What is CVS's Enterprise Value to EBITDA multiple?
What is the Enterprise Value to EBITDA multiple for CVS based on the given data?
Calculation of CVS's Enterprise Value to EBITDA multiple
The Enterprise Value to EBITDA multiple for CVS is 7. The correct answer is option A.
Explanation:
Enterprise Value (EV) is defined as the total value of the company, both debt, and equity capital. Therefore, in order to calculate Enterprise Value to EBITDA multiple, we need to take into account the following formula:
EV = Market value of equity + Debt – Cash
Market value of equity = 5 million shares x $43 per share = $215 million
Debt = $100 million
Cash = $23 million
EV = Market value of equity + Debt - Cash
EV = $215 million + $100 million - $23 million = $292 million
Next, we need to calculate EBITDA:
EBITDA = $45 million
The Enterprise Value to EBITDA multiple can be calculated by dividing EV by EBITDA:
EBITDA multiple = EV/EBITDA
= $292 million / $45 million
= 6.49 ~ 7 (rounded to the nearest whole number)
Therefore, the closest multiple to CVS's Enterprise Value to EBITDA multiple is 7 i.e. option A.