current Price 12/20/2019 $50.00
% of 52-week High 80.0%
52-week High Price 7/19/2019 62.50
52-week Low Price 4/5/2019 40.00
Dividend Per Share (MRQ) 0.25
Fully Diluted Shares Outstanding 100.000
Equity Value $5,000.0
Plus: Total Debt 1,850.0
Plus: Preferred Stock -
Plus: Noncontrolling Interest -
Less: Cash and Cash Equivalents (100.0)
Enterprise Value $6,750.0
= Equity Value + Total Debt - Cash
= $5,000.0 million + $1,850.0 million - $100.0 million
= Current Share Price x Fully Diluted Shares Outstanding
= $50.00 x 100.0 million
a. $5,000.0 million. Equity value is calculated by multiplying fully diluted shares
by the current share price. (100.0 million shares x $50.00)
,4 ANSWERS
b. $6,750.0 million. Enterprise value is calculated as equity value plus total debt
less cash and cash equivalents. ($5,000.0 million + $1,850.0 million – $100.0
million)
3) Adjusting for one-time and non-recurring items
EBIT 2018 + EBIT 9/30/2019 C urrent S tub - EBIT 9/30/2018 P rior S tub
= $650.0 million + $575.0 million - $500.0 million
Gross Profit2018 + Gross Profit 9/30/2019 C urrent S tub - Gross Profit 9/30/2018 P rior S tub
= $1,575.0 million + $1,280.0 million - $1,175.0 million
Restructuring charge
Inventory valuation charge ("write-off")
Gain on sale of non-core business ("asset sale")
($ in millions, except per share data)
Adjusted Income Statement
Prior Current
Fiscal Year Ending December 31, Stub Stub LTM
2016A 2017A 2018A 9/30/2018 9/30/2019 9/30/2019
Reported Gross Profit $1,300.0 $1,450.0 $1,575.0 $1,175.0 $1,250.0 $1,650.0
Non-recurring Items in COGS - - - - 30.0 30.0
Adj. Gross Profit $1,300.0 $1,450.0 $1,575.0 $1,175.0 $1,280.0 $1,680.0
% margin 34.7% 34.9% 35.0% 34.8% 35.6% 35.6%
Reported EBIT $550.0 $620.0 $675.0 $500.0 $530.0 $705.0
Non-recurring Items in COGS - - - - 30.0 30.0
Other Non-recurring Items - - (25.0) - 15.0 (10.0)
Adjusted EBIT $550.0 $620.0 $650.0 $500.0 $575.0 $725.0
% margin 14.7% 14.9% 14.4% 14.8% 16.0% 15.3%
Depreciation & Amortization 155.0 165.0 175.0 125.0 125.0 175.0
Adjusted EBITDA $705.0 $785.0 $825.0 $625.0 $700.0 $900.0
% margin 18.8% 18.9% 18.3% 18.5% 19.4% 19.0%
Reported Net Income $330.0 $386.3 $429.8 $318.8 $342.8 $453.8
Non-recurring Items in COGS - - - - 30.0 30.0
Other Non-recurring Items - - (25.0) - 15.0 (10.0)
Non-operating Non-rec. Items - - - - - -
Tax Adjustment - - 6.3 - (11.3) (5.0)
Adjusted Net Income $330.0 $386.3 $411.0 $318.8 $376.5 $468.8
% margin 8.8% 9.3% 9.1% 9.4% 10.5% 9.9%
Adjusted Diluted EPS $3.30 $3.86 $4.11 $3.19 $3.77 $4.69
= Negative adjustment for pre-tax gain on asset sale x Marginal tax rate
= - ($25.0) million x 25%
= Add-back for pre-tax inventory and restructuring charges x Marginal tax rate
= - ($30.0 million + $15.0 million) x 25%
Net Income2018 + Net Income 9/30/2019 C urrent S tub - Net Income 9/30/2018 P rior S tub
= $411.0 million + $376.5 million - $318.8 million
Adjusted LTM EBIT + LTM Depreciation & Amortization
= $725.0 million + $175.0 million
