You are an analyst at a private equity firm that buys private companies, improves their operating performance,

Question:

You are an analyst at a private equity firm that buys private companies, improves their operating performance, and sells them for a profit. Your boss has asked you to estimate the fair market value of the Johnson Machine Tool Company. Billy’s Tools is a public company with business operations that are virtually identical to those at Johnson. The most recent income statement for Billy’s Tools is as follows:

Revenue $1,764

Cost of goods sold 1,168

Gross profit $ 596

Selling, general, & administrative expenses 211

Operating profit (EBIT) $ 385

Interest expense 12

Earnings before taxes $ 373

Taxes 147

Net income $ 226

All dollar values are in millions. Billy’s had depreciation and amortization expenses of $71 million last year and had 200 million shares and $600 million of debt outstanding as of the end of the year. Its stock is currently trading at $12.25 per share.

Using the P/E multiple, what is the per share value of Johnson’s stock? What is the total value of Johnson Machine Tool Company?

Use the following information concerning Johnson Machine Tool Company. Johnson’s income statement from the fiscal year that ended this past December is:

Revenue ................ $995

Cost of goods sold ............. 652

Gross profit ............... $343

Selling, general, and administrative expenses .. 135

Operating profit (EBIT) .......... $208

Interest expense ................ 48

Earnings before taxes ............ $160

Taxes .................. 64

Net income ............... $ 96

All dollar values are in millions. Depreciation and amortization expenses last year were $42 million, and the company has $533 million of debt outstanding.