In early 2009, General Holdings (GH) had a book value of equity of $105 billion,
ID: 3200231 • Letter: I
Question
In early 2009, General Holdings (GH) had a book value of equity of $105 billion, 10.5 billion shares outstanding, and a market price of $10.80 per share. GH also had cash of $48 billion, and total debt of $524 billion. Three years later, in early 2012, GH had a book value of equity of $116 billion, 10.6 billion shares outstanding with a market price of $17.00 per share, cash of $84 billion, and total debt of $410 billion. Over this period, what was the change in GH's
a. market capitalization?
b. market-to-book ratio?
c. book debt-equity ratio?
d. market debt-equity ratio?
e. enterprise value?
Explanation / Answer
ans=
a. 2009 Market Capitalization: 10.5 billion shares x $10.80/share = $113.4 billion. 2012 Market Capitalization: 10.6 billion shares x $17.00/share = $180.2. The change over the period is $113.4 - $180.2 = -$66.8 billion
b. 2009 Market-to-Book 113.4/105=1.08. 2012 Market-to-Book 180.2/116=0.932 . The change over the period is: 0.932 – 1.08 = -0.148
c. 2009 Book Debt-to-Equity 524/103=5.087 . 2012 Book Debt-to-Equity 410/116=3.53 . The change over the period is: 3.53 – 5.087 = -1.557
d. 2009 Market Debt-to-Equity =524/113.4=4.62 . 2012 Market Debt-to-Equity 410/180.2=2.275 . The change over the period is: 2.275-4.62 =-2.345
e. 2009 Enterprise Value = $113.4 - 48 + 524 = $589 billion. 2012 Enterprise Value = $180.2 - 84 + 410 = $506.2 billion. The change over the period is: $506.2 – $589 = - $82.8 billion