CFA® Level I question of the day
29 October 2026 · Equity Investments
Orrin Robotics has 90 million shares outstanding at $28.00, debt of $1,100 million and cash of $320 million. Its EBITDA is $440 million. Comparable companies trade at a median EV/EBITDA of 8.2x. Sofia Mendes, an equity analyst, wants to judge how Orrin is priced relative to its peers. What is Orrin's EV/EBITDA multiple, and how does it compare with the peer median?
Show the answer and explanation
Answer: C. 7.5x, a discount to the peer median
EV/EBITDA = Enterprise value / EBITDA, where EBITDA is profit before interest, tax, depreciation and amortisation. Market capitalisation = 90 million x $28.00 = $2,520 million. Enterprise value = Market capitalisation + Debt - Cash = 2,520 + 1,100 - 320 = $3,300 million. EV/EBITDA = 3,300 / 440 = 7.5x. That is below the peer median of 8.2x, so Orrin trades at a discount. Dividing market capitalisation alone by EBITDA gives 5.7x, ignoring lenders' claims. Adding cash gives 9.0x, a false premium. A discount may reflect weaker growth or heavier spending needs, so it is a starting point, not a buy signal.
- A. 9.0x, a premium to the peer median - Cash has been added to enterprise value instead of deducted (2,520 + 1,100 + 320 = 3,940). Enterprise value nets cash against debt, so adding it overstates the multiple and flips the verdict.
- B. 5.7x, a discount to the peer median - Equity value (market capitalisation) was divided by EBITDA. EBITDA is earned before interest, so the numerator must include debt and exclude cash; the shortcut gives a multiple that is too low.
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