Stock Valuations Paper Example

The determination of the stock price at the end of the day can be achieved using the EnV: EBITDA valuation estimation method. The EnV: EBITDA valuation estimation method uses a multiple in the evaluation of the firm. From this method, the first approach is to determine the market capitalization of TriQuad, which is determined by the formula (outstanding shares * share price) = (315 million * 36.87) = $ 11.614 billion.

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The enterprise value of a firm is determined using the formula (Equity value - net cash) (Pinto, J. E., Henry, E., & Robinson, T. R. (2015). The equity value is the same as the market capitalization, which for the TriQuad had been calculated as $11.614 billion. The net cash of the company did not change during the year and was $247 million. In this case, the Enterprise value for TriQuad is calculated as (11614 - 247) = $11.367 billion. The formula for the calculation of the Enterprise value / EBIDTA is (enterprise value/4*the quarterly EBIDTA) = ((11614/4* 456) = 6.23. in this case, the 6.23 is the EnV/EBITDA multiple.

For 30th March, the stock price is 38.51. However, the price is arrived at by dividing the equity by the outstanding shares. Therefore, the equity of the company is the product of the price y the outstanding shares as (38.51 * 315 million) = $12.137 billion. The Env 30th equals to equity less net cash = 12137-247 = $11.88365 billion. The EnV/EBITDA = 6.23, hence the EBIDTA = EnV/multiple = (11883.65/6.23) = 1907.488, hence the quarterly EBIDTA = 1907.488/4 = 476.872 million. The quarterly revenue/EBIDTA multiple = 577/456 = 1.265351. in this case, the Quarterly revenue for 30th march will be 476.872 * 1.26535 = 603.4104 million.

For 31st March, the first step is to determine the enterprise value of TriQuad as at that day. We now have the EnV/EBITDA multiple of 6.23. To determine the enterprise value on 31st March, we have to get the product of the multiple and the EBIDTA as at that day. In this case, the enterprise value as at 31st March was (6.23 * 4*466 million) = 11.616327 billion.

The enterprise value is however calculated as (equity value less net cash). In this case, the equity value as at 31st March will be the enterprise value less the net cash (since the net cash does not change throughout the year). = (11.616327 billion - 247 million) = 11.369327 billion.

The final step in calculating the end of the day share price is to divide the equity value by the number of outstanding shares, which for TriQuad will be (11.369327 billion / 315 million) = $ 36.093103.

Conclusion

The results, therefore, show that the share price at the end of the 31st March will decrease by $2.42. This further means that TriQuad's stocks are declining in value, hence the need to sell more shares, which can explain the increase in revenue. In this case, it means that there is a decrease in demands of the shares of TriQuad, hence the decline in share price. One fundamental assumption made in the calculation is that there was no inflation during the period.

References

Pinto, J. E., Henry, E., & Robinson, T. R. (2015). Equity Asset Valuation. US: John Wiley & Son.