Valuation Interview Questions

Valuation questions test whether you understand what a company is worth and why the metrics are built the way they are. Expect enterprise value mechanics, multiples, and the judgment calls behind comps.

14 questions

Advanced questions

Superday-level questions with full model answers.

All practice questions

Why do you subtract cash when calculating enterprise value? Give both the practical (acquirer) reason and the conceptual (non-operating asset) reason.
  • Define enterprise value and equity value in one sentence each, making the claimholder distinction explicit.
  • A company has 120M shares at $15.00, $500M of debt, and $300M of cash. Calculate equity value and enterprise value.
  • Why must EV be paired with EBITDA or EBIT, and equity value with net income? What specifically goes wrong if you compute Equity Value / EBITDA across two companies with different leverage?
  • A company issues $250M of new equity and leaves the proceeds in cash. Walk through the effect on equity value, net debt, and enterprise value.
  • A company has 90M basic shares at $40.00, with 12M options struck at $28.00 and 5M options struck at $55.00. Compute fully diluted shares under the treasury stock method and the resulting equity value.
  • Can enterprise value be negative? Can market equity value? Explain each answer and describe a real-world situation where negative EV occurs.
  • A company with EV of $2.0B does a $300M debt-funded share buyback. Walk through the effect on debt, cash, equity value, and EV. Then explain two second-order channels through which the buyback could actually move EV.
  • TargetCo: 60M basic shares at $18.00; 9M options struck at $10.00; a $150M convertible with a $22.50 conversion price; $200M straight debt; $250M cash. Compute equity value and EV at the market price, then recompute the fully diluted equity purchase price and EV at a $27.00 takeover offer. Explain why the share counts differ.
  • You find a company with negative enterprise value and positive EBITDA. Why might the market price it this way, why doesn't someone arbitrage it by acquiring the company for its cash, and how would you approach valuing it given EV/EBITDA is meaningless?
Why is minority interest added to enterprise value? Anchor your answer in consolidation accounting and the consistency of EV/EBITDA.
  • Write out the full EV-to-equity bridge, then state the single master rule that determines whether any given item is added or subtracted.
  • Company: share price $45.00, 200M diluted shares, debt $3,000M, cash $700M, preferred $400M, NCI $250M, equity investments $300M. Calculate enterprise value.
  • Is deferred revenue part of net debt? Is accounts payable? Explain what distinguishes an operating liability from a debt-like claim in the bridge.
  • Comps trade at 7.5x EV/EBITDA. Target: EBITDA $400M, debt $1,200M, cash $300M, NCI $100M, associate stake worth $250M, 80M diluted shares. Walk to an implied share price, stating the sign of each adjustment.
  • Explain why equity investments are subtracted from EV while minority interest is added, and show how the two follow from the same consistency principle.
  • A company has a $600M unfunded pension deficit and a 30% tax rate. How does it enter the bridge, why after tax, and what must you check about the EBITDA definition to stay consistent?
  • A parent (equity value $5,000M, net debt $1,500M) owns 70% of a listed subsidiary whose market cap is $2,000M; consolidated EBITDA is $800M including $300M from the sub. Compute EV/EBITDA (a) correctly with NCI at market, (b) incorrectly with no NCI, and (c) on a fully deconsolidated basis, and reconcile why (a) and (c) can both be defended but (b) cannot.
  • DistressCo: 30M shares at $1.80; $500M secured debt trading at 90; $700M unsecured notes trading at 40; cash $120M ($40M restricted); pension deficit $160M, tax rate 25%; EBITDA $130M. Compute market-value EV and EV/EBITDA, then compute the same at face value of debt, and explain what the gap between the two multiples represents and which class of debt is likely the fulcrum if going-concern EV is $850M.
  • You are comping an IFRS 16 reporter (all leases capitalized) against a US GAAP retailer whose operating leases are expensed through EBITDA. Their headline EV/EBITDA multiples are 8.0x and 6.5x. Explain precisely why these are not comparable, and lay out two internally consistent ways to fix the comparison.
Why is EV/EBITDA considered capital-structure neutral, while P/E is not?
  • Write the formula for EV/EBITDA, EV/EBIT, P/E, and EV/Revenue, and state which value measure (EV or Equity Value) each performance measure must pair with and why.
  • A company has EV of $3,500M, Revenue of $1,750M, EBITDA of $437.5M, EBIT of $306.25M, Equity Value of $2,900M, and Net Income of $145M. Compute all four multiples.
  • When would you prefer EV/EBIT over EV/EBITDA? Give the specific distortion EV/EBIT corrects for.
  • Why is EV/Revenue used mainly as a fallback rather than a primary valuation tool? What information does it fail to capture?
  • Two companies have identical EBITDA and EV, but Company A has $15M of D&A and Company B has $70M of D&A. Compute EV/EBIT for both given EV of $1,200M and EBITDA of $150M for each, and explain what the divergence tells you.