a. $1,680.0 million. To calculate adjusted LTM gross profit first add back the
$30.0 million non-recurring product obsolescence charge to COGS for the
current stub 9/30/2019 period. LTM gross profit is then calculated by
, Solutions Manual 5
taking the full prior fiscal year’s gross profit, adding the YTD gross profit
for the current year period (“current stub”), and then subtracting the YTD
gross profit from the prior year (“prior stub”). ($1,575.0 million + $1,280.0
million – $1,175.0 million)
b. $725.0 million. To calculate adjusted LTM EBIT first add back the $15.0
million restructuring charge and back out the $25.0 million gain on asset sale
for the current stub 9/30/2019 period and fiscal year 2018 period,
respectively. Next, the LTM statistic is calculated in the same manner as
shown in 3(a). ($650.0 million + $575.0 million – $500.0 million)
c. $900.0 million. To calculate adjusted LTM EBITDA add LTM deprecation
and amortization to LTM EBIT. ($725.0 million + $175.0 million)
d. $468.8 million. To calculate adjusted LTM net income, first add back the full
non-recurring charges to net income. Then, to make the tax adjustment,
multiply the full add back amount by Gasparro’s marginal tax rate. Next, the
LTM statistic is calculated in the same manner as shown in 3(a). ($411.0
million + $376.5 million – $318.8 million)
4) Return on investment ratios
LTM Return on Investment Ratios
Return on Invested Capital 21.1%
Return on Equity 28.2%
Return on Assets 9.5%
Implied Annual Dividend Per Share 2.0%
= LTM Adjusted EBIT / Average (Total Debt2018 - Cash2018 + Shareholders' Equity2018,
Total Debt9/30/2019 - Cash9/30/2019 + Shareholders' Equity9/30/2019)
= $725.0 million / (($1,875.0 million - $75.0 million + $1,600.0 million) +
($1,850.0 million - $100.0 million + $1,725.0 million) / 2)
= LTM Adjusted Net Income / Average (Shareholders' Equity2018,Shareholders' Equity9/30/2019)
= $468.8 million / ($1,725.0 million + $1,600.0 million) / 2
= LTM Adjusted Net Income / Average (Total Assets 2018,Total Assets 9/30/2019)
= $468.8 million / ($4,825.0 million + $5,000.0 million) / 2
= (Quarterly Dividend x 4) / Current Share Price
= ($0.25 x 4) / $50.00
a. 21.1%. Return on invested capital is calculated as LTM adjusted EBIT
divided by the average of total invested capital (sum of debt and
shareholders’ equity less cash). ($725.0 million / (($1,875.0 million – $75.0
million + $1,600.0 million) + ($1,850.0 million – $100.0 million + $1,725.0
million) / 2))
b. 28.2%. Return on equity is calculated as LTM adjusted net income divided
by average shareholders’ equity. (($468.8 million / ($1,725.0 million +
$1,600.0 million) / 2)
,6 ANSWERS
c. 7.9%. Return on assets is calculated as LTM adjusted net income divided by
average assets. ($468.8 million / ($4,825.0 million + $5,000.0 million) / 2)
d. 2.0%. Implied Average Divided Per Share is calculated as the most recent
quarterly dividend multiplied by four and divided by the current share price.
