New York University ACCT-UB ACCT-UB 203 Ruth’s Chris Steak House is a chain of restaurants that began 43 years ago as a single location in New Orleans and has grown to more than 90…
Ruth’s Chris Steak House is a chain of restaurants that began 43 years ago as a single location in New Orleans and has grown to more than 90 restaurants. RCSH went public, with an initial public offering of stock (IPO) in August 2005. A question at the time of the IPO was how to value the company, given available information. Ruth’s had sales of $192.2 million in 2004, earnings of $23.3 million, and net debt less cash of $117 million. One analyst chose to use the enterprise value of comparable companies, noting that Smith and Wollensky Restaurant Group (another chain of steak restaurants) had a ratio of enterprise value to sales of 70 percent. Another restaurant chain, Morton’s, had recently gone private and, in the last year as a public company, had an enterprise ratio to sales of 80 percent.
Develop an estimate of the market capitalization (market value of equity) of RCSH in August 2005 and explain your reasoning.
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