• Enterprise Price/ Tax-shield adjusted EBI: 108
• Enterprise Price / EBI : 62
• Enterprise Price / EBIT : 62
• Enterprise Price / EBITDA: 4
• *** Interest/EBITDA: 8%
•                                    
•  Enterprise Price / Sales: 0.1
•  Stock price / sales: 0.1

*** Gross margin : 27%
*** Operating Margin: 0.2%
*** EBITDA/Sales: 3%

Sensitivity of gross margin and SG&A% to sales 

 

• AVG Gross margin changes/sales growth (for every 1%): 0.3%                                      
• AVG SG&A changes/sales growth (for every 1%): 0.9%      

 

We build our valuation on several different multiples derived from ratios of paid price in similar transaction or trading in public market and financial measurement such as cash flow and sales. Multiples listed above can be used as general benchmarks for PE, M&A, or distressed equity/debt buyer and seller to estimate the value for the whole enterprise of the targeted company. Our definition of EBITDA is EBITDA=operating income +depreciation/amortization +70% minority interest as equity method- preferred stock dividends. Tax-shield adjusted EBI is defined as EBITDA-Tax –Depreciation –Amortization - tax shield of interest. We recommend that you choose your multiples from the range we provided above based on debt level/interest level and sensitivities of margins with an adjustment of revenue growth. 

Growth

                                                                           2016                   2017                  2018 (annualized)

• Growth in comparable store sales:              -5.7%                  -6.7%                0%
• Growth in online sales:                                     -10%                     4%                  -14%

Investment in PE (including M&A) needs a guarantee for predictable after- transaction cash inflow. The ideal PE target company should be a mature business with stable sales and consistent costs management &controlling (margin above some certain level), and with a similar-peers price/cash flow multiple (after considering sales growth trend and sensitivity of margins). and with a relative lower margin.

We think the profit or positive return from PE investment comes from extra cash inflow, on the basis of cash inflow before transaction, by highly efficient production optimization and/or innovative reallocation of operating resources. Therefore, we hope the ideal target company's margin should be above some certain level but close to bottom of that level. 

For investment in distressed equity or its debt, we think the same principle should be followed ( for example, a positive EBI may be the margin level for equity investor and as well debt investor  to apply multiples).

See more details from our websites post “ How to evaluate PE and distressed equity/debt?".