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Valuation interview questions



Valuation interview questions in Investment Banking interviews are tricky. There are a bunch of valuation methods to keep track of. Your interviewer has a lot more experience than you. There is little to no room for error. Having gone through the recruiting process and having worked in Investment Banking ourselves, we have compiled the core concepts you need to get a hold of if you want to succeed in an Investment Banking interview. Scroll down to read through the most common valuation interview questions.


Remember that valuation interview questions are just one part of Investment Banking interviews. You still need a basic understanding of accounting and have your fit questions sorted out.



The most common valuation interview questions

Enterprise value and equity value

What’s Enterprise Value and what does it mean?

Market Cap (or Equity Value) + Debt – Cash (more advanced: Market Cap + Debt + Preferred Stock + Minority Interest – Cash). It is a valuation available to both bond and equity holders as it includes Net Debt and can be derived using Sales or EBITDA multiples.

Why do we add Debt and subtract Cash?


Valuation methods

What valuation methods do you know? What are the most common valuation methods you know?

Which valuation method yields the highest valuation?

How would you value a company with negative cash flows?

Who would pay more for a deal? A strategic investor or private equity investor?

Why would a company rather use stocks vs. cash to fund the transaction?

What are synergies in a transaction?

What does it mean if a transaction is accretive?


Multiple valuation

What are the most common multiples you know?

When would you use a revenue multiple vs. an EBITDA multiple?

When would you use an EBIT multiple vs. an EBITDA multiple?

Estimate the Enterprise Value of a company. You have 3x LTM Sales and 10x LTM EBITDA and an LTM Income Statement

What are the advantages and disadvantages of using multiples from comparable companies?


DCF

Walk me through a DCF

What are the flaws of a DCF?

How do you calculate the discount rate?

What is usually higher – cost of debt or cost of equity?


Additional resources


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