Investment Comps Prep Trading Comparable Exam –
(A+ Full Solution)
1. What is the primary purpose of a trading comparable analysis?
A. To estimate liquidation value
B. To determine intrinsic value using DCF only
C. To value a company based on how similar public companies are valued
D. To calculate depreciation expense
Answer: C. To value a company based on how similar public companies are valued
Rationale: Trading comps estimate a company's value by analyzing valuation multiples of
comparable publicly traded companies operating in similar industries with similar financial
characteristics.
2. Which valuation multiple is considered an enterprise value multiple?
A. P/E
B. EV/EBITDA
C. P/BV
D. Dividend Yield
Answer: B. EV/EBITDA
Rationale: EV/EBITDA compares enterprise value to EBITDA and reflects the value of the entire
business regardless of capital structure.
3. Enterprise Value equals:
A. Equity Value + Net Debt
B. Market Capitalization − Debt
C. Total Assets − Liabilities
D. Revenue − Expenses
Answer: A. Equity Value + Net Debt
Rationale: Enterprise Value is calculated as Equity Value plus Debt plus Preferred Stock plus
Minority Interest minus Cash and Cash Equivalents.
,4. Market Capitalization is calculated as:
A. Share Price × Diluted Shares Outstanding
B. Revenue × EBITDA Margin
C. Assets − Liabilities
D. EBIT × Tax Rate
Answer: A. Share Price × Diluted Shares Outstanding
Rationale: Market capitalization represents the market value of a company's common equity.
5. Which metric is least affected by capital structure?
A. EPS
B. Net Income
C. EBITDA
D. P/E Ratio
Answer: C. EBITDA
Rationale: EBITDA excludes interest expense and therefore minimizes the impact of financing
decisions.
6. Why is EV/EBITDA widely used in comps analysis?
A. It includes taxes
B. It ignores operating performance
C. It facilitates comparisons among companies with different capital structures
D. It only applies to banks
Answer: C. It facilitates comparisons among companies with different capital structures
Rationale: Since both enterprise value and EBITDA are capital-structure-neutral measures, the
multiple allows meaningful comparison across firms.
7. Which of the following is an equity value multiple?
A. EV/Revenue
B. EV/EBIT
,C. P/E
D. EV/EBITDA
Answer: C. P/E
Rationale: The P/E ratio compares a company's equity value to earnings attributable to common
shareholders.
8. If a company has excess cash, enterprise value will generally:
A. Increase
B. Decrease
C. Remain unchanged
D. Equal equity value
Answer: B. Decrease
Rationale: Cash is subtracted when calculating enterprise value because it is considered a non-
operating asset.
9. Which criterion is most important when selecting comparable companies?
A. Same auditor
B. Similar industry and business model
C. Same stock exchange
D. Same headquarters location
Answer: B. Similar industry and business model
Rationale: Companies should have similar operations, growth prospects, and risk characteristics
to produce meaningful valuation comparisons.
10. Which financial metric is typically paired with EV/Revenue?
A. Revenue
B. Net Income
C. EPS
D. Book Value
Answer: A. Revenue
, Rationale: EV/Revenue measures enterprise value relative to total company revenue.
11. A company with Enterprise Value of $2 billion and EBITDA of $250 million
trades at:
A. 4.0x
B. 6.0x
C. 8.0x
D. 10.0x
Answer: C. 8.0x
Rationale: EV/EBITDA = $2,000 million ÷ $250 million = 8.0x.
12. Which of the following would typically increase Enterprise Value?
A. Paying down debt with excess cash
B. Issuing new debt and holding cash constant
C. Increasing treasury stock
D. Reducing revenue
Answer: B. Issuing new debt and holding cash constant
Rationale: Additional debt increases enterprise value because debt is added to equity value in
the EV calculation.
13. Why are forward multiples frequently preferred?
A. They use historical information only
B. They reflect future expectations and anticipated performance
C. They eliminate forecasting risk
D. They ignore market conditions
Answer: B. They reflect future expectations and anticipated performance
Rationale: Investors value companies based on expected future performance, making forward
multiples more relevant.
(A+ Full Solution)
1. What is the primary purpose of a trading comparable analysis?
A. To estimate liquidation value
B. To determine intrinsic value using DCF only
C. To value a company based on how similar public companies are valued
D. To calculate depreciation expense
Answer: C. To value a company based on how similar public companies are valued
Rationale: Trading comps estimate a company's value by analyzing valuation multiples of
comparable publicly traded companies operating in similar industries with similar financial
characteristics.
2. Which valuation multiple is considered an enterprise value multiple?
A. P/E
B. EV/EBITDA
C. P/BV
D. Dividend Yield
Answer: B. EV/EBITDA
Rationale: EV/EBITDA compares enterprise value to EBITDA and reflects the value of the entire
business regardless of capital structure.
3. Enterprise Value equals:
A. Equity Value + Net Debt
B. Market Capitalization − Debt
C. Total Assets − Liabilities
D. Revenue − Expenses
Answer: A. Equity Value + Net Debt
Rationale: Enterprise Value is calculated as Equity Value plus Debt plus Preferred Stock plus
Minority Interest minus Cash and Cash Equivalents.
,4. Market Capitalization is calculated as:
A. Share Price × Diluted Shares Outstanding
B. Revenue × EBITDA Margin
C. Assets − Liabilities
D. EBIT × Tax Rate
Answer: A. Share Price × Diluted Shares Outstanding
Rationale: Market capitalization represents the market value of a company's common equity.
5. Which metric is least affected by capital structure?
A. EPS
B. Net Income
C. EBITDA
D. P/E Ratio
Answer: C. EBITDA
Rationale: EBITDA excludes interest expense and therefore minimizes the impact of financing
decisions.
6. Why is EV/EBITDA widely used in comps analysis?
A. It includes taxes
B. It ignores operating performance
C. It facilitates comparisons among companies with different capital structures
D. It only applies to banks
Answer: C. It facilitates comparisons among companies with different capital structures
Rationale: Since both enterprise value and EBITDA are capital-structure-neutral measures, the
multiple allows meaningful comparison across firms.
7. Which of the following is an equity value multiple?
A. EV/Revenue
B. EV/EBIT
,C. P/E
D. EV/EBITDA
Answer: C. P/E
Rationale: The P/E ratio compares a company's equity value to earnings attributable to common
shareholders.
8. If a company has excess cash, enterprise value will generally:
A. Increase
B. Decrease
C. Remain unchanged
D. Equal equity value
Answer: B. Decrease
Rationale: Cash is subtracted when calculating enterprise value because it is considered a non-
operating asset.
9. Which criterion is most important when selecting comparable companies?
A. Same auditor
B. Similar industry and business model
C. Same stock exchange
D. Same headquarters location
Answer: B. Similar industry and business model
Rationale: Companies should have similar operations, growth prospects, and risk characteristics
to produce meaningful valuation comparisons.
10. Which financial metric is typically paired with EV/Revenue?
A. Revenue
B. Net Income
C. EPS
D. Book Value
Answer: A. Revenue
, Rationale: EV/Revenue measures enterprise value relative to total company revenue.
11. A company with Enterprise Value of $2 billion and EBITDA of $250 million
trades at:
A. 4.0x
B. 6.0x
C. 8.0x
D. 10.0x
Answer: C. 8.0x
Rationale: EV/EBITDA = $2,000 million ÷ $250 million = 8.0x.
12. Which of the following would typically increase Enterprise Value?
A. Paying down debt with excess cash
B. Issuing new debt and holding cash constant
C. Increasing treasury stock
D. Reducing revenue
Answer: B. Issuing new debt and holding cash constant
Rationale: Additional debt increases enterprise value because debt is added to equity value in
the EV calculation.
13. Why are forward multiples frequently preferred?
A. They use historical information only
B. They reflect future expectations and anticipated performance
C. They eliminate forecasting risk
D. They ignore market conditions
Answer: B. They reflect future expectations and anticipated performance
Rationale: Investors value companies based on expected future performance, making forward
multiples more relevant.
