Question

Use the private company transactions method to fill out the yellow highlighted area and explain the value for P:

Frosty Footwear, Inc. Recasted Income Statements for 2006 & 2007 2007 79,139 2006 19,578 Operating Profit $ $ Recasting Adjustments: Owners/Mgt Compensation CEO Bonus Compensation Salaries & Wages Professional Fees Rent Allocation Commissions Bad Debts Advertising & Promotion Trade Shows Research Depreciation Allocation Amortization--Purchase Debt Interest Other Expense 80,000 7,914 8,331 10,422 23,912 122,089 22,485 104,310 25,162 4,008 1,995 12.600 107,534 412,186 942,948 169,429 67,772 101,657 80.000 1,958 29,395 10.177 24,447 154.430 17,894 74,302 25,184 24,582 2.814 12.600 19,517 309,125 786.425 118,996 47,598 71,398 Earnings Before Taxes Income Taxes (40) Earnings After Taxes $ Interest Depreciation Amoritization 107,534 1,995 12,600 122, 129 291,558 19.517 2,814 12,600 34,931 153,927 EBITDA: Recasted $ $ EBITDA: Not Recasted: Interest Depreciation Amoritization 107,534 1,995 12,600 122,129 201,268 19,517 2,814 12,600 34,931 54.509 EBITDA: Not Recasted $

Answer 1

P/E= Share price/ EPS and this will also be the normal multiple as shown in panel A i.e. 5 in case of original as well as recast figures.

P/SE i.e. profit/ Shareholders equity

Profit will be earning after taxes i.e $ 101,657

Shareholder equity $644,214(Original) & $790,428 (recasted)

P/SE original=101657/644214=0.16

P/SE recasted = 101657 / 790428= 0.13

P/A = Profit/ Assets

Original= 101657 / 2117111=0.048

recasted= 101657 / 2173169=0.047

P/CF= Profit/ Cash Flow

Cash Flow= Net income + depreciation + amortisation or EBITDA + Interest

Original Cash flow=201268 + 107534= 308802

Recasted cash flow = 291558 + 107534= 399092

P/CF Original= 101657 / 399092 =0.255

Recasted = 101657 / 308802 = 0.329

P/EBITDA

Original= 101657 / 201268 =0.505

Recasted= 101657 / 291558 =0.349