Question:

Suppose you are working as a financial analyst at Nordea,and your teamisgiven an assignment to assess theinvestment potential ofacompany,Beauty A/S,which manufactures jewelry.One of your team members hasdeepknowledgeonthisindustry,andshe has madeforecastingforthevaluedriversofthiscompany(seetheattached picture).

In 2019,therevenueof Beauty A/Sis20,764millionUSD,netearnings is1,345millionUSD,investedcapitalis14,342 million USD, and net interest-bearing liabilities is 8,079 million USD. The company currently has110 millionsharesoutstanding.The weightedaveragecostofcapitalis7%.

1. Please calculate theprofitmargin,turnoverrateofinvestedcapital,andreturnon investedcapitalfor

2020-2025.Please briefly comment on theirlevelsand developmentsovertheyears.Please use theaverage invested capital in the beginning-year and ending-year balance sheets and keep three decimalsfor the results.

- I have done this task.

2.Suppose the free cash flow to firm willincreasewith constant growth rate of3%after2025, please

estimatetheenterprisevalueof Beauty A/Sattheendofyear2019usingthediscountedcashflowmodel and calculateitsequityvalue.CurrentlyBeautyA/Sistradedata M/Bratioof5.5.Whatisyourrecommendation to your employer Nordea,buyorsell?

I Do not understand how to get the M/B ratio. The solution states that the value should be 7.4 and can be solved by calculating the P/M ratio, but I cannot solve that part.

How do I calculate the M/B ratio?