How to Answer “How would you value a company?” in Investment Banking Interviews
“How would you value a company?” is one of the most common technical prompts you’ll face, and it’s effectively the how to value a company interview question that tests whether you can think like an analyst under time pressure.
A strong answer in an investment banking valuation interview question setting is not a lecture on formulas. It’s a crisp, structured explanation of the main valuation methods (DCF, trading comps, precedent transactions), when you’d use each, and how you bridge to the right output (enterprise value vs equity value) with quick sanity checks.
What Interviewers Look For in Valuation Thinking (Analyst-Level)
In Investment Banking interviews, this question is primarily a test of structure and prioritisation. Interviewers want to hear that you can lay out the core valuation approaches quickly, then go one level deeper on the one that best fits the situation (often a DCF if cash flows are predictable, comps if you need a market-based read, and precedents if you’re thinking about M&A control value).
They’re also testing whether you understand what you’re actually valuing. Many candidates can name methods, but miss key distinctions like enterprise value vs equity value, or they mix multiples that use different numerators/denominators. Clear bridging (EV → equity value → per-share value) signals you can handle real modelling and client materials without constant corrections.
Finally, this is a communication test: can you give a coherent valuation methods interview answer that is assumption-driven, acknowledges judgment calls (WACC, terminal value, peer set selection, control premium), and uses quick reasonableness checks? At analyst level, sounding organised and practical matters as much as technical accuracy.
How to Value a Company Interview Question: A 4-Step Answer Framework
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Step 1: Set the objective and pick the right value (EV vs equity)
Start by clarifying what you’re valuing and for what purpose. In most IB contexts you’ll value the operating business at enterprise value, then bridge to equity value (subtract net debt and other non-equity claims, add non-core assets) and finally to a per-share value if needed.
Say you’d typically use multiple methods and triangulate: Discounted Cash Flow (DCF) for intrinsic value, trading comparables for where the market prices similar companies today, and precedent transactions for what acquirers have paid (often including control premiums and synergies). This opening shows you understand the workflow and prevents common mix-ups like quoting an equity multiple when you’re discussing enterprise value outputs.
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Step 2: DCF interview walkthrough — build intrinsic value from cash flows
Give a clean, step-by-step DCF walkthrough for investment banking interviews: (1) forecast operating performance (revenue drivers, margins, taxes), (2) convert to unlevered free cash flow by accounting for non-cash items, capex, and changes in working capital, (3) discount those cash flows back using WACC, and (4) add a terminal value to capture cash flows beyond the explicit forecast period.
Keep it interview-friendly by calling out the biggest value drivers: near-term FCF margins, reinvestment intensity, WACC assumptions, and terminal value assumptions (perpetuity growth vs exit multiple). You’re signalling you can explain the mechanics and what moves the valuation.
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Step 3: Comps valuation interview question — trading multiples and peer sets
Next, explain trading comps as a market-based approach: select a defensible peer set, normalise metrics, and apply relevant multiples to the target’s financials to derive an implied valuation range. Mention that the key is consistency: EV multiples (EV/EBITDA, EV/EBIT) map to enterprise value; equity multiples (P/E, P/B) map to equity value.
Briefly note what you adjust for: differences in growth, margins, leverage, accounting policies, and one-offs. If asked how to explain trading comps and precedent transactions in interviews, highlight that comps reflect minority, liquid market pricing today, so they can be a good anchor but may not reflect control value or deal-specific factors.
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Step 4: Precedent transactions interview question — control value and deal context
Close the framework with precedents: screen for relevant M&A deals (industry, size, geography, cycle), compute transaction multiples, and apply a range to the target. Explain why this can be higher than trading comps: transactions often include a control premium, expected synergies, and competitive tension.
Then bring it together: you’d triangulate the outputs, weight methods based on the business (stability of cash flows, availability of good comps, M&A relevance), and sanity-check the result. Quick checks include implied multiples vs peers, implied per-share premium vs historical trading, and whether assumptions (WACC, terminal value, margins) are internally consistent.
