Interviewers do not grade you on naming three valuation methods. They grade you on knowing which one is lying for the company in front of you. Comps, precedent transactions, and DCF are tools with known failure modes; listing them without that caveat is the answer that dies in minute two.
This guide is written for the consulting candidate who meets valuation inside a case, and for anyone cross-applying into banking technicals. After reading, you should be able to walk the three methods, flag when each misleads, bridge enterprise to equity value with real filings, explain what actually drives a multiple, and defend a WACC without hand-waving.
What the room is actually scoring
In a typical first-round technical, you get one open prompt ("How would you value this business?") and two follow-ups. The open prompt is a filter. The follow-ups are the score. I stop listening when a candidate recites a football field and never says which range I should trust.
What the sheet rewards:
| Follow-up | Weak answer | Strong answer |
|---|---|---|
| Why don't the methods match? | "Markets are inefficient" | Each method answers a different question; mismatch is information |
| Which is highest? | "Precedents, always" | Precedents often, when control premiums and synergies are real; not when the last deal was a distressed sale |
| Which would you present? | "An average of the three" | The method whose assumptions fit this asset, with the others as cross-checks |
Ned's rule. Treat a football field as a diagnostic, not a conclusion. If your DCF sits 40% above comps, say which input is wrong before you average anything.
The three methods, and when each misleads
You value a company three ways: trading comps (what public peers trade at today), precedent transactions (what buyers paid for control in past deals), and a DCF (what the business's own cash flows are worth at a discount rate). Bankers run all three. The interview is about judgment, not the checklist.
Comps mislead when the peer set is cosmetic. Same GICS code is not the same business. A software company growing 25% with 40% EBITDA margins does not belong next to a mature systems vendor growing 4%. Comps also mislead in thin sectors (five "peers," three of which are conglomerates) and when the market is pricing a cycle peak or trough that the target will not live through.
Precedent transactions mislead when the last deal was a bidding war, a distressed seller, or a strategic buyer paying for synergies unique to that buyer. Control premiums of roughly 20–40% above the unaffected share price are common folklore in pitch books; they are not a law of nature. A 2019 deal multiple in a zero-rate world is a poor anchor for a 2026 process.
A DCF misleads when terminal value does most of the work and nobody stress-tests it. Stretch growth, drop the WACC a point, or bake in margin expansion that never shows up in history, and the model will bless whatever price you wanted. The DCF is theoretically clean and operationally fragile. For the full build with formulas, see DCF model step-by-step; this article stays on the questions you get asked aloud.
Quick decision table for the case or the technical:
| Situation | Lean on | Treat as secondary |
|---|---|---|
| Stable mature peer set, similar margins | Comps | Precedents if deal set is stale |
| Clear change-of-control with recent sector M&A | Precedents | Comps (no control premium) |
| Unique asset, no clean peers, long visibility | DCF | Both market methods as sanity checks |
| Cyclical trough / peak earnings | Normalized DCF or mid-cycle comps | Trailing multiples as-is |
Enterprise value vs equity value (worked from Apple's filings)
Enterprise value is the value of the operating business to all capital providers. Equity value is what is left for shareholders after net debt (and other debt-like claims). The bridge is mechanical: equity value = enterprise value − net debt (plus non-operating assets, minus non-controlling interests and preferred, when material).
Apple's FY2025 Form 10-K (fiscal year ended September 27, 2025) gives you a clean public example. The company reported that cash, cash equivalents, and marketable securities totaled $132.4 billion. On the balance sheet, commercial paper was $8.0 billion and term debt was $12.4 billion current plus $78.3 billion non-current, or about $98.7 billion of interest-bearing debt. Net cash is roughly $132.4B − $98.7B ≈ $33.7 billion.
So if you start from equity value (market cap) and want enterprise value, you subtract net cash: EV ≈ equity value − $33.7B. For a net-debt company the sign flips: EV ≈ equity value + net debt. As of March 28, 2025, Apple disclosed an aggregate non-affiliate market value of about $3.25 trillion in that same 10-K cover disclosure. Using that figure as a rough equity-value proxy, implied EV sits near $3.22 trillion — equity above enterprise because the firm sits on net cash, not net debt.
Interview trap: candidates subtract cash but forget debt, or treat "marketable securities" as operating working capital. For Apple, the 10-K itself groups cash and marketable securities as the liquidity pile management uses for capital return and requirements. That is the stock you pull into the bridge.
Multiples: what they measure, and what drives them
A multiple is a price divided by a scaling metric. EV/EBITDA prices the whole firm relative to operating earnings before D&A. P/E prices equity relative to earnings after interest and tax. EV/Revenue shows up when EBITDA is negative or meaningless.
What drives a higher multiple, holding the peer set honest:
- Growth — higher expected growth in the metric in the denominator.
- Returns on capital — higher ROIC for a given growth needs less reinvestment, so more free cash flow per unit of earnings.
