"How do you value a company?"
This broad question tests whether you understand the toolkit of valuation methodologies and when to apply each one.
List the three primary methods: DCF, comparable companies, precedent transactions.
Briefly explain each methodology.
Discuss when each is most appropriate.
Mention that you triangulate across methods.
There are three primary valuation methods. DCF (intrinsic value): discount projected free cash flows to present value — best for stable companies with predictable cash flows. Comparable Company Analysis (relative value): apply trading multiples (EV/EBITDA, P/E) from similar public companies — fast and market-based but dependent on finding true comparables. Precedent Transaction Analysis: look at multiples paid in similar M&A deals — includes a control premium but may reflect different market conditions. I always use at least two methods and triangulate. For a mature SaaS company, I might weight DCF at 40%, comps at 40%, and precedents at 20%. The right approach depends on the company stage, industry, and purpose of the valuation.
Show you understand when each method is most appropriate.
Mention the football field chart for presenting valuation ranges.
Be ready to dive deeper into any method the interviewer asks about.
None is universally accurate. DCF is most theoretically sound but most sensitive to assumptions. Using multiple methods and triangulating gives the most reliable range.
EV/EBITDA is the most universal. EV/Revenue for high-growth companies. P/E for mature companies. Industry-specific multiples exist too (EV/subscribers for media).
Same industry, similar size, similar growth profile, same geography. Use 5-10 companies. Remove outliers. Consider both broad and narrow peer sets.
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