How would you value a company?

I'd use three core methodologies—comparable companies analysis for market-based relative value, precedent transactions for M&A-based value including a control premium, and a DCF for intrinsic value based on projected free cash flows—then triangulate the ranges on a football field chart.

Given a set of selected comparable companies and their median multiples for valuing a private fraud prevention company, which multiple do you use to value the company and why?

Use EV / NTM Revenue because fraud prevention is a high-growth software sector where many companies are unprofitable, making revenue the most consistently positive and comparable metric across the comp set. If the company is meaningfully EBITDA-positive, you can use EV / EBITDA as a secondary cross-check, but EV / NTM Revenue should be the primary multiple.

Walk through the 3 financial statements when PP&E sells for $150mm when book value is $100mm. Assume a 20% tax rate.

Net income increases $40mm, cash increases $140mm, and total assets and shareholders' equity each increase $40mm. The gain is $50mm: the $150mm sale price less the $100mm book value, which is what the asset is carried at on the balance sheet after accumulated depreciation. At a 20% tax rate that gain adds $40mm to net income and sends $10mm out the door as tax. Cash picks up the full $150mm of proceeds less that $10mm. The balance sheet still balances, because cash is up $140mm while the PP&E line comes off at its $100mm book value.

Tell me four reasons a company would trade at a higher P/E than another company.

A company trades at a higher P/E due to (1) higher expected earnings growth, (2) lower risk or cost of equity, (3) a higher payout ratio, or (4) temporarily depressed current earnings deflating the denominator.

Would a lower P/E company acquiring a higher P/E company be accretive or dilutive (assume all stock, but can talk about consideration)? Is this always the case, and what could change that answer?

Dilutive, before synergies and other deal adjustments. In an all-stock deal, a buyer with a lower P/E (share price divided by earnings per share) issues shares valued at a low multiple to buy earnings priced at a higher one. Its earnings per share (EPS) fall. Synergies, or paying partly with cash or debt, can make the deal accretive, meaning EPS rise. A lower purchase price reduces the dilution.

Why do we use EV/Revenue as a valuation multiple?

We use EV/Revenue when earnings-based multiples like EV/EBITDA are meaningless—typically for unprofitable or early-stage companies—because Revenue is almost always positive and capital-structure-neutral, though it implicitly embeds assumptions about future margins.

Suppose you invest $100 upfront for the chance to flip a coin once every year for 10 years, where heads earns you $100 and tails earns nothing. After valuing this coin using a DCF approach, a client asks: why do we need to apply a discount rate when valuing this coin? How do you explain it to them?

The discount rate accounts for the time value of money, a risk premium for the uncertainty of each coin flip, and the opportunity cost of deploying capital here instead of the next-best alternative investment.

What happens to valuation when we move from straight-line depreciation to an accelerated depreciation schedule?

Valuation rises, assuming the accelerated schedule applies for tax and the company pays taxes. Total depreciation over the asset's life stays the same. Accelerated depreciation moves more of it into the early years, so the tax savings arrive sooner, and cash received sooner is worth more in present value. Reported net income is lower in the early years, but cash flow is higher, and a DCF values cash flow, not net income.

Company A has EV/EBITDA 8x, EBITDA 200, leverage ratio 3x, and 100 shares outstanding. Company B has EV/EBITDA 6x, EBITDA 100, leverage ratio 4x, and 50 shares outstanding. If Company A buys Company B in an all-stock deal and pays 7x EBITDA, what is the price per share?

Company A pays $6.00 per Company B share. At 7x EBITDA, Company B's enterprise value (what the whole business is worth to lenders and shareholders together) is 7 × 100 = 700. Debt is 4x EBITDA, or 400. That leaves 300 of equity value for B's 50 shares, which is $6.00 per share. Paying in stock changes how A pays. The price stays the same: A issues its own shares worth that amount.

Suppose you have a company that is generating $50mm in EBITDA and trades at 4x. It has $100mm in senior debt and $200mm in junior debt. What is the equity value? What do you think the debt is trading at? Why?

Equity value is zero since the $200mm TEV cannot cover $300mm in total debt; senior debt trades at par (fully covered), while junior debt—the fulcrum security—trades around 50 cents on the dollar.

Why do we not take Price/Revenue or Equity Value/EBITDA?

Because the top and bottom of a multiple have to describe the same claim on the business. Revenue and EBITDA (earnings before interest, taxes, depreciation and amortization) are struck before any interest is paid, so they belong to everyone who funded the company, lenders and shareholders alike. That whole-company value is Enterprise Value. Equity Value is what is left for shareholders once the lenders have been paid, so putting it over a pre-interest metric like Revenue or EBITDA sets a partial claim against a full-company profit stream.

