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# Capitalization metrics

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Manager
Joined: 07 Dec 2011
Posts: 120

Kudos [?]: 554 [0], given: 116

Location: India
GMAT Date: 07-30-2012
GPA: 2.66
WE: Information Technology (Computer Software)

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15 Jul 2012, 08:04
All figures are in millions (M) except for EPS which is in \$/share. EPS stands for Earnings Per Share. Market Capitalization is defined as stock price (measured in \$/share) multiplied by shares outstanding.

"Earnings" when used in the expression EPS (earnings per share) and P/E (price-to-earnings ratio) refer to the metric net income (not shown).

Capitalization metrics such as market capitalization value and enterprise value are as of January 30, 2008. Other metrics are as of December 2007.

EBITDA is a financial metric for profitability and is defined as earnings before interest, taxes, depreciation, and amortization.

Refer fig 1 for data table
Attachment:
File comment: Fig 1

fig3.JPG [ 23.64 KiB | Viewed 1849 times ]

For each of the following, select Yes if the statement is true based on the information provided; otherwise select No.

A. If the EV/Revenue multiple is expressed as a ratio of Enterprise Value to Revenue, the median EV/Revenue multiple for this set of 4 companies is between 2.0x and 3.0x.

B. If Cool-Go's P/E (price-to-earnings or market capitalization-to-earnings) ratio is 25.9, the number of Cool-Go shares outstanding is greater than 350M.

C. The range for Enterprise Value is greater than the range for Market Capitalization.

Can somebody explain the solution to statement B.

[Reveal] Spoiler:
A yes
B no
C no

_________________

Kudos [?]: 554 [0], given: 116

Senior Manager
Affiliations: UWC
Joined: 09 May 2012
Posts: 393

Kudos [?]: 1655 [0], given: 100

GMAT 1: 620 Q42 V33
GMAT 2: 680 Q44 V38
GPA: 3.43
WE: Engineering (Entertainment and Sports)

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26 Jul 2012, 23:36
A) Approximate EV/R:
Cool-Go: 160k/16k = 10
iPay: 30k/8k = 3.75
Sahara: 30k/20k = 1.5
InterPactive: 13k/7k = 1.8

Arrange in order: 1.5 1.8 3.75 10
The median is approximately 2.7
YES

Quote:
Market Capitalization is defined as stock price (measured in \$/share) multiplied by shares outstanding.

Market Capitalization/Earnings = 25.9
174565/25.9 = 6739M
Earnings/Earnings per Share = No of Shares
6739M/21 = 320M Shares
NO

C)NO
Just compare the ranges.

Kudos [?]: 1655 [0], given: 100

SVP
Joined: 14 Apr 2009
Posts: 2137

Kudos [?]: 1636 [1], given: 8

Location: New York, NY

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27 Jul 2012, 09:58
1
KUDOS
The source for this question is GMATPill

http://www.gmatpill.com/gmat-practice-t ... stion/1511

Quote:
If Cool-Go's P/E (price-to-earnings or market capitalization-to-earnings) ratio is 25.9, the number of Cool-Go shares outstanding is greater than 350M.

Given: 174,565M = market cap
Given: 25.9 =m arket cap / earnings ratio of 25.9
Calculate: Then earnings = marketcap / 25.9
Calculate: Earnings: 174,565M / 25.9 = 6740M (calculated)

Given: Earnings per share is 21.16
Calculate Shares = Earnings / Earnings per share = 6740M / 21.16
= 318.5M shares

The number of shares is NOT greater than 350M shares.

Kudos [?]: 1636 [1], given: 8

Re: Capitalization metrics   [#permalink] 27 Jul 2012, 09:58
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# Capitalization metrics

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