Valuation interview questions
17 questions. DCF, cost of capital, enterprise value and multiples: the valuation questions asked in banking, private equity and equity research interviews, each with one answer improved from weak to strong.
- Walk me through a DCF.
- What is WACC and how do you calculate it?
- What is the difference between enterprise value and equity value?
- How would you value a company?
- Two companies have the same earnings but trade at different P/E multiples. Why?
- When would you not use a DCF to value a company?
- How do you calculate terminal value in a DCF?
- How do you get from revenue to unlevered free cash flow?
- How do you calculate the cost of equity?
- What is beta, and why would you unlever and relever it?
- Why do you subtract cash to get enterprise value, and can enterprise value be negative?
- Walk me through a comparable company analysis.
- Which valuation method usually gives the highest value, and why?
- When would you use EV/EBITDA instead of P/E?
- How do you calculate diluted shares with the treasury stock method?
- How would you value a company that is losing money?
- Why is debt cheaper than equity?
What these questions test
- Whether you can walk through a method in order, in about a minute, without being led.
- Whether you know what each number means: what a discount rate pays for, who a cash flow belongs to, what a multiple compares.
- Whether you can say when a method breaks and what you would use instead.
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