The investment banking interview question we’re going to go over today is “Which valuation method gives the highest valuation?” This often appears as a follow-up question to the “what are the different valuation methodologies” question. You should check out that video if you haven’t seen it yet. Here’s what you can say for your answer.
“It depends. Sometimes it’s Precedent Transactions because they include control premium. Occasionally, it’s Public Comparables if the market is trading at record high multiples. And it can also be DCF if we use very optimistic assumptions. So there isn’t one valuation methodology that always gives the highest valuation. It varies.”
In short, that’s all you have to say for your answer to the “which valuation method gives the highest valuation” question. The most common mistake I see candidates make is answering this interview question by specifying one single methodology. Candidates usually say Precedent Transactions and identify control premium as the reason. But in reality, when we look at the valuation football field for companies we work on, Precedent Transactions definitely does not always give the highest valuation. Sometimes it does and plenty of times it does not. So the method that would give you the highest valuation varies from company to company.
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