Table 19.2 Ideko Financial Ratios Comprison, Mid-2005

Ratio

Ideko

(Proposed)

Oakley, Inc

Luxottica Group

Nike, Inc

Sporting Goods Industry

P/E

21.6X

24.8X

28.0X

18.2X

20.3X

EV/Sales

2.0X

2.0X

2.7X

1.5X

1.4X

EV/EBITDA

9.1X

11.6X

14.4X

9.3X

11.4X

EBUTDA/Sales

21.7%

17.0X

18.5%

15.9X

12.1X

19-1. You would like to compare Ideko’sprofitability to its competitors’ profitability using the EBITDA/salesmultiple. Given Ideko’s current sales of $75 million, use the information inTable 19.2 to compute a range of EBITDA for Ideko assuming it is run asprofitably as its competitors.

**Solution**

Ideko’s 2005 sales are $75 million.

Find the highest and lowest EBITDAvalues across all three firms and the industry as a whole:

EBITDA/Sales(%)

EBITDA ($mil)

Oakley

17.0

12.75

Luxcottica

18.5

13.875

Nike

15.9

11.925

Industry

12.1

9.075

This implies an EBITDA range of$9.075 to $13.875 million

19-2. Assume that Ideko’s marketshare will increase by 0.5% per year rather than the 1% used in the chapter.What production capacity will Ideko require each year? When will an expansionbecome necessary (when production volume will exceed the current level by 50%)?

Solution

First compute the projected annualmarket share:

2005

2006

2007

2008

2009

2010

Sales Data

Growth/Yr

1. Market Size (000units)

5.0%

10,000

10,500

11,025

11,576

12,155

12,763

2. Market Share

0.5%

10.0%

10.5%

11.0%

11.5%

12.0%

12.5%

3. Ave. Sales Price($/unit)

2.0%

75.00

76.50

78.03

79.59

81.18

82.81

Using these projections, calculatethe projected annual production volume:

ProductionVolume (000 units)

2005

2006

2007

2008

2009

2010

1. Market size

10,000

10,500

11,025

11,576

12,155

12,763

2. Market Share

10.0%

10.5%

11.0%

11.5%

12.0%

12.5%

3. Production Volume(1×2)

1,000

1,103

1,213

1,331

1,459

1,595

Based on these estimates, it will be 2010before current capacity is exceeded and an expansion becomes necessary.

**Requirements**

These two problems have their solutions but I want youto put the solution on excel spread sheet and show formulas in all cells.