How do you value a company?

This is the broadest valuation question you will be asked, and the one that opens the door to everything else. It is deliberately open-ended: the interviewer wants to see whether you can organise an answer without being told how.

There are three primary methodologies, and a good answer names all three, explains what each is based on, and says when you would use them. A great answer adds that no single method gives "the" answer — you triangulate across them.

Signpost. "There are three main approaches — comparable companies, precedent transactions, and a discounted cash flow. They tell you slightly different things, so you'd usually run all three."

1. Comparable company analysis ("comps"). Value the company against similar public companies trading today. You pick a peer set based on industry, size and growth profile, then compare valuation multiples — most often EV/EBITDA, and P/E for some sectors.

What it tells you: what the public market is paying for similar businesses right now.

When it's most useful: when there are genuinely comparable listed peers. It is quick and market-based, but it reflects current sentiment, which may be inflated or depressed.

2. Precedent transaction analysis ("precedents"). Same idea, but you look at multiples paid in actual M&A deals for similar companies.

What it tells you: what an acquirer has been willing to pay — which is usually more than the trading price, because deals include a control premium and expected synergies.

When it's most useful: when you're advising on a sale. The weakness is that deals happen in different market conditions, so older transactions may not reflect today.

3. Discounted cash flow (DCF). Project the company's future free cash flows, discount them back at WACC, add a terminal value, and arrive at enterprise value.

What it tells you: what the business is intrinsically worth based on its own economics, independent of market sentiment.

When it's most useful: when cash flows are reasonably predictable. It is the most theoretically rigorous method and the most sensitive to assumptions — small changes in growth rate or discount rate move the answer a lot.

Then close properly. Mention that these are usually presented together on a "football field" chart showing the valuation range each method produces, and that the overlap is where you'd focus. If you want to add depth, mention LBO analysis as a floor valuation — what a financial sponsor could pay and still hit their return target — and sum-of-the-parts for conglomerates.

Expect: "Which method gives the highest valuation?" Usually precedent transactions, because of the control premium. DCF can be highest or lowest depending on assumptions — say so rather than guessing.

Can you organise an open question? You were given no structure. Providing one is most of the answer.

Do you know why, not just what? Naming three methods is table stakes. Explaining what each is based on, and when it applies, is the differentiator.

Do you have judgement? The best answers acknowledge that valuation is a range, not a number, and that methods disagree for understandable reasons.

Listing methods with no explanation. "Comps, precedents, DCF" is not an answer, it's a header.

Missing that comps and precedents differ by control premium. This is the most common follow-up and the most common gap.

Treating the DCF as definitive. It's the most assumption-sensitive method. Presenting it as the truth suggests you've never stress-tested one.

Forgetting to say you'd use all three. Real valuation work triangulates. Picking one signals you've only read about it.

Running out of depth immediately. If your whole answer is thirty seconds, expect a lot of follow-ups.