Wall Street Prep questions with complete
solutions (graded A+)
Valuation - answer Process of determining the "right" value of a
business, several approaches used, influenced by objectives of those
doing the valuation
How do you value a company? - answer There are a number of ways,
mainly fall under two categories:
1. Intrinsic Valuation - based on ability of company to generate cash
flows. DCF is most common type of intrinsic valuation - looks at
company's cash flow forecasts and risks.
-Discounted Cash flow: value a company by looking at the future cash
flows it can generate and discount them to the present to arrive at a
present value of your business
2. Relative Valuation - looks at multiples of comparable companies and
applies mean/median multiple from peer group. Can be multiples of
current market values (trading comps) or historical acquisition multiples
(deal comps)
-Comparable company analysis: value a company by finding similar
companies that are public and have readily observable market prices.
, -Comparable (precedent) transactions analysis: value a company by
looking at the amount buyers have paid for acquiring similar companies
in the recent past
How do you value a company when not using DCF or relative valuation?
- answer 1. Leveraged Buyout Analysis: a specific type of valuation
approach that looks at the value of a company to new acquirers under a
highly leveraged scenario with specific return requirements. Hybrid of
DCF and comps valuation.
2. Liquidation (Bankruptcy) Analysis: value a company under a worst
case liquidation scenario.
What's the difference between equity and enterprise value? - answer
Equity Value: the value of a business to its owners.
=(Operating Assets - Operating Liabilities) + (Cash - Debt)
-Cash: includes cash as well as nonoperating assets like marketable
securities, short term investments, equity investments
-Debt: includes straight debt (loans, revolver, bonds) as well as debt-like
investments like capital leases, non-controlling interests, preferred stock
=Enterprise value - net debt
Enterprise value: value of a company's operations, not its equity
=Operating Assets - Operating Liabilities
solutions (graded A+)
Valuation - answer Process of determining the "right" value of a
business, several approaches used, influenced by objectives of those
doing the valuation
How do you value a company? - answer There are a number of ways,
mainly fall under two categories:
1. Intrinsic Valuation - based on ability of company to generate cash
flows. DCF is most common type of intrinsic valuation - looks at
company's cash flow forecasts and risks.
-Discounted Cash flow: value a company by looking at the future cash
flows it can generate and discount them to the present to arrive at a
present value of your business
2. Relative Valuation - looks at multiples of comparable companies and
applies mean/median multiple from peer group. Can be multiples of
current market values (trading comps) or historical acquisition multiples
(deal comps)
-Comparable company analysis: value a company by finding similar
companies that are public and have readily observable market prices.
, -Comparable (precedent) transactions analysis: value a company by
looking at the amount buyers have paid for acquiring similar companies
in the recent past
How do you value a company when not using DCF or relative valuation?
- answer 1. Leveraged Buyout Analysis: a specific type of valuation
approach that looks at the value of a company to new acquirers under a
highly leveraged scenario with specific return requirements. Hybrid of
DCF and comps valuation.
2. Liquidation (Bankruptcy) Analysis: value a company under a worst
case liquidation scenario.
What's the difference between equity and enterprise value? - answer
Equity Value: the value of a business to its owners.
=(Operating Assets - Operating Liabilities) + (Cash - Debt)
-Cash: includes cash as well as nonoperating assets like marketable
securities, short term investments, equity investments
-Debt: includes straight debt (loans, revolver, bonds) as well as debt-like
investments like capital leases, non-controlling interests, preferred stock
=Enterprise value - net debt
Enterprise value: value of a company's operations, not its equity
=Operating Assets - Operating Liabilities