Company A has 10 shares outstanding, a share price of $25, net income of $10, and a 40% tax rate. Company B has a $150 market cap, net income of $10, and a 40% tax rate. If A buys B and finances the acquisition with 100% stock, is the deal accretive or dilutive?

Accretive. Company A's earnings per share (EPS, net income divided by shares outstanding) rises from $1.00 to $1.25, up 25%. Assuming A pays B's $150 market value with no premium, it issues $150 ÷ $25 = 6 new shares, so the combined $20 of net income is spread over 16 shares. The shortcut: A's stock trades at 25x earnings (its P/E, or price-to-earnings ratio) and it buys B at 15x. Paying with stock for earnings priced below your own P/E is accretive.

How would you value a company?

I'd use three core methodologies—comparable companies analysis for market-based relative value, precedent transactions for M&A-based value including a control premium, and a DCF for intrinsic value based on projected free cash flows—then triangulate the ranges on a football field chart.

Given a set of selected comparable companies and their median multiples for valuing a private fraud prevention company, which multiple do you use to value the company and why?

Use EV / NTM Revenue because fraud prevention is a high-growth software sector where many companies are unprofitable, making revenue the most consistently positive and comparable metric across the comp set. If the company is meaningfully EBITDA-positive, you can use EV / EBITDA as a secondary cross-check, but EV / NTM Revenue should be the primary multiple.

Walk through the 3 financial statements when PP&E sells for $150mm when book value is $100mm. Assume a 20% tax rate.

Net income increases $40mm, cash increases $140mm, and total assets and shareholders' equity each increase $40mm. The gain is $50mm: the $150mm sale price less the $100mm book value, which is what the asset is carried at on the balance sheet after accumulated depreciation. At a 20% tax rate that gain adds $40mm to net income and sends $10mm out the door as tax. Cash picks up the full $150mm of proceeds less that $10mm. The balance sheet still balances, because cash is up $140mm while the PP&E line comes off at its $100mm book value.

Tell me four reasons a company would trade at a higher P/E than another company.

A company trades at a higher P/E due to (1) higher expected earnings growth, (2) lower risk or cost of equity, (3) a higher payout ratio, or (4) temporarily depressed current earnings deflating the denominator.

Would a lower P/E company acquiring a higher P/E company be accretive or dilutive (assume all stock, but can talk about consideration)? Is this always the case, and what could change that answer?

Dilutive, before synergies and other deal adjustments. In an all-stock deal, a buyer with a lower P/E (share price divided by earnings per share) issues shares valued at a low multiple to buy earnings priced at a higher one. Its earnings per share (EPS) fall. Synergies, or paying partly with cash or debt, can make the deal accretive, meaning EPS rise. A lower purchase price reduces the dilution.

Why do we use EV/Revenue as a valuation multiple?

We use EV/Revenue when earnings-based multiples like EV/EBITDA are meaningless—typically for unprofitable or early-stage companies—because Revenue is almost always positive and capital-structure-neutral, though it implicitly embeds assumptions about future margins.

Suppose you invest $100 upfront for the chance to flip a coin once every year for 10 years, where heads earns you $100 and tails earns nothing. After valuing this coin using a DCF approach, a client asks: why do we need to apply a discount rate when valuing this coin? How do you explain it to them?

The discount rate accounts for the time value of money, a risk premium for the uncertainty of each coin flip, and the opportunity cost of deploying capital here instead of the next-best alternative investment.

What happens to valuation when we move from straight-line depreciation to an accelerated depreciation schedule?

Valuation rises, assuming the accelerated schedule applies for tax and the company pays taxes. Total depreciation over the asset's life stays the same. Accelerated depreciation moves more of it into the early years, so the tax savings arrive sooner, and cash received sooner is worth more in present value. Reported net income is lower in the early years, but cash flow is higher, and a DCF values cash flow, not net income.

Company A has EV/EBITDA 8x, EBITDA 200, leverage ratio 3x, and 100 shares outstanding. Company B has EV/EBITDA 6x, EBITDA 100, leverage ratio 4x, and 50 shares outstanding. If Company A buys Company B in an all-stock deal and pays 7x EBITDA, what is the price per share?

Company A pays $6.00 per Company B share. At 7x EBITDA, Company B's enterprise value (what the whole business is worth to lenders and shareholders together) is 7 × 100 = 700. Debt is 4x EBITDA, or 400. That leaves 300 of equity value for B's 50 shares, which is $6.00 per share. Paying in stock changes how A pays. The price stays the same: A issues its own shares worth that amount.

Suppose you have a company that is generating $50mm in EBITDA and trades at 4x. It has $100mm in senior debt and $200mm in junior debt. What is the equity value? What do you think the debt is trading at? Why?

