# Valuation and Financial Modeling College Paper Lab | collegepaperslab.com

Valuation and Financial Modeling College Paper Lab | collegepaperslab.com

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.