Valuation and Financial Modeling
Table 19.2 Ideko Financial Ratios Comprison, Mid-2005
|
Ratio |
Ideko (Proposed) |
Oakley, Inc |
Luxottica Group |
Nike, Inc |
Sporting Goods Industry |
|
P/E |
21.6X |
24.8X |
28.0X |
18.2X |
20.3X |
|
EV/Sales |
2.0X |
2.0X |
2.7X |
1.5X |
1.4X |
|
EV/EBITDA |
9.1X |
11.6X |
14.4X |
9.3X |
11.4X |
|
EBUTDA/Sales |
21.7% |
17.0X |
18.5% |
15.9X |
12.1X |
19-1. You would like to compare Ideko’s profitability to its competitors’ profitability using the EBITDA/sales multiple. Given Ideko’s current sales of $75 million, use the information in Table 19.2 to compute a range of EBITDA for Ideko assuming it is run as profitably as its competitors.
Solution
Ideko’s 2005 sales are $75 million.
Find the highest and lowest EBITDA values across all three firms and the industry as a whole:
|
EBITDA/Sales (%) |
EBITDA ($ mil) |
|
|
Oakley |
17.0 |
12.75 |
|
Luxcottica |
18.5 |
13.875 |
|
Nike |
15.9 |
11.925 |
|
Industry |
12.1 |
9.075 |
This implies an EBITDA range of $9.075 to $13.875 million
19-2. Assume that Ideko’s market share will increase by 0.5% per year rather than the 1% used in the chapter. What production capacity will Ideko require each year? When will an expansion become necessary (when production volume will exceed the current level by 50%)?
Solution
First compute the projected annual market share:
|
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
||
|
Sales Data |
Growth/Yr |
||||||
|
1. Market Size (000 units) |
5.0% |
10,000 |
10,500 |
11,025 |
11,576 |
12,155 |
12,763 |
|
2. Market Share |
0.5% |
10.0% |
10.5% |
11.0% |
11.5% |
12.0% |
12.5% |
|
3. Ave. Sales Price ($/unit) |
2.0% |
75.00 |
76.50 |
78.03 |
79.59 |
81.18 |
82.81 |
Using these projections, calculate the projected annual production volume:
|
Production Volume (000 units) |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
|
1. Market size |
10,000 |
10,500 |
11,025 |
11,576 |
12,155 |
12,763 |
|
2. Market Share |
10.0% |
10.5% |
11.0% |
11.5% |
12.0% |
12.5% |
|
3. Production Volume (1×2) |
1,000 |
1,103 |
1,213 |
1,331 |
1,459 |
1,595 |
Based on these estimates, it will be 2010 before current capacity is exceeded and an expansion becomes necessary.
Requirements
These two problems have their solutions but I want you to put the solution on excel spread sheet and show formulas in all cells.
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