(($0.25 x 4) / $50.00)
5) Credit statistics
LTM Credit Statistics
Debt/Total Capitalization 51.7%
Total Debt/EBITDA 2.1x
Net Debt/EBITDA 1.9x
EBITDA/Interest Expense 9.0x
(EBITDA-capex)/Interest Expense 7.0x
EBIT/Interest Expense 7.3x
= Total Debt9/30/2019 / (Total Debt9/30/2019 + Shareholders' Equity9/30/2019)
= $1,850.0 million / ($1,850.0 million + $1,725.0 million)
= Total Debt9/30/2019 / LTM Adjusted EBITDA
= $1,850.0 million / $900.0 million
= (Total Debt9/30/2019 - Cash9/30/2019) / LTM Adjusted EBITDA
= ($1,850.0 million - $100.0 million) / $900.0 million
= LTM Adjusted EBITDA / LTM Interest Expense
= $900.0 million / $100.0 million
= (LTM Adjusted EBITDA - Capex) / LTM Interest Expense
= ($900.0 million - $205.0 million) / $100.0 million
= LTM Adjusted EBIT / LTM Interest Expense
= $725.0 million / $100.0 million
a. 51.7%. Debt-to-total capitalization is calculated as debt divided by total
capitalization. ($1,850.0 million / ($1,850.0 million + $1,725.0 million))
b. 2.1x. Total debt-to-EBITDA is calculated as total debt divided by LTM
adjusted EBITDA. ($1,850.0 million / $900.0 million)
c. 1.9x. Net debt-to-EBITDA is calculated as net debt (total debt less cash)
divided by LTM adjusted EBITDA. (($1,850.0 million – $100.0 million) /
$900.0 million)
d. 9.0x. EBITDA-to-interest expense is calculated as LTM adjusted EBITDA
divided by LTM interest expense. ($900.0 million / $100.0 million)
, Solutions Manual 7
e. 7.0x. (EBITDA – Capex)-to- interest expense is calculated as LTM adjusted
EBITDA less capex divided by LTM interest expense. (($900.0 million –
$205.0 million) / $100.0 million)
f. 7.3x. EBIT-to-interest expense is calculated as LTM adjusted EBIT divided
by LTM interest expense. ($725.0 million / $100.0 million)
6) Trading multiples
($ in millions, except per share data)
Trading Multiples
LTM NFY NFY+1 NFY+2
9/30/2019 2019E 2020E 2021E
EV / Sales 1.4x 1.4x 1.3x 1.2x
Metric $4,725.0 $5,000.0 $5,350.0 $5,625.0
EV / EBITDA 7.5x 7.1x 6.6x 6.3x
Metric $900.0 $950.0 $1,025.0 $1,075.0
EV / EBIT 9.3x 8.8x 8.2x 7.8x
Metric $725.0 $765.0 $825.0 $865.0
P/E 10.7x 9.8x 9.1x 8.7x
Metric $4.69 $5.10 $5.50 $5.75
FCF Yield 6.3% 7.5% 8.3% 9.1%
Metric $315.0 $375.0 $415.0 $455.0
= Enterprise Value / LTM Sales = Current Share Price / 2021E EPS
= $6,750.0 million / $4,725.0 million = $50.00 / $5.75
= Enterprise Value / 2019E EBITDA
= $6,750.0 million / $950.0 million
= Enterprise Value / 2020E EBIT
= $6,750.0 million / $825.0 million
= 2021E Free Cash Flow / Equity Value
= $455.0 million / $5,000.0 million
a. 1.4x. Enterprise value-to-LTM sales is calculated as enterprise value divided
by LTM sales. ($6,750.0 million / $4,750.0 million)
b. 7.1x. Enterprise value-to-NFY EBITDA is calculated as enterprise value
divided by 2019E EBITDA. ($6,750.0 million / $950.0 million)
c. 8.2x. Enterprise value-to-NFY+1 EBIT is calculated as enterprise value
divided by 2020E EBIT. ($6,750.0 million / $825.0 million)
d. 8.7x. Price/NFY+2 EPS is calculated as the current share price divided by
2021E EPS. ($50.00 / $5.75)
e. 9.1%. FCF Yield (NFY+2 Free cash flow-to-equity value) is calculated as
2021E Free cash flow divided by equity value. ($455.0 million / $5,000.0
million)
, 8 ANSWERS
7) Growth rates
= (2020E EPS / 2018 Adjusted EPS) ^ (1 / (2020E - 2018)) - 1
