Technical - Methodology for Estimating EV
- 02:14
Investment Banking Superday interview technical question - Methodology for estimating EV.
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So what I'm going to ask you to do now is to look at some numbers on the screen.
I'm going to share my screen very shortly and I'm going to ask you to come up initially just with, a methodology, For estimating the enterprise value of a company.
And then we'll actually dive into the actual numbers. Okay? so can you see my screen first of all? Yeah. Okay.
so we've got information on four companies on the screen, company A, B, C, and D.
For each company we've been given their revenue and their ebit, and for companies A, B, and D, we've been given their enterprise value for each company.
We also have their growth rate.
You'll see that company C does not have an enterprise value.
Can you make some suggestions on how you might come up with an enterprise value for company C using the information just on the screen? Yeah, so one thing that I would look at is, the EBIT number, comparing that to the ev.
and so it looks like these companies generally have pretty similar growth profiles except companies C would be on the higher end of growth.
And so I'm seeing over here, enterprise value for company A is 10 times of ebit.
and then for company B you'd have, one 30 divided by 15.
So that's about eight times, 8.6 times, multiple.
And then for the company D, it's a enterprise value of 2,500, and EBIT of 200.
And then, so that's about, a 12.5 times multiple.
And so looking at the fact that there is a pretty strong growth there of, 4%, I would put that on like maybe the higher end.
So perhaps a 10 times multiple on the ebit.
So 70, times 10, maybe an enterprise value of 750.
That would be one way I might just like quickly think about it.
Okay. Fantastic. So you started to talk about the numbers as well, and that approach that you've suggested seems very sensible to me.