Valuation Interview Questions

What are the three main valuation methodologies used in investment banking?

What is the difference between Enterprise Value and Equity Value?

Name the components of Total Enterprise Value (TEV).

How do you calculate the cost of stock (cost of equity) from P/E?

Why would a company choose to issue stock over debt?

If EV/Sales = 2x and EV/EBITDA = 8x, what's the EBITDA margin?

Can Enterprise Value be negative?

Can Equity Value be negative?

Can shareholders' equity on the balance sheet be negative?

What's the difference between growth CapEx and maintenance CapEx?

A company has $300M EBITDA growing at 15% per year. What's EBITDA in 5 years (mental math)?

Would you rather receive $1,000 today or $100 every year into perpetuity?

What does the P/E ratio tell you?

What's the difference between LTM and NTM, and when do you use each?

Why is EV/EBITDA preferred over P/E for cross-company comparisons?

When would you use EV/Revenue instead of EV/EBITDA as your primary valuation multiple?

Why do precedent transaction multiples typically exceed comparable company multiples?

What is a football field valuation chart and what does it show?

How do net operating loss carryforwards (NOLs) affect valuation in an M&A context?

How do you calculate diluted shares outstanding using the treasury stock method?

How do you select comparable companies for a comps analysis?

Why do you add minority interest to enterprise value?

What are 5 less-common valuation methodologies?

Calculate the PEG ratio: Share price = $19.67, NI = $34.1M, Expected EPS = $0.89, expected EPS growth = 12%.

A company has $2B in assets, D/E ratio of 3x, and trades at 2x P/B. What's the market cap?

A company has EV/EBITDA = 10x, Net Debt/EBITDA = 4x, and Equity Value = $300M. What's net debt?

Company B has $100 in assets, $60 in liabilities, $30 of existing goodwill, and EBITDA of $50. Acquired at 10x EBITDA. What's the pro-forma goodwill?

A company has $100M in revenue and $20M in EBITDA with a 50% variable / 50% fixed cost structure. If revenue grows 10%, by how much does EBITDA grow?

A company borrows $100 of debt to pay a $100 dividend. How does this affect Enterprise Value?

Calculate Enterprise Value: EPS = $2, shares outstanding = 100M, P/E = 4x, Debt = $200, NCI = $75, Cash = $50, Inventory = $100.

A company trades at 5x EV/Revenue, has $50M revenue, $100M senior debt, $200M junior debt, and $200M cash. What's its equity value?

Given NI = $20, Cash = $30, P/E = 11x, Debt = $50, EV/EBITDA = 8x — calculate EBITDA.

What kind of industries or companies would have EBITDA close to Net Income?

Would you rather increase price by $1/unit or increase the volume of units sold to value a business?

How does a $500M loan affect EV, and what if $50M of it is used to buy a factory?

The market average P/E is ~25x. Does NVIDIA trade above or below this — and why? What about GE?

What's the difference between pre-money and post-money valuation?

Walk me through the full Enterprise Value to Equity Value bridge.

What is the beta of Bitcoin?

What are the differences between Cash Flow from Operations and Unlevered Free Cash Flow?

What are the differences between EBITDA and Cash Flow from Operations?

Two identical companies — one finances assets with capital leases, the other with operating leases. Which is the better investment based on EV/EBITDA?

How would WACC differ if you were valuing a company in Brazil vs the US?

What are the pros and cons of using EBITDA as the proxy for value?

A company has ROA of 10%, financed 50% debt / 50% equity at 5% cost of debt. What's the cost of equity?

How does a dividend issuance impact P/E, EV/EBITDA, and P/BV ratios?

One precedent transaction had a 10x EV/EBITDA selling multiple while another was 5x. Both same industry. List reasons.

What are the main weaknesses of a DCF analysis?

A company trades at 20x NTM EBITDA but its growth is decelerating. How do you think about whether this multiple is justified?

What is a sum-of-the-parts (SOTP) valuation and when do you use it?

What is calendarization and why does it matter for comps?

Company A and Company B each have $100M in revenue. A acquires B and the pro-forma revenue becomes $300M with no revenue synergies. How is this possible?

A company has P/E of 20x, EV/EBITDA of 10x, interest expense of $20M (at 5% rate), $20M of depreciation, and market cap of $200M. What's the tax rate?

ParentCo owns 100% of private CoffeeCo (EBITDA $100M) and 80% of public DonutCo (EBITDA $200M, trading at 5x). ParentCo: 100M shares at $10, $500M debt, $200M cash. What multiple does the market implicitly assign to CoffeeCo?

A company has 10,000 shares at $20, 100 options at a $10 strike, 50 RSUs outstanding, and 100 convertible bonds at $1,000 par with a $10 conversion price. Calculate diluted shares.

Would you rather have a 10% increase in price, 10% decrease in costs, or 10% increase in volume?

How would you value a company with negative cash flows (or no revenue yet)?

When would INCREASING WACC actually INCREASE your DCF valuation?

A company issues a surprise dividend using excess cash. What happens to its intrinsic P/E ratio?

CapEx +$100 makes your DCF EV fall. But the EV equation says EV goes UP when you convert $100 of cash to a capital asset. Explain.

Name 3 ways lowering the corporate tax rate affects a DCF. What's the net effect?

A company has Debt/EBITDA = 5x and Interest Coverage Ratio = 5x. Tax rate = 50%. What's the after-tax interest rate on the debt?