= ($5.50 / $4.10) ^ () - 1
= 2019E FCF / 2018 FCF - 1
= $375.0 million / $300.0 million - 1
Growth Rates
Sales EBITDA FCF EPS
Historical
1-year ('17-'18) 8.4% 5.1% 13.2% 6.4%
2-year CAGR ('16-'18) 9.5% 8.2% 14.2% 11.6%
Estimated
1-year ('18-'19E) 11.1% 15.2% 25.0% 24.1%
2-year CAGR ('18-'20E) 9.0% 11.5% 17.6% 15.7%
= 2018 Sales / 2017 Sales - 1
= $4,500.0 million / $4,150.0 million - 1
= (2018 Adjusted EBITDA / 2016 EBITDA) ^ (1 / (2018 - 2016)) - 1
= ($825.0 million / $705.0 million) ^ () - 1
a. 8.4%. One year historical sales growth is calculated as 2018A sales divided
by 2017A sales, minus one. ($4,500 million / $4,150 million – 1)
b. 8.2%. Two year historical EBITDA CAGR is calculated using the following
formula: ((2018A Adjusted EBITDA / 2016A EBITDA) ^ (1 / (2018A –
2016A)) – 1). (($825.0 million / $705.0 million) ^ () – 1)
c. 25.0%. One year estimated FCF growth is calculated as 2019E FCF divided
by 2018A FCF, minus one. ($375.0 million / $300.0 million – 1)
d. 15.7%. Two year estimated EPS CAGR is calculated using the following
formula: ((2020E EPS / 2018A Adjusted EPS) ^ (1 / (2020E – 2018A)) – 1)
(($5.50 / $4.10) ^ () – 1)
Valuation, LBOs, M&A, and IPOs, 3rd Edition,
University Edition by Joshua Rosenbaum
Hello all ,
We have all what you need with best price
Our email :
Our website :
testbanks-store.com
,Solutions Manual
,2 ANSWERS
CHAPTER 1 ANSWERS AND RATIONALE
_
1) Calculation of fully diluted shares outstanding
, Solutions Manual 3
a. 2.75 million. The total number of in-the-money options/warrants is
calculated by adding the in-the-money shares from the tranches which have
an exercise price lower than the current share price of $50.00. (1.250 million
shares + 1.000 million shares + 0.500 million shares)
b. $62.5 million. The total proceeds from in-the-money options/warrants is
calculated by adding the proceeds from the tranches which have an exercise
price lower than the current share price of $50.00. ($12.5 million + $30.0
million + $20.0 million)
c. 1.50 million. Under the TSM, the $62.5 million of potential proceeds
received by Gasparro is used to repurchase shares that are currently trading
at $50.00. Therefore, the number of shares repurchased is 1.25 million
($62.5 million / $50.00) of the options. To calculate net new shares, the
shares repurchased are subtracted from the total number of in-the-money
options/warrants. (2.75 million shares – 1.25 million shares)
d. 100.0 million. Fully diluted shares are calculated as net new shares plus basic
shares outstanding. (98.5 million shares + 1.50 million shares)
2) Calculation of equity value and enterprise value
($ in millions, except per share data; shares in millions)
Selected Market Data
Current Price 12/20/2019 $50.00
% of 52-week High 80.0%
52-week High Price 7/19/2019 62.50
52-week Low Price 4/5/2019 40.00
Dividend Per Share (MRQ) 0.25
Fully Diluted Shares Outstanding 100.000
Equity Value $5,000.0
Plus: Total Debt 1,850.0
Plus: Preferred Stock -
Plus: Noncontrolling Interest -
Less: Cash and Cash Equivalents (100.0)
Enterprise Value $6,750.0
= Equity Value + Total Debt - Cash
= $5,000.0 million + $1,850.0 million - $100.0 million
= Current Share Price x Fully Diluted Shares Outstanding
= $50.00 x 100.0 million
