Multiples analysis: 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:

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?

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Revenue Cost of goods sold Gross profit Selling, general, and administrative expenses Operating profit (EBIT) Interest expense Earnings before taxes Taxes Net income $1,764 1,168 $ 596 211 $ 385 12 $ 373 147 $ 226