Valuation interview questions: 33 real questions

001What's the difference between enterprise value and equity value?

core

• Why subtract cash?
• Why add minority interest?

002What are the three main valuation methodologies, and which gives the highest value?

core

• When would a DCF come in BELOW trading comps?

003Why do you add debt and subtract cash when calculating enterprise value?

intermediate

• When might you NOT subtract all the cash?

004Why does EV/EBITDA pair with EBITDA but P/E with net income? Could you use EV/Net income?

intermediate

• Is EV/EBITDA or P/E better for comparing companies with different leverage?

005Why are precedent transactions usually higher than trading comps?

intermediate

• What premium range is typical, and what drives the high end?

006A company issues $100 of new equity. What happens to equity value and enterprise value?

intermediate

• What happens to EV when they spend it on a factory?

007For the same company, which is bigger: EV/EBITDA or EV/EBIT?

intermediate

• For which industries is the gap largest, and which multiple do you prefer there?

008A deal is done on a 'cash-free, debt-free' basis. What does that mean?

intermediate

• Why does the working-capital peg exist?

009How do you pick the comparable companies set?

intermediate

• Your target is a 30%-growth company; every comp grows 10%. What do you do?

010What is LTM, and how do you calculate LTM revenue with a fiscal year plus a stub?

intermediate

• Why use LTM rather than last fiscal year in a fast-changing business?

011You've run comps, precedents, and a DCF. How do you present the answer?

intermediate

• Your DCF range sits entirely above every market-based range. What's your first suspicion?

012A friend asks you to value their small private service business (no audited financials, just QuickBooks) so they can sell it. How is this different from valuing a public company?

intermediate

• What questions would you ask the owner before doing any math at all?

013You're advising a buyer of a small local service business. What risks matter here that a standard comps screen never surfaces?

intermediate

• How would you structure the deal to mitigate key-man risk specifically?

014You have only 3-4 informal comps (rough multiples from broker conversations). How do you turn that into a defensible valuation range?

intermediate

• One comp looks like an outlier, exclude it or explain it?

015How would you value an early-stage subscription business with little or no current revenue, and how do unit economics tell you whether the model actually works?

intermediate

• Why is dividing by monthly churn a reasonable proxy for customer lifetime?
• What discount rate concerns arise if you did try to DCF this business?
• The company's blended CAC is falling. Is that automatically good news?

016You are valuing a small owner-operated business whose bookkeeping you do not trust. How would you build a bottoms-up revenue estimate, and how would you check it against reality?

intermediate

• Your bottoms-up build comes in 30% above the reported revenue. What are the possible explanations, and which would worry a buyer most?
• How do you estimate a defensible utilization rate rather than assuming full capacity?
• Once you trust the revenue figure, how do you get from revenue to a valuation?

017You're valuing a private company with a DCF. It has no traded stock, so there's no observable beta or market capitalization. How do you build its discount rate?

intermediate

• Why do you unlever and then relever beta instead of just averaging the comps' levered betas?
• What capital-structure weights do you use when the company's current mix is unusual?
• Roughly how large is a size premium, and what's the justification for it?

018You are advising a buyer choosing between two small businesses at the same price: a hair salon and a company that manufactures and sells a packaged food product. How does the nature of each business change the risks you would focus on?

intermediate

• Which of the two typically deserves the lower multiple on the same earnings, and why?
• How would you diligence the risk that the salon's clients are loyal to one stylist rather than the shop?
• What local demographic or neighborhood trends would you check for each business?

019Three public peers trade at EV/EBIT multiples of 7.0x, 9.0x, and 12.0x. Your target company is private, has EBIT of $60M, and is growing revenue faster than all three peers. Walk me through how you'd estimate its enterprise value.

intermediate

• Why not just apply the average of the three multiples?
• The fastest-growing peer also has much higher margins than your target. Does your 12x still hold?
• When would EV/EBIT be a better multiple than EV/EBITDA here?

020A business generates an extra $5M of cash flow this quarter that simply builds up on its balance sheet. What happens to its enterprise value, and why?

intermediate

• If the company used that $5M to pay down debt instead, what happens to enterprise value and equity value?
• In practice, could a large cash build ever change how the market values the enterprise? Think about capital allocation signals.

021A company receives a one-time $100 cash legal settlement. Its tax rate is 25%. What happens to its equity value and its enterprise value?

intermediate

• How does the answer change if you ignore taxes?
• Show the same result mechanically using the EV = equity value + net debt formula.
• If the company instead used the settlement cash to buy new production equipment, what would happen to enterprise value?

022An LBO is itself an M&A transaction, so why does an LBO analysis typically imply a lower valuation than precedent transactions?

intermediate

• Under what conditions could a PE firm actually outbid a strategic buyer?
• Which assumptions in the LBO would move that 'floor' the most?
• Why is a DCF hard to place in this ranking of methodologies?

023Can enterprise value be negative? Can equity value?

advanced

• What would a negative-EV company imply about market expectations?

024Two identical companies, same financials, same industry. Why might they trade at different multiples?

advanced

• Which of those would justify paying the higher multiple in an acquisition?

025A company raises $200M of debt. What happens to its enterprise value?

advanced

• What happens to EV when they SPEND that cash on CapEx?

026Company A has higher EBITDA than Company B, but a lower enterprise value. How?

advanced

• Which single adjustment would you check first in A's EBITDA?

027How do options affect diluted share count? Sketch the treasury stock method.

advanced

• 100 options, $10 strike, $25 price, net dilution? (100 − 40 = 60 shares)

028Your DCF says $80 a share; comps say $50. What do you do?

advanced

• What does 'reverse DCF' mean in this context?

029How do you treat convertible bonds in enterprise and equity value?

advanced

• Stock at $30, conversion price $25, debt or equity?

030Beyond debt and cash, what else belongs in the EV bridge?

advanced

• If you add lease liabilities to EV, what must you do to EBITDA?

031Do net operating losses show up in enterprise value?

advanced

• Why might an acquirer pay LESS for NOLs than their face value implies?

032What is sum-of-the-parts valuation and when do you use it?

advanced

• Why do conglomerates usually trade below their SOTP?

033Give me industry-specific multiples and why they exist.

advanced

• Why is EV/EBITDA meaningless for a bank?