a. $5,000.0 million. Equity value is calculated by multiplying fully diluted shares
by the current share price. (100.0 million shares x $50.00)
,4 ANSWERS
b. $6,750.0 million. Enterprise value is calculated as equity value plus total debt
less cash and cash equivalents. ($5,000.0 million + $1,850.0 million – $100.0
million)
3) Adjusting for one-time and non-recurring items
EBIT 2018 + EBIT 9/30/2019 C urrent S tub - EBIT 9/30/2018 P rior S tub
= $650.0 million + $575.0 million - $500.0 million
Gross Profit2018 + Gross Profit 9/30/2019 C urrent S tub - Gross Profit 9/30/2018 P rior S tub
= $1,575.0 million + $1,280.0 million - $1,175.0 million
Restructuring charge
Inventory valuation charge ("write-off")
Gain on sale of non-core business ("asset sale")
($ in millions, except per share data)
Adjusted Income Statement
Prior Current
Fiscal Year Ending December 31, Stub Stub LTM
2016A 2017A 2018A 9/30/2018 9/30/2019 9/30/2019
Reported Gross Profit $1,300.0 $1,450.0 $1,575.0 $1,175.0 $1,250.0 $1,650.0
Non-recurring Items in COGS - - - - 30.0 30.0
Adj. Gross Profit $1,300.0 $1,450.0 $1,575.0 $1,175.0 $1,280.0 $1,680.0
% margin 34.7% 34.9% 35.0% 34.8% 35.6% 35.6%
Reported EBIT $550.0 $620.0 $675.0 $500.0 $530.0 $705.0
Non-recurring Items in COGS - - - - 30.0 30.0
Other Non-recurring Items - - (25.0) - 15.0 (10.0)
Adjusted EBIT $550.0 $620.0 $650.0 $500.0 $575.0 $725.0
% margin 14.7% 14.9% 14.4% 14.8% 16.0% 15.3%
Depreciation & Amortization 155.0 165.0 175.0 125.0 125.0 175.0
Adjusted EBITDA $705.0 $785.0 $825.0 $625.0 $700.0 $900.0
% margin 18.8% 18.9% 18.3% 18.5% 19.4% 19.0%
Reported Net Income $330.0 $386.3 $429.8 $318.8 $342.8 $453.8
Non-recurring Items in COGS - - - - 30.0 30.0
Other Non-recurring Items - - (25.0) - 15.0 (10.0)
Non-operating Non-rec. Items - - - - - -
Tax Adjustment - - 6.3 - (11.3) (5.0)
Adjusted Net Income $330.0 $386.3 $411.0 $318.8 $376.5 $468.8
% margin 8.8% 9.3% 9.1% 9.4% 10.5% 9.9%
Adjusted Diluted EPS $3.30 $3.86 $4.11 $3.19 $3.77 $4.69
= Negative adjustment for pre-tax gain on asset sale x Marginal tax rate
= - ($25.0) million x 25%
= Add-back for pre-tax inventory and restructuring charges x Marginal tax rate
= - ($30.0 million + $15.0 million) x 25%
Net Income2018 + Net Income 9/30/2019 C urrent S tub - Net Income 9/30/2018 P rior S tub
= $411.0 million + $376.5 million - $318.8 million
Adjusted LTM EBIT + LTM Depreciation & Amortization
= $725.0 million + $175.0 million
a. $1,680.0 million. To calculate adjusted LTM gross profit first add back the
$30.0 million non-recurring product obsolescence charge to COGS for the
current stub 9/30/2019 period. LTM gross profit is then calculated by
, Solutions Manual 5
taking the full prior fiscal year’s gross profit, adding the YTD gross profit
for the current year period (“current stub”), and then subtracting the YTD
gross profit from the prior year (“prior stub”). ($1,575.0 million + $1,280.0
million – $1,175.0 million)
b. $725.0 million. To calculate adjusted LTM EBIT first add back the $15.0
million restructuring charge and back out the $25.0 million gain on asset sale
for the current stub 9/30/2019 period and fiscal year 2018 period,
respectively. Next, the LTM statistic is calculated in the same manner as
shown in 3(a). ($650.0 million + $575.0 million – $500.0 million)
