how to best answer this application question? only, valuation, question, describe, position

koba

For an entry level/graduate position in M&A:

"How would you go about valuing a company?"

-What steps would you take to come to the valuation?
-What might impact a valuation that you reach for a company?



This is the only competency question in a set of 4 x 250 (word limit) application questions, so I want to show a degree of competency but at the same time i don't want to appear as though i have just copy/pasted from a finance text book.

Which valuations methods would you describe and in how much detail?

how about comparing Enterprise value to EBITDA and when one method might be superior to the other?

NakedPuts

How would you answer it?

dvilayphet

i was thinking of just running through ebitda and EV and describing what would affect them, but i wasn't sure how technical I can go without sounding like I was sourcing from a text book.

giorgio10

Approach A

I would do a quick blurb on multiple valuation and factors that impact it. Another very high level blurb on CF valuation modeling and factors that impact it, contrast the two and illustrate situations where each may provide benefit (all very high level). Bankers use each, so avoid picking sides.

Probably the best way to go about this, is to pick an example of a company in a somewhat unique industry. Don't actually perform the valuation, but use this as your example through the question, and use the paragraph to explain which method you would choose in this instance and why.

Approach B

A great example to illustrate is XYZ company, in the WIDGET industry. In this particular industry (or firm) such and such unique factor causes such and such on the I/S to be biased upward (downward). As a result, a multiple valuation may be performed, but using XX multiples rather than YY multiples to improve comparability. If I were to augment the analysis using a DCF model, a good approach to would be ZZZ to allow for robust modeling because.....

However, this method may cause you to run out of words quickly, so approach A may be better.

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"Without American production the United Nations could never have won the war."
-Joseph Stalin, Tehran Conference: 1943

ap0258

250 words is pretty tight for such a vague question. just go describe how you would use dcf, comparables and precedents and then describe the potential flaws of each.

If you have room, talk about synergies - m&a guys love synergies.

needhelp1700

^ Agreed

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"Without American production the United Nations could never have won the war."
-Joseph Stalin, Tehran Conference: 1943

dreampak

Also, just to clarify a good working definition of synergies:

Synergies are instances where bankers convince clients 1+1=3, while 1+1 actually = -2. It's good business.

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"Without American production the United Nations could never have won the war."
-Joseph Stalin, Tehran Conference: 1943

luda002

Black Swan Wrote:
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> Also, just to clarify a good working definition of
> synergies:
>
> Synergies are instances where bankers convince
> clients 1+1=3, while 1+1 actually = -2. It's good
> business.


Awesome! :-)

HuskyGrad2010

mjbizzle87 Wrote:
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> i was thinking of just running through ebitda and
> EV and describing what would affect them, but i
> wasn't sure how technical I can go without
> sounding like I was sourcing from a text book.

Explain how this is useful for valuing the company? You talk about what metrics you'd look at, but you don't explain why they matter or what you'd do with them to arrive at an actual valuation, which is the question you're supposed to be answering.



Edited 1 time(s). Last edit at Wednesday, July 13, 2011 at 01:44PM by numi.