Equity value is zero since the $200mm TEV cannot cover $300mm in total debt; senior debt trades at par (fully covered), while junior debt—the fulcrum security—trades around 50 cents on the dollar.

Why do we not take Price/Revenue or Equity Value/EBITDA?

Because the top and bottom of a multiple have to describe the same claim on the business. Revenue and EBITDA (earnings before interest, taxes, depreciation and amortization) are struck before any interest is paid, so they belong to everyone who funded the company, lenders and shareholders alike. That whole-company value is Enterprise Value. Equity Value is what is left for shareholders once the lenders have been paid, so putting it over a pre-interest metric like Revenue or EBITDA sets a partial claim against a full-company profit stream.

Company A has 10 shares outstanding, a share price of $25, net income of $10, and a 40% tax rate. Company B has a $150 market cap, net income of $10, and a 40% tax rate. If A buys B and finances the acquisition with 100% stock, is the deal accretive or dilutive?

Accretive. Company A's earnings per share (EPS, net income divided by shares outstanding) rises from $1.00 to $1.25, up 25%. Assuming A pays B's $150 market value with no premium, it issues $150 ÷ $25 = 6 new shares, so the combined $20 of net income is spread over 16 shares. The shortcut: A's stock trades at 25x earnings (its P/E, or price-to-earnings ratio) and it buys B at 15x. Paying with stock for earnings priced below your own P/E is accretive.

Question Bank

Valuation Interview Questions

Q: What is the most common valuation question in IB interviews?

"Walk me through a DCF" is asked at almost every bank. The OFFERGOBLIN structured answer format covers the 60-second interview script plus the deeper mechanics so candidates can handle follow-ups about WACC, terminal value, and free cash flow.

Q: Do I need to memorize multiples for IB interviews?

Yes. Candidates should know EV/EBITDA, EV/Revenue, P/E, and a few sector-specific multiples cold. OFFERGOBLIN's valuation category has dedicated cards for each multiple covering when to use it, what it tells you, and what to watch for.

Q: How is terminal value tested in IB interviews?

Interviewers typically ask candidates to explain both the Gordon Growth and Exit Multiple methods, when each is appropriate, and why terminal value usually represents 60-80 percent of enterprise value in a DCF. OFFERGOBLIN drills these questions in adaptive sequences.

DCF, comps, multiples, terminal value, and how to triangulate a defensible price range. The valuation questions OFFERGOBLIN sees across bulge bracket, elite boutique, and middle-market interviews.

Valuation is the centerpiece of every banking technical round. "Walk me through a DCF" and "What multiples do you use?" are the entry-level versions. The harder versions — when does WACC break, why is terminal value 70 percent of enterprise value, why is EV/EBITDA the default versus EV/Revenue — separate strong candidates from weak ones.

OFFERGOBLIN's valuation category covers DCF construction, free cash flow, WACC components, CAPM, terminal value methodology, trading comps, transaction comps, and every major multiple. Questions are sourced from candidate-reported interviews at firms across the street.

Sample Valuation Interview Questions

A short sample from the full bank. Tap an answer to reveal it.

