Smith Ltd has an enterprise value of $644,000 and EBITDA for the last financial year of $106,000. The table below shows its 5 main competitors along with their EV/EBITDA ratios. What is the median EV/EBITDA ratio for these companies, and based on that value, would you say that Smith Ltd is underpriced or overpriced?
Smith Ltd has an enterprise value of $644,000 and EBITDA for the last financial year of $106,000. The table below shows its 5 main competitors along with their EV/EBITDA ratios. What is the median EV/EBITDA ratio for these companies, and based on that value, would you say that Smith Ltd is underpriced or overpriced?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Smith Ltd has an enterprise value of $644,000 and EBITDA for the last financial year of $106,000. The table below shows its 5 main competitors along with their EV/EBITDA ratios. What is the median EV/EBITDA ratio for these companies, and based on that value, would you say that Smith Ltd is underpriced or overpriced?
| Company | EV/EBITDA |
|---|---|
| Jones Ltd | 6.94 |
| Martin Ltd | 6.29 |
| Christie Ltd | 9.07 |
| Baghdadi Ltd | 8.42 |
| Duncan Ltd | 7.68 |
a.
The median EV/EBITDA ratio for the peer group is 6.94 and Smith Ltd appears to be underpriced.
b.
The median EV/EBITDA ratio for the peer group is 6.94 and Smith Ltd appears to be overpriced.
c.
The median EV/EBITDA ratio for the peer group is 7.68 and Smith Ltd appears to be overpriced.
d.
The median EV/EBITDA ratio for the peer group is 7.68 and Smith Ltd appears to be underpriced.
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