Stop blanking on valuation questions

DCF & Valuation

Discounted cash flow analysis, WACC calculation, terminal value (Gordon Growth vs exit multiple), enterprise value vs equity value bridge, comparable company analysis, and precedent transactions.

"Walk me through a DCF"

Project unlevered free cash flows for 5–10 years (Revenue → EBIT → NOPAT → add D&A → subtract CapEx & changes in NWC). Calculate WACC using cost of equity (CAPM: Rf + β × ERP) and after-tax cost of debt, weighted by target capital structure. Discount FCFs + terminal value (FCF × (1+g)/(WACC−g)) back to present. Sum = Enterprise Value. Subtract net debt to get Equity Value. Divide by diluted shares for implied share price.

LBO Modeling

Leveraged buyout mechanics, sources & uses, debt schedules, IRR sensitivity, multiple expansion, debt paydown, and operational improvements.

"Walk me through an LBO"

A PE firm acquires a company using mostly debt (60–80% of purchase price). Sources: senior debt, sub debt, mezzanine, sponsor equity. Uses: purchase price + fees. Over 5 years, the company's cash flow pays down debt. Returns come from: (1) debt paydown — equity grows as debt shrinks, (2) EBITDA growth — organic + cost cuts, (3) multiple expansion — buy at 8x, exit at 10x. Target IRR: 20–25%. Sensitivity-test entry multiple, exit multiple, and leverage ratio.

Market Sizing

Top-down vs bottom-up approaches, TAM/SAM/SOM frameworks, assumption documentation, sanity checks, and presentation structure.

"How big is the electric vehicle market?"

Top-down: Global auto market ~80M vehicles/year. EV penetration ~18% in 2024, growing to ~35% by 2030. 80M × 35% = 28M EVs. Average selling price ~$45K. TAM = 28M × $45K = ~$1.26T by 2030. Bottom-up sanity check: China ~10M, Europe ~8M, US ~5M, RoW ~5M = 28M. SAM for a mid-market brand: ~$200B (mid-price segment). SOM for a new entrant: ~$5–10B (2–5% market share in target segments).

Accounting

Three financial statements and how they link, depreciation flow-through, deferred revenue, stock-based compensation, goodwill impairment, and working capital.

"Walk me through the 3 financial statements"

Income Statement: Revenue → COGS → Gross Profit → OpEx → EBIT → Interest → EBT → Taxes → Net Income. Balance Sheet: Assets = Liabilities + Equity. Cash, AR, inventory on asset side; AP, debt on liability side; retained earnings in equity. Cash Flow Statement: starts with Net Income, adjusts for non-cash items (D&A, SBC), changes in working capital (operating), CapEx (investing), debt/equity issuance (financing). Net Income flows to Retained Earnings on BS. Ending cash on CFS = Cash on BS.

M&A

Acquisition evaluation, accretion/dilution analysis, synergy modeling (revenue + cost), deal structure (stock vs cash), merger consequences, and strategic rationale.

"Company A wants to acquire Company B — how do you evaluate?"

Step 1 — Strategic rationale: revenue synergies (cross-sell), cost synergies (duplicate headcount), geographic expansion. Step 2 — Valuation: DCF, comps, precedent transactions to determine fair price. Step 3 — Accretion/dilution: compare combined EPS vs standalone. If acquirer P/E > target P/E and using stock, likely accretive. Step 4 — Financing: all-cash (uses balance sheet), all-stock (dilutes shareholders), or mix. Step 5 — Integration risk: culture clash, customer churn, key employee retention. Rule of thumb: most synergy estimates are 20–30% too optimistic.

Behavioral for Finance

Finance-specific STAR answers — why investment banking, deal experience, market awareness, work ethic, attention to detail, and team dynamics under pressure.

"Why investment banking?"

Three pillars: (1) Intellectual challenge — I love breaking down complex businesses, building models, and pressure-testing assumptions. My coursework in valuation and my internship at [X] confirmed this. (2) Deal exposure — IB puts you at the center of transformative transactions. I followed the [recent deal] and was fascinated by the strategic rationale and execution. (3) Career trajectory — the analytical rigor and client exposure in IB build a foundation for wherever I go next, whether that's PE, growth equity, or operating roles.