c. $900.0 million. To calculate adjusted LTM EBITDA add LTM deprecation
and amortization to LTM EBIT. ($725.0 million + $175.0 million)
d. $468.8 million. To calculate adjusted LTM net income, first add back the full
non-recurring charges to net income. Then, to make the tax adjustment,
multiply the full add back amount by Gasparro’s marginal tax rate. Next, the
LTM statistic is calculated in the same manner as shown in 3(a). ($411.0
million + $376.5 million – $318.8 million)
4) Return on investment ratios
LTM Return on Investment Ratios
Return on Invested Capital 21.1%
Return on Equity 28.2%
Return on Assets 9.5%
Implied Annual Dividend Per Share 2.0%
= LTM Adjusted EBIT / Average (Total Debt2018 - Cash2018 + Shareholders' Equity2018,
Total Debt9/30/2019 - Cash9/30/2019 + Shareholders' Equity9/30/2019)
= $725.0 million / (($1,875.0 million - $75.0 million + $1,600.0 million) +
($1,850.0 million - $100.0 million + $1,725.0 million) / 2)
= LTM Adjusted Net Income / Average (Shareholders' Equity2018,Shareholders' Equity9/30/2019)
= $468.8 million / ($1,725.0 million + $1,600.0 million) / 2
= LTM Adjusted Net Income / Average (Total Assets 2018,Total Assets 9/30/2019)
= $468.8 million / ($4,825.0 million + $5,000.0 million) / 2
= (Quarterly Dividend x 4) / Current Share Price
= ($0.25 x 4) / $50.00
a. 21.1%. Return on invested capital is calculated as LTM adjusted EBIT
divided by the average of total invested capital (sum of debt and
shareholders’ equity less cash). ($725.0 million / (($1,875.0 million – $75.0
million + $1,600.0 million) + ($1,850.0 million – $100.0 million + $1,725.0
million) / 2))
b. 28.2%. Return on equity is calculated as LTM adjusted net income divided
by average shareholders’ equity. (($468.8 million / ($1,725.0 million +
$1,600.0 million) / 2)
,6 ANSWERS
c. 7.9%. Return on assets is calculated as LTM adjusted net income divided by
average assets. ($468.8 million / ($4,825.0 million + $5,000.0 million) / 2)
d. 2.0%. Implied Average Divided Per Share is calculated as the most recent
quarterly dividend multiplied by four and divided by the current share price.
(($0.25 x 4) / $50.00)
5) Credit statistics
LTM Credit Statistics
Debt/Total Capitalization 51.7%
Total Debt/EBITDA 2.1x
Net Debt/EBITDA 1.9x
EBITDA/Interest Expense 9.0x
(EBITDA-capex)/Interest Expense 7.0x
EBIT/Interest Expense 7.3x
= Total Debt9/30/2019 / (Total Debt9/30/2019 + Shareholders' Equity9/30/2019)
= $1,850.0 million / ($1,850.0 million + $1,725.0 million)
= Total Debt9/30/2019 / LTM Adjusted EBITDA
= $1,850.0 million / $900.0 million
= (Total Debt9/30/2019 - Cash9/30/2019) / LTM Adjusted EBITDA
= ($1,850.0 million - $100.0 million) / $900.0 million
= LTM Adjusted EBITDA / LTM Interest Expense
= $900.0 million / $100.0 million
= (LTM Adjusted EBITDA - Capex) / LTM Interest Expense
= ($900.0 million - $205.0 million) / $100.0 million
= LTM Adjusted EBIT / LTM Interest Expense
= $725.0 million / $100.0 million
a. 51.7%. Debt-to-total capitalization is calculated as debt divided by total
capitalization. ($1,850.0 million / ($1,850.0 million + $1,725.0 million))
b. 2.1x. Total debt-to-EBITDA is calculated as total debt divided by LTM
adjusted EBITDA. ($1,850.0 million / $900.0 million)
c. 1.9x. Net debt-to-EBITDA is calculated as net debt (total debt less cash)
