The industry average P/E for the athletics and apparel industry is 18.8. Estimate the fair value of Nike's shares based on the industry average multiple and the data supplied in the table, below. $$\begin{array} { | l | l | }
\hline \text { Price } & \$ 65 \
\hline \text { EPS } & \$ 3 \
\hline \text { Debt } & \$ 545 \mathrm { M } \
\hline \text { Equity } & \$ 9,087 \mathrm { M } \
\hline \text { Cash } & \$ 3,630 \mathrm { M } \
\hline \text { EBITDA } & \$ 2,770 \mathrm { M } \
\hline \text { Shares } & 487 \mathrm { M } \
\hline
\end{array}$$

Question

The industry average P/E for the athletics and apparel industry is 18.8. Estimate the fair value of Nike's shares based on the industry average multiple and the data supplied in the table, below. $$\begin{array} { | l | l | } 
\hline \text { Price } & \$ 65 \
\hline \text { EPS } & \$ 3 \
\hline \text { Debt } & \$ 545 \mathrm { M } \
\hline \text { Equity } & \$ 9,087 \mathrm { M } \
\hline \text { Cash } & \$ 3,630 \mathrm { M } \
\hline \text { EBITDA } & \$ 2,770 \mathrm { M } \
\hline \text { Shares } & 487 \mathrm { M } \
\hline
\end{array}$$

Quizplus · Accepted Answer

The fair value of Nike's shares can be estimated using the industry average P/E multiple of 18.8. The P/E ratio is calculated by dividing the current market price of a share by its annual earnings per share. In this case, Nike's current market price is $65 and its annual EPS is $3. Therefore, Nike's P/E ratio is 65/3 = 21.67.To estimate the fair value of Nike's shares, we can multiply the industry average P/E multiple by Nike's annual EPS. Therefore, the fair value of Nike's shares is 18.8 * 3 = $56.40.

The Industry Average P/E for the Athletics and Apparel Industry