Sonia Essay

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Sonia Zahid Case 43 October 28, 2015 American Greetings Should American Greetings Repurchase its Shares? 1. Is 3.5x multiple appropriate for American Greetings? If not, what multiple of EBITDA to think is justified? Based on the information provided, I believe that the EBITDA Multiple of 3.5x is not justified. EBITDA Mutiple (or EV/EBITDA) is a better measure than P/E ratio because it is not affected by the changes in capital structure between debt and equity. And for this reason it also makes fair comparison to companies with different capital structures. It is also a pre-tax metric making it easier to compare across different companies preferably in the same industry. This metric is preferred over P/E ratio since it is not affected by…show more content…
Since the EBITDA multiple of American Greeting is lower than its peers, this is also gives an indication that the stock is undervalued. What is the implied share price that corresponds to that multiple? Implied share Price: EBITDA– Dividends Paid/Shares outstanding $200.58mill – (3.32mill x 60 cents per share) / 3.32mill = $59.82 implied share price 2. Enterprise Value is examined Below based on model cash flow from 2012-2016 EBITDA Multiple 3.08 7.97 7.54 5.59 6.16 5.21 8.82 11.11 12.14 7.62 7.03 1.92 5.45 9.66 8.41 Projected Cash Flow (in Mill except for EPS) 2012 2013 2014 2015 TV 2016 Total American Greetings Figures Total Revenue Material, Labor, and Other Pruduction Costs Selling, Distribution, and Marketing Expenses Administrative and General Expenses Goodwill and Other Intangible Asset Impairments Other operating expenses 1,613 714 531 258 0 -6 1551 687 510 258 0 -6 1491 660 491 258 0 -5 1434 635 472 258 0 -5 1378 610 454 258 0 -5 115 27 101 26 87 25 74 24 61 23 Income Before Income Tax Expense
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