The workout asks us to calculate the implied EV to forward year one, EBIT multiple for the company below. Okay, so let's look at what information we have been provided so we can see that we have some information relating to the forward year one. So maybe an analyst has forecasted this information. We have the revenues, operating costs before exceptional items and stock options, impairment charges, stock option expense, and operating profit. Okay, so I can see that there's no input for the operating profit. So let's work this out. This is equal to our revenue figure less our operating costs before exceptional items and stock options, less impairment charges, and less the stock options expense. That gives us an operating profit of 240,787.8.

Okay, so let's have a look at what other information we've been provided. We have a basic shares outstanding number, stock options, outstanding exercise price, current share price, and net debt. So if we want to calculate the EV to forward year EBIT multiple, we need to start by calculating our equity value. And remember, because we have options that have already been granted, these have a dilutive effect, so we need to include these in the diluted shares outstanding. Okay, so let's calculate that. So in order to calculate the dilution from stock options, we need to use the treasury method. So I'm going to take my stock options outstanding and multiply that by the max of zero, the current share price or the the difference between the current share price and the exercise price, divided by the current share price.

And that gives us 1,834.2. In order to calculate the diluted shares outstanding, I need to add this to the basic shares outstanding number, which we are provided at the top here. That gives us 821,991.2 shares outstanding. Okay, so now I have everything I need to calculate my equity value. This is the fully diluted equity value. So I take my diluted shares outstanding and I multiply it by the current share price. Next, I want to calculate the enterprise value. So I've already calculated my fully diluted equity value, so I can take that. I've been provided with a net debt figure, so I just need to sum those together. Now in this example, remember there are two effects that we need to consider when looking at valuation. First, the historic or options that have already been granted. So we've calculated this in our equity value because we've used the fully diluted shares number. If we want to consider options that are going to be granted in the future, then we need to use stock option expense. So I need to calculate my EBIT and we need to go to our operating profit and include any non-recurring expenses. And we can see that we have impairment charges, but we do not include the stock options expense. So that means we have an EBIT bigger of 305,108.8. Now I have everything I need to calculate my multiple. So if I take my enterprise value number, divide that by the EBIT, that means we have a multiple of 7.2 times.

So some important points to reiterate, this value includes both the dilution from stock options in our EV number and we've included the stock options expense in our EBIT number.

This is not double counting. This is because one is addressing the dilution from options already granted and the other the expense from future options. The only time you would not include the stock options expense in your EBIT number is if the options relate to a one-off grant. For example, the expense may have arisen from options granted that relate to an M&A deal here. We would not adjust our EBIT number to include this as it is non-recurring.