divided by LTM adjusted EBITDA. (($1,850.0 million – $100.0 million) /
$900.0 million)
d. 9.0x. EBITDA-to-interest expense is calculated as LTM adjusted EBITDA
divided by LTM interest expense. ($900.0 million / $100.0 million)
, Solutions Manual 7
e. 7.0x. (EBITDA – Capex)-to- interest expense is calculated as LTM adjusted
EBITDA less capex divided by LTM interest expense. (($900.0 million –
$205.0 million) / $100.0 million)
f. 7.3x. EBIT-to-interest expense is calculated as LTM adjusted EBIT divided
by LTM interest expense. ($725.0 million / $100.0 million)
6) Trading multiples
($ in millions, except per share data)
Trading Multiples
LTM NFY NFY+1 NFY+2
9/30/2019 2019E 2020E 2021E
EV / Sales 1.4x 1.4x 1.3x 1.2x
Metric $4,725.0 $5,000.0 $5,350.0 $5,625.0
EV / EBITDA 7.5x 7.1x 6.6x 6.3x
Metric $900.0 $950.0 $1,025.0 $1,075.0
EV / EBIT 9.3x 8.8x 8.2x 7.8x
Metric $725.0 $765.0 $825.0 $865.0
P/E 10.7x 9.8x 9.1x 8.7x
Metric $4.69 $5.10 $5.50 $5.75
FCF Yield 6.3% 7.5% 8.3% 9.1%
Metric $315.0 $375.0 $415.0 $455.0
= Enterprise Value / LTM Sales = Current Share Price / 2021E EPS
= $6,750.0 million / $4,725.0 million = $50.00 / $5.75
= Enterprise Value / 2019E EBITDA
= $6,750.0 million / $950.0 million
= Enterprise Value / 2020E EBIT
= $6,750.0 million / $825.0 million
= 2021E Free Cash Flow / Equity Value
= $455.0 million / $5,000.0 million
a. 1.4x. Enterprise value-to-LTM sales is calculated as enterprise value divided
by LTM sales. ($6,750.0 million / $4,750.0 million)
b. 7.1x. Enterprise value-to-NFY EBITDA is calculated as enterprise value
divided by 2019E EBITDA. ($6,750.0 million / $950.0 million)
c. 8.2x. Enterprise value-to-NFY+1 EBIT is calculated as enterprise value
divided by 2020E EBIT. ($6,750.0 million / $825.0 million)
d. 8.7x. Price/NFY+2 EPS is calculated as the current share price divided by
2021E EPS. ($50.00 / $5.75)
e. 9.1%. FCF Yield (NFY+2 Free cash flow-to-equity value) is calculated as
2021E Free cash flow divided by equity value. ($455.0 million / $5,000.0
million)
, 8 ANSWERS
7) Growth rates
= (2020E EPS / 2018 Adjusted EPS) ^ (1 / (2020E - 2018)) - 1
= ($5.50 / $4.10) ^ () - 1
= 2019E FCF / 2018 FCF - 1
= $375.0 million / $300.0 million - 1
Growth Rates
Sales EBITDA FCF EPS
Historical
1-year ('17-'18) 8.4% 5.1% 13.2% 6.4%
2-year CAGR ('16-'18) 9.5% 8.2% 14.2% 11.6%
Estimated
1-year ('18-'19E) 11.1% 15.2% 25.0% 24.1%
2-year CAGR ('18-'20E) 9.0% 11.5% 17.6% 15.7%
= 2018 Sales / 2017 Sales - 1
= $4,500.0 million / $4,150.0 million - 1
= (2018 Adjusted EBITDA / 2016 EBITDA) ^ (1 / (2018 - 2016)) - 1
= ($825.0 million / $705.0 million) ^ () - 1
a. 8.4%. One year historical sales growth is calculated as 2018A sales divided
by 2017A sales, minus one. ($4,500 million / $4,150 million – 1)
b. 8.2%. Two year historical EBITDA CAGR is calculated using the following
formula: ((2018A Adjusted EBITDA / 2016A EBITDA) ^ (1 / (2018A –
2016A)) – 1). (($825.0 million / $705.0 million) ^ () – 1)
c. 25.0%. One year estimated FCF growth is calculated as 2019E FCF divided
by 2018A FCF, minus one. ($375.0 million / $300.0 million – 1)
d. 15.7%. Two year estimated EPS CAGR is calculated using the following
formula: ((2020E EPS / 2018A Adjusted EPS) ^ (1 / (2020E – 2018A)) – 1)
(($5.50 / $4.10) ^ () – 1)