Investment Banking Valuation Interview Question: Sample Answer
I’d value a company using a few core approaches and then triangulate to a sensible range. Typically, I start by valuing the business on an enterprise value basis and then bridge to equity value by adjusting for net debt and other non-equity claims.
First, I’d run a Discounted Cash Flow (DCF) to get an intrinsic view. I’d forecast operating performance, convert it into unlevered free cash flow, discount those cash flows using WACC, and add a terminal value using either a perpetuity growth approach or an exit multiple. I’d sanity-check which assumptions drive the output most—usually the discount rate and terminal assumptions.
Second, I’d use trading comparables to see how the market prices similar companies today. I’d pick a defensible peer set, normalise for one-offs, and apply appropriate multiples—making sure EV multiples like EV/EBITDA map to enterprise value and equity multiples like P/E map to equity value.
Third, if an M&A context is relevant, I’d look at precedent transactions to capture control value and typical deal pricing. Precedents can trade above comps due to control premiums and expected synergies, so I’d be careful about deal comparability and timing.
Finally, I’d reconcile the ranges, explain which method I’d lean on and why, and do quick reasonableness checks like implied multiples versus peers and whether the implied per-share value is consistent with the company’s fundamentals and market context.
- Lead with triangulation (DCF + comps + precedents) to show judgement, not just mechanics.
- State enterprise value vs equity value early; it prevents multiple/numerator confusion.
- Name the biggest DCF sensitivities (WACC and terminal value) rather than reciting formulas.
- When discussing comps/precedents, emphasise peer/deal selection and normalisation as the real work.
Common Pitfalls: EV vs Equity, Multiples, and Assumptions
- Listing DCF/comps/precedents without explaining when you’d prioritise one method over another and what decision it supports.
- Mixing enterprise value and equity value (e.g., applying EV/EBITDA to equity value or using P/E to imply enterprise value).
- Talking through a DCF but ignoring the core sensitivities—especially WACC and terminal value—so the answer sounds mechanical.
- Using comps without a clear peer-set logic or without normalising for one-offs, accounting differences, or capital structure.
- Treating precedent transactions as “always higher” without acknowledging deal context (cycle, synergies, competitive tension, control premium).
- Forgetting to reconcile outputs and sanity-check implied multiples and implied growth/profitability assumptions.
Follow-Ups on DCF Walkthrough, Comps, and Precedent Transactions
What valuation method would you use and why in an IB interview?
I’d pick the method that best fits the situation: DCF for stable, forecastable cash flows; trading comps for a market anchor; precedents for control value in an M&A context, then triangulate.
How do you bridge enterprise value to equity value?
Start with enterprise value, subtract net debt and other non-equity claims (preferred, minority interests, pensions as relevant), add non-operating assets, and divide by diluted shares to get per-share value.
How do you think about WACC at a high level?
WACC is the blended required return for debt and equity holders, based on target capital structure; it’s driven by business risk, leverage, rates/credit spreads, and market risk premium assumptions.
How do you calculate terminal value in a DCF?
Either perpetuity growth (FCF × (1+g) / (WACC−g)) or an exit multiple on a terminal-year metric; I’d sanity-check implied growth and implied multiples versus comps.
What are common valuation interview mistakes around multiples?
The big ones are mismatching numerator/denominator (EV vs equity), using unadjusted metrics with one-offs, and ignoring differences in growth, margins, and leverage when comparing multiples.
Practice Plan for a Strong Valuation Methods Interview Answer
- Practise a 90-second “top-line” version (methods + EV vs equity + triangulation), then a 3-minute version with one layer of detail on DCF, comps, and precedents.
- Use one consistent reconciliation phrase in every run-through: “I’d triangulate the range and weight methods based on cash-flow predictability and market comparability.”
- Drill the EV-to-equity bridge out loud until you can say it without pausing; this is where many analysts stumble under pressure.
- Do two timed reps on AceTheRound and focus feedback on structure (signposting each method) and on whether you clearly stated the key DCF sensitivities (WACC and terminal value).
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