The comparable trading metrics show that the implied enterprise value if the median P/E ratio is used for valuation is $315,618.
How can the implied enterprise value be found?
First, the value of equity needs to be found. Based on the market capitalizations, and the earnings, the P/E ratios for the companies are:
- Company A = 22.77
- Company B = 22.05
- Company C = 16.65
- Company D = 32.54
- Company E = 23.51
Using the median P/E ratio requires that we arrange the values:
= 16.65, 22.05, 22.77, 23.51, 32.54
The median P/E is 22.77.
The value of Equity is:
= Earnings x Median P/E
= 13,423 x 22.77
= $305,618
The enterprise value is:
= Market value of debt + Market value of equity - Balance in cash account
= 20,000 + 305,618 - 10,000
= $315,618
In conclusion, the implied enterprise value is $315,618
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