In this workout, we're given extract from an analyst model for Barcelona Inc. And they're currently undergoing a restructuring program. We're asked to calculate the sales, ebit and ebitda multiples and use this to calculate the implied ebit and ebitda margin. The first thing I'm going to do is to calculate those multiples.

I can then copy this formula down.

and also to the right and we now have the multiples calculated on a forward basis and for EV to sales, EV to ebit and EV to ebitda. Before we do anything else. Let's have a look at those multiples EV to ebit and EV to ebitda multiples are inflated in year one, and that's because that's the year when the restructuring program is taking place and the denominator is abnormally low. However, this normalizes in year two when earnings also normalize. However, we can also see that the ev to sales multiples are stable throughout the restructuring program. And that's because sales are not affected by the restructuring. Now let's use these multiples to calculate the implied ebit and ebitda margins.

Now we can use the fact that we have the same numerator in all of our multiples to calculate these margins. So we simply need to take Evie to sales and divide that by EV to ebit to give the ebit margin.

And for ebitda, we take EV to sales and divide that by EV to ebitda. We can then copy these formulas over to the right to give the implied margins in each forecast year.

Now, let's have a look at those margins. We can see there's a contraction in margins in year one when we structuring program is taking place and then margins normalize in year two when the restructuring has completed.

Now let's think about how this information might affect how we compare the multiples of this company versus its peers. Well, we have two options here. We can either put more reliance on the year to multiples because that's the year when things return to normal after restructuring or alternatively we can put more reliance on the EV to sales multiple because that's not affected in any year by the restructuring program.