Bank of America
How would you value a company?
I'd use three core methodologies—comparable companies analysis for market-based relative value, precedent transactions for M&A-based value including a control premium, and a DCF for intrinsic value based on projected free cash flows—then triangulate the ranges on a football field chart.
Work full answer in app
FT Partners/ Superday/ FinTech
Given a set of selected comparable companies and their median multiples for valuing a private fraud prevention company, which multiple do you use to value the company and why?
Use EV / NTM Revenue because fraud prevention is a high-growth software sector where many companies are unprofitable, making revenue the most consistently positive and comparable metric across the comp set. If the company is meaningfully EBITDA-positive, you can use EV / EBITDA as a secondary cross-check, but EV / NTM Revenue should be the primary multiple.
Work full answer in app
Bank of America/ Superday/ Energy
Walk through the 3 financial statements when PP&E sells for $150mm when book value is $100mm. Assume a 20% tax rate.
Net income increases $40mm, cash increases $140mm, and total assets and shareholders' equity each increase $40mm. The gain is $50mm: the $150mm sale price less the $100mm book value, which is what the asset is carried at on the balance sheet after accumulated depreciation. At a 20% tax rate that gain adds $40mm to net income and sends $10mm out the door as tax. Cash picks up the full $150mm of proceeds less that $10mm. The balance sheet still balances, because cash is up $140mm while the PP&E line comes off at its $100mm book value.
Work full answer in app
Morgan Stanley
Tell me four reasons a company would trade at a higher P/E than another company.
A company trades at a higher P/E due to (1) higher expected earnings growth, (2) lower risk or cost of equity, (3) a higher payout ratio, or (4) temporarily depressed current earnings deflating the denominator.
Work full answer in app
Goldman Sachs/ Technology
Would a lower P/E company acquiring a higher P/E company be accretive or dilutive (assume all stock, but can talk about consideration)? Is this always the case, and what could change that answer?
Dilutive, before synergies and other deal adjustments. In an all-stock deal, a buyer with a lower P/E (share price divided by earnings per share) issues shares valued at a low multiple to buy earnings priced at a higher one. Its earnings per share (EPS) fall. Synergies, or paying partly with cash or debt, can make the deal accretive, meaning EPS rise. A lower purchase price reduces the dilution.
Work full answer in app
Moelis/ 1st Round/ Generalist
Why do we use EV/Revenue as a valuation multiple?
We use EV/Revenue when earnings-based multiples like EV/EBITDA are meaningless—typically for unprofitable or early-stage companies—because Revenue is almost always positive and capital-structure-neutral, though it implicitly embeds assumptions about future margins.
Work full answer in app
Goldman Sachs/ Superday/ Healthcare
Suppose you invest $100 upfront for the chance to flip a coin once every year for 10 years, where heads earns you $100 and tails earns nothing. After valuing this coin using a DCF approach, a client asks: why do we need to apply a discount rate when valuing this coin? How do you explain it to them?
The discount rate accounts for the time value of money, a risk premium for the uncertainty of each coin flip, and the opportunity cost of deploying capital here instead of the next-best alternative investment.
Work full answer in app
Credit Suisse
What happens to valuation when we move from straight-line depreciation to an accelerated depreciation schedule?
Valuation rises, assuming the accelerated schedule applies for tax and the company pays taxes. Total depreciation over the asset's life stays the same. Accelerated depreciation moves more of it into the early years, so the tax savings arrive sooner, and cash received sooner is worth more in present value. Reported net income is lower in the early years, but cash flow is higher, and a DCF values cash flow, not net income.
Work full answer in app
Morgan Stanley
Company A has EV/EBITDA 8x, EBITDA 200, leverage ratio 3x, and 100 shares outstanding. Company B has EV/EBITDA 6x, EBITDA 100, leverage ratio 4x, and 50 shares outstanding. If Company A buys Company B in an all-stock deal and pays 7x EBITDA, what is the price per share?
Company A pays $6.00 per Company B share. At 7x EBITDA, Company B's enterprise value (what the whole business is worth to lenders and shareholders together) is 7 × 100 = 700. Debt is 4x EBITDA, or 400. That leaves 300 of equity value for B's 50 shares, which is $6.00 per share. Paying in stock changes how A pays. The price stays the same: A issues its own shares worth that amount.
Work full answer in app
Morgan Stanley/ Superday/ Generalist
Suppose you have a company that is generating $50mm in EBITDA and trades at 4x. It has $100mm in senior debt and $200mm in junior debt. What is the equity value? What do you think the debt is trading at? Why?
Equity value is zero since the $200mm TEV cannot cover $300mm in total debt; senior debt trades at par (fully covered), while junior debt—the fulcrum security—trades around 50 cents on the dollar.
Work full answer in app
Deutsche Bank
Why do we not take Price/Revenue or Equity Value/EBITDA?
Because the top and bottom of a multiple have to describe the same claim on the business. Revenue and EBITDA (earnings before interest, taxes, depreciation and amortization) are struck before any interest is paid, so they belong to everyone who funded the company, lenders and shareholders alike. That whole-company value is Enterprise Value. Equity Value is what is left for shareholders once the lenders have been paid, so putting it over a pre-interest metric like Revenue or EBITDA sets a partial claim against a full-company profit stream.
Work full answer in app
Evercore/ 1st Round/ Generalist
Company A has 10 shares outstanding, a share price of $25, net income of $10, and a 40% tax rate. Company B has a $150 market cap, net income of $10, and a 40% tax rate. If A buys B and finances the acquisition with 100% stock, is the deal accretive or dilutive?
Accretive. Company A's earnings per share (EPS, net income divided by shares outstanding) rises from $1.00 to $1.25, up 25%. Assuming A pays B's $150 market value with no premium, it issues $150 ÷ $25 = 6 new shares, so the combined $20 of net income is spread over 16 shares. The shortcut: A's stock trades at 25x earnings (its P/E, or price-to-earnings ratio) and it buys B at 15x. Paying with stock for earnings priced below your own P/E is accretive.
Work full answer in app

Frequently Asked Questions

What is the most common valuation question in IB interviews?

Do I need to memorize multiples for IB interviews?

How is terminal value tested in IB interviews?

Sample Valuation Interview Questions

Frequently Asked Questions

Other question categories