Deliberate Practice: Dairy Queen 1997

In a first of what should be a long and educational series, Whopper Investments has a valuation exercise on Dairy Queen in 1997 right before Warren Buffett bought it. This post outlines how much I would have paid for it from an EV point of view.

DQ is a franchise business selling fast foods and dairy products. Financials suggest it is a steady business with pricing power. Based on the table below, I estimate paying for earnings before taxes of about $55M / year. 

	1996
Income before income taxes	56,745,147
EV multiple	12.5
EV = EBIT * Multiple	$709,314,338
Debt	$24,760,321
Cash and cash equivalents	$38,384,589
Equity Value	$646,169,428
Outstanding Shares	22,122,240
Price Per Share	$29

I would not want to pay for more than 15 times earnings, so I expect that EV is not more than $850M and more than likely to be between $700M - $750M. So the buy out price should not exceed $35 and my preferred price would be between $29 - $30 per share.

Multiple	EV	Equity Value	Price / Share
8	$453,961,176	$390,816,266	$17.67
9	$510,706,323	$447,561,413	$20.23
10	$567,451,470	$504,306,560	$22.80
11	$624,196,617	$561,051,707	$25.36
12	$680,941,764	$617,796,854	$27.93
12.5	$709,314,338	$646,169,428	$29.21
13	$737,686,911	$674,542,001	$30.49
15	$851,177,205	$788,032,295	$35.62