Valuation Terms
Why Valuation matters in interviews
Every other section builds up to the most important piece of a transaction — valuation. You will be tested closely and the more you can go beyond simple formula memorization, the more you will stand out.
C
- Comparable CompaniesValuationComparable Companies is a valuation methodology that refers to how bankers use public market valuations of similar companies to determine how much to value the company they’re working with.
- Control PremiumValuationA control premium in M&A refers to the additional amount a buyer is willing to pay above the fair market value of a company's shares to acquire a controlling interest, reflecting the value of...
E
- EBITDA MultiplesValuationEBITDA multiples are calculated using Purchase Price / EBITDA. So, if a business was purchased for $200 and had EBITDA of $10, this would be a 20.0x multiple.
- Enterprise Value (EV)ValuationEnterprise Value is a measure of a company’s total value and is the what the total value of the business is in a valuation context.
- Equity ValueValuationEquity Value represents the total value of a company’s equity as perceived by the market.
P
- Precedent TransactionsValuationPrecedent Transactions is a valuation methodology that refers to how bankers use transactions of similar companies to determine how much to value the company they’re working with.
- Price / Earnings (P/E) RatioValuationA Price / Earnings ratio is a measure of a company’s Share Price over their Earnings Per Share (Net Income per Share).
S
- Size PremiumValuationA size premium is an additional return added to the cost of equity in a Discounted Cash Flow (DCF) analysis to account for the higher risk associated with investing in smaller companies, which...
- Synergies: 1 + 1 = 3ValuationSynergies refer to the potential benefits that arise when two companies combine, resulting in greater value than the sum of their individual parts.