During your investment banking interviews, it is likely you will be asked to, "explain how companies are valued?"
The valuation methodologies you should be familiar with include:
- Discounted Cash Flow (DCF)
- Comparable Companies
- Precedent Transactions
- Multiples Method
- Market Valuation
These are the top ten valuation method questions.
- Name some valuation methods.
- What are some of the multiples used in valuation?
- Can you use Equity Value / EBITDA as a multiple?
- What are some other invalid multiples?
- How do the valuation methods work?
- Which valuation method gives the highest valuation? Comparable companies, DCF, Precedent transaction, or LBO?
- If you use numerous valuation methods that produce different results, how do you come up with on final value?
- A company similar to mine has a P/E ratio of 10. My EPS is $4. What should my share price be?
- Three Precedent Transactions had EBITDA multiples of 12x, 8x, and 10x. My company has EBITDA of $1 Billion. What is my company’s Enterprise Value?
- A comparable company has an equity value / EBITDA multiple of 14x. My company’s EBITDA is $40 million. What’s the value of my company?
To be familiar with a valuation means:
- Be able to walk someone through the steps/process of performing this type of valuation
- Know and understand any and all related finance equations
- Know which method gives the highest or lowest valuation
- Have a minimum of three pros and cons of each type of valuation