A financial analyst at INVESTMENTBANK INTERNATIONAL is attempting to value the equity of IPCO. This growing company
Question:
A financial analyst at INVESTMENTBANK INTERNATIONAL is attempting to value the equity of IPCO. This growing company approached the bank about the possibility of an Initial Public Offering (IPO) of the company’s shares. The company is looking to sell a substantial proportion of its equity to finance expected growth.
The analyst collected the following IPCO data for the preceding year:
In addition, she compiled the following range of estimates for the coming year:
She intends to use a number of valuation methods and then compare the results. The first is the P/E ratio method using prospective earnings. The prospective P/E ratio that she uses for a company is its current price per share divided by the analysts’ consensus for its earnings in the following year.
She needs to have a range of suitable P/E values for the valuation. So, her first step was to collect a sample of prospective P/Es for similar companies already trading in the stock market. She found that most of the prospective P/Es fell in the following range:
Show how the analyst can obtain nine values for IPCO’s equity using data selected from the two tables above.
Step by Step Answer:
