Wall Street Prep

Wall Street Prep
2026 Finance
Certification
Program Master
the Essential
Industry Skills

, Valuation - correct answer Process of determining the "right" value of a business, several approaches used,
q q q q q q q q q q q q q q q q




influenced by objectives of those doing the valuation q q q q q q q




How do you value a company? - correct answer There are a number of ways, mainly fall under two categories:
q q q q q q q q q q q q q q q q q q q q




1. Intrinsic Valuation - based on ability of company to generate cash flows. DCF is most common type of
q q q q q q q q q q q q q q q q q q q




intrinsic valuation - looks at company's cash flow forecasts and risks.
q q q q q q q q q q q




-Discounted Cash flow: value a company by looking at the future cash flows it can generate and discount them
q q q q q q q q q q q q q q q q q q q




to the present to arrive at a present value of your business
q q q q q q q q q q q




2. Relative Valuation - looks at multiples of comparable companies and applies mean/median multiple from
q q q q q q q q q q q q q q q




peer group. Can be multiples of current market values (trading comps) or historical acquisition multiples (deal
q q q q q q q q q q q q q q q




comps)
q




-Comparable company analysis: value a company by finding similar companies that are public and have
q q q q q q q q q q q q q q q




readily observable market prices.
q q q




-Comparable (precedent) transactions analysis: value a company by looking at the amount buyers have paid
q q q q q q q q q q q q q q q




for acquiring similar companies in the recent past
q q q q q q q




How do you value a company when not using DCF or relative valuation? - correct answer 1. Leveraged Buyout
q q q q q q q q q q q q q q q q q q q




Analysis: a specific type of valuation approach that looks at the value of a company to new acquirers under a
q q q q q q q q q q q q q q q q q q q q




highly leveraged scenario with specific return requirements. Hybrid of DCF and comps valuation.
q q q q q q q q q q q q




2. Liquidation (Bankruptcy) Analysis: value a company under a worst case liquidation scenario.
q q q q q q q q q q q q




What's the difference between equity and enterprise value? - correct answer Equity Value: the value of a
q q q q q q q q q q q q q q q q q




business to its owners. q q q




=(Operating Assets - Operating Liabilities) + (Cash - Debt) q q q q q q q q




-Cash: includes cash as well as nonoperating assets like marketable securities, short term investments, equity
q q q q q q q q q q q q q q q




investments

-Debt: includes straight debt (loans, revolver, bonds) as well as debt-like investments like capital leases, non-
q q q q q q q q q q q q q q q




controlling interests, preferred stock q q q




=Enterprise value - net debt q q q q