  • Explain the difference between an LTM multiple and an NTM multiple, and describe a scenario where comparing one company's LTM multiple to another's NTM multiple would mislead you.
  • Company X is unlevered with EBIT of $250M, a 25% tax rate, and no interest expense. Company Y has the same EBIT and tax rate but $60M of annual interest expense. Both trade at a P/E of 12.0x. Compute each company's net income, equity value, and (assuming both hold $300M of cash and Company Y carries $750M of debt supporting that interest expense) each company's EV and EV/EBIT. Explain why the identical P/E is misleading.
  • A company has negative LTM EBITDA of −$20M but Revenue of $400M and 70% gross margins, growing 40% annually. Walk through how you would approach valuing it with multiples, including what you would and would not trust EV/Revenue to tell you.
  • TargetCo trades at EV of $5,000M with LTM EBITDA of $500M and NTM (consensus) EBITDA of $575M. A colleague compares TargetCo's EV/NTM EBITDA to a peer's EV/LTM EBITDA of 11.0x and concludes TargetCo is cheaper. Compute TargetCo's EV/NTM EBITDA, identify the analytical error, and explain what additional data you'd need to make a fair comparison.
Why do you normalize a peer's EBITDA for one-time items before computing its multiple? Give two specific examples of items you'd adjust for.
  • List the five steps of building a trading comps analysis, in order.
  • Name four criteria (beyond 'same industry') you'd use to select peer companies, and explain why industry classification alone is an insufficient filter.
  • You have three peers with EV/EBITDA multiples of 9.0x, 10.5x, and 7.5x. SubjectCo has LTM EBITDA of $140M. Compute the median and mean implied EV.
  • A peer reports LTM EBITDA of $220M, including a $30M restructuring charge and a $12M one-time gain on a divestiture. Compute normalized EBITDA and, given an EV of $1,980M, compute the multiple on both reported and normalized EBITDA.
  • Why must every peer in a comp set use the same time basis (LTM or NTM)? Describe a scenario where mixing bases would distort your conclusion.
  • Explain why a smaller, less liquid public company often trades at a structurally lower multiple than a larger peer with similar growth and margins. How should this affect the multiple you apply to a smaller subject company?
  • One peer in your five-company comp set is rumored to be a near-term acquisition target and trades at a multiple 4 turns above the rest of the set. Walk through how you'd handle it in your analysis, and what you'd say if a colleague wanted to include it in the median unadjusted.
  • SubjectCo has LTM EBITDA of $110M. Your four peers have EV/EBITDA multiples of 9.2x, 8.8x, 14.5x (rumored buyout target: exclude), and 7.9x, with EBITDA sizes of $150M, $95M, $180M, and $40M respectively. SubjectCo's EBITDA is closest in scale to the two mid-sized peers. Compute the appropriate median from the clean peer set, apply a reasoned size-based judgment, and derive an implied EV range for SubjectCo.
  • Your comps analysis implies an EV about 25% above your independently built DCF for the same company. Walk through the specific steps you'd take to diagnose the gap before presenting either number to a deal team.
Define control premium and write the formula. Against which share price should it be measured, and why?
  • Define precedent transactions analysis and explain the one key economic difference between what it measures versus trading comparables.
  • A target's undisturbed share price was $18.00. An acquirer offers $23.40 per share in cash. Compute the control premium.
  • Would you expect precedent transaction multiples to be higher or lower than trading comp multiples for similar companies in the same period? Explain the mechanism.
  • Explain why a strategic acquirer might pay a higher multiple than a financial sponsor for the same target, and how you would adjust a strategic-buyer precedent multiple to make it more comparable to a standalone valuation.
  • A precedent deal was announced at $2,000M EV against target LTM EBITDA of $175M. The acquirer disclosed $35M of run-rate synergies. Compute the headline multiple and the synergy-adjusted multiple.
  • Why does the 'look-back window' matter more for precedent transactions than for trading comps? Give a specific example of market conditions that would make an older deal a poor precedent today.
  • A stock-for-stock deal is announced with a fixed exchange ratio of 0.65 acquirer shares per target share. At announcement, the acquirer trades at $60.00 and the target's undisturbed price was $28.00. Compute the implied offer value and the headline control premium. If the acquirer's stock later falls to $52.00 before closing, compute the implied offer value and premium at that price, and explain what this means for target shareholders in a fixed exchange ratio deal.
  • You're building a precedent transactions analysis for a niche industrial sub-sector and can only find five deals over the last eight years, one from 2018 (peak credit conditions) and one from 2023 (recent, tighter credit conditions) at very different multiples. Walk through how you would weight, present, and caveat this set for a deal team relying on it today.
