Ruth's Chris Steak House Is a Chain of Restaurants That

question 53

Essay

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.
Required:
Develop an estimate of the market capitalization (market value of equity) of RCSH in August 2005 and explain your reasoning.

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Definitions:

Percent Equivalent

A way of expressing a number as a fraction of 100, denoting it with the symbol "%."

Significant Figures

The numbers of digits in a value that contribute to its precision, including all digits except leading and trailing zeros.

Accurate

Without inaccuracies or flaws; exact.

Repeating Decimal

A decimal fraction in which a sequence of digits repeats indefinitely.