Sample interview questions: Can you explain your familiarity with different valuation methods, such as discounted cash flow (DCF) analysis or relative valuation?
Sample answer:
Discounted Cash Flow (DCF) Analysis
DCF analysis is a valuation method that involves forecasting future cash flows from an investment and discounting them back to their present value using an appropriate discount rate. This present value is then used to determine the intrinsic value of the investment. DCF analysis is widely used to value companies, projects, and assets.
Relative Valuation
Relative valuation, also known as comparable company analysis, is a valuation method that compares a company to similar companies (peers) in the industry. The company’s value is determined by multiplying its financial metrics, such as revenue or earnings, by industry multiples derived from the peer group. Relative valuation is commonly used in conjunction with DCF analysis to enhance the accuracy of the valuation.
Additional Relevant Skills and Considerations
- Financial modeling proficiency: Strong command of financial … Read full answer