  • A target with normalized LTM EBITDA of $120M is acquired by a financial sponsor for $960M EV, and by comparison, a different but similar target was acquired the same year by a strategic buyer for $1,320M EV against $110M of normalized LTM EBITDA with $30M of disclosed synergies. Compute both headline multiples and the strategic deal's synergy-adjusted multiple, then explain which precedent is more relevant if you are valuing a company that realistically will only attract financial sponsor interest.
Why is Equity Value/EBITDA never a valid multiple? Use the claimholder-matching logic to explain, not just 'it's not done.'
  • State the general apples-to-apples rule for pairing a value measure with a performance measure, and derive it from the income statement waterfall (Revenue down to Net Income).
  • A company has EV of $1,800M, EBITDA of $220M, Equity Value of $1,500M, and Net Income of $90M. Compute EV/EBITDA and P/E, and explain why Equity Value/EBITDA would not be a valid multiple to compute here even though the numbers exist.
  • A pre-revenue biotech has no EBITDA and no meaningful revenue yet. What approach would you take to valuing it, given that standard multiples don't apply?
  • Why don't banks and insurers typically use EV-based multiples? What do they use instead, and why?
  • Explain why REITs use FFO and AFFO instead of net income-based metrics, and confirm whether P/FFO is an EV-side or equity-side multiple.
  • A REIT has Net Income of $55M including $80M of real estate depreciation and a $8M one-time gain on a property sale. Compute FFO (before the one-time gain) and, given an Equity Value of $1,200M, compute P/FFO.
  • ParentCo owns 65% of SubCo and consolidates 100% of its financials. Consolidated EBITDA is $600M (including a $30M one-time restructuring charge to normalize out). ParentCo has Equity Value of $2,400M, Debt of $700M, Cash of $200M, and the estimated fair value of the 35% minority interest is $310M. Build the correct EV bridge, normalize EBITDA, and compute the properly matched EV/EBITDA multiple. Then explain the two specific errors a colleague would make if they omitted minority interest from EV and used un-normalized EBITDA.
  • A commercial bank trades at 0.9x tangible book value with an ROE of 8% against a cost of equity of 11%. Explain what multiple(s) you would use to assess this bank, why EV/EBITDA is inappropriate, and what the sub-1.0x P/TBV likely signals given the ROE/cost-of-equity relationship.
  • A SaaS company has EBITDA of −$25M, Revenue of $150M growing 50% annually, and ARR of $135M with 88% gross margin, at an EV of $1,350M. A junior analyst insists on computing EV/EBITDA anyway and gets a multiple of −54.0x. Explain why this number is meaningless, what multiple(s) you would use instead, and compute them.
Explain the economic difference between trading comps and precedent transactions, and why precedents typically imply a higher multiple for the same underlying business.
  • Walk through, in order, how you would build a full valuation of a private company from scratch, naming every methodology from this module and what each one solves for.
  • Why does enterprise value serve as the common basis across nearly every valuation methodology, with P/E as the one notable equity-level exception?
  • Why is a DCF's terminal value the single most sensitive component of the entire valuation, and what two inputs deserve the most scrutiny as a result?
  • Your DCF and your comps analysis disagree by more than 20% at the midpoint. Describe the diagnostic process you'd run before concluding one is simply wrong.
  • A company is being prepped for both an IPO and, separately, a sponsor is exploring a take-private. Explain why the appropriate valuation anchor differs between the two situations.
  • Comps imply EV of $500-560mm and a DCF sensitivity implies EV of $540-610mm on a company with net debt of $120mm and 40mm diluted shares. Bridge both to a per-share range and state where the two methods corroborate.
  • A DCF's Gordon growth terminal value implies a 15x exit EBITDA multiple, but the comp set trades at 9x-10x today. Terminal FCF is $100mm, WACC is 9%. Identify the inconsistency, propose a fix to terminal growth, and recompute the implied multiple to confirm it now falls inside the comp range.
  • A valuation package has net debt of $600mm including $100mm of capitalized operating leases that the comp set's EBITDA does not add back, and a basic share count of 90mm ignoring 8mm of in-the-money options struck at $12 with the stock at $20. Comps of 7.5x-8.5x apply to forward EBITDA of $300mm. Recompute the correct per-share comps range after fixing both the net debt and share count errors, and quantify how much the original (uncorrected) analysis overstated or understated per-share value.
  • You are in a deal team meeting the night before a pitch. Precedents imply $2.6-2.9bn EV, comps imply $2.1-2.3bn EV, the DCF implies $2.3-2.7bn EV, and an LBO ability-to-pay analysis caps at $2.4bn EV. The target has net debt of $400mm and 100mm diluted shares. Construct the full football field on a per-share basis, explain the ordering of the bars, and give your recommended price range with reasoning for how you weighted each methodology.