Valuation and Financial Modeling

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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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