- Risk / discount rate — lower WACC or cost of equity compresses the required return and lifts the multiple.
- Margin durability — markets pay more for earnings that do not swing with every cycle.
Damodaran's January 2026 U.S. industry tables make the gap concrete. Software (system and application) trades at a current EV/EBITDA of about 22.0x and a current P/E of about 34.1x. Utility (general) sits near 15.0x EV/EBITDA and 18.1x P/E. Same calendar, same data vintage — different growth, capital intensity, and risk. Reciting "software trades rich" without naming those drivers is empty.
In a case, if an interviewer hands you "the sector is at 12x EBITDA" and asks for a value, push back once: is that trailing or forward, mid-cycle or peak, and are margins comparable? Then apply the number. Pedantry without an answer loses; an answer without one clarifying question also loses.
WACC intuition without the formula theater
WACC is the blended required return for debt and equity, after tax on the debt piece. You use it to discount unlevered free cash flows to enterprise value. Cost of equity ≈ risk-free rate + beta × equity risk premium. Cost of debt is the yield the firm would pay on new borrowing; after tax it becomes rd × (1 − t).
As of January 1, 2026, Damodaran's implied U.S. equity risk premium was 4.23%: an expected return on the S&P 500 of 8.41% minus a 4.18% Treasury bond rate. That is a market-implied number, not a historical average pulled from a textbook. His January 2026 industry cost-of-capital file puts software (system and application) at a WACC near 9.3% (beta ~1.28) and utility (general) near 4.4% (beta ~0.24). The gap is beta and capital structure, not magic.
What interviewers want verbally:
- Higher beta → higher cost of equity → higher WACC → lower DCF value.
- More cheap debt (up to a point) can lower WACC; too much debt raises both rd and equity beta.
- Never discount levered cash flows at WACC, or unlevered cash flows at cost of equity. Match the cash flow to the rate.
If you need a one-line WACC for a case math checkpoint, take a Damodaran industry starting point and nudge: higher growth and operating leverage → nudge up; regulated cash flows → nudge down. Do not invent 7.5% from thin air.
Worked example: three methods that disagree on purpose
Invented firm: Northline Packaging, a private mid-market corrugated packaging company. Trailing EBITDA $80M. You have:
| Method | Input | Implied EV |
|---|---|---|
| Trading comps | Peer median 8.5x EV/EBITDA | $680M |
| Precedents | Recent sector deals 10.5x (includes control) | $840M |
| DCF | UFCF + terminal at 8% WACC, 2.5% terminal growth | $720M |
Net debt is $120M. Equity value from the DCF bridge is $720M − $120M = $600M.
Why the spread? Precedents embed a control premium and one strategic buyer who underwrote plant consolidation synergies Northline's next buyer may not get. Comps reflect minority public trading prices for peers with slightly lower margins. The DCF sits between them because your terminal growth is conservative relative to the synergy story in the last deal.
What you say in the interview: "I would lead with $680–720M enterprise as the operating range for a financial buyer, flag $840M as a strategic ceiling if those synergies are real, and not average the three into a fake precision number." That sentence is the offer-level answer. The merger math that sits next to it in live deals is covered separately in merger model interview questions.
Practice this on a clock
Open a public 10-K, pull cash, marketable securities, and interest-bearing debt, and write the EV–equity bridge in under three minutes. Then pick one Damodaran industry row and explain aloud why that sector's WACC and EV/EBITDA sit where they do. For case reps where valuation shows up inside a broader problem, run a timed case on CoachNed: everything is open for seven days, no card; then $120 for a recruiting season or $49 a month.
Start at /start for a five-minute first rep, or /interview for the live voice case with a scored debrief.
Frequently asked questions
What are the three main valuation methods in interviews?
Comparable companies, precedent transactions, and discounted cash flow. Name them in one breath, then say which you would trust for the company on the table and why the others might mislead.
Is enterprise value always higher than equity value?
No. Enterprise value exceeds equity value when the firm has net debt. When the firm has net cash (Apple's FY2025 liquidity pile is the textbook example), equity value can sit above enterprise value.
Why do precedent transactions usually value higher than comps?
Deal multiples often include a control premium and expected synergies. Trading comps price minority stakes without control. That ranking reverses when the deal set is distressed, stale, or distorted by one outlier buyer.
What is WACC used for in a DCF?
WACC discounts unlevered free cash flows to present value to arrive at enterprise value. Using the wrong rate for the cash-flow definition is one of the fastest ways to lose the technical.
Do consulting interviews ask valuation like banking interviews?
Consulting cases use the same ideas at lower formula depth: which multiple, what drives it, how you bridge to equity, whether a DCF assumption is sane. Banking screens for faster recall and cleaner bridges. The judgment about when a method lies travels to both rooms.
Sources
- Damodaran implied equity risk premiums (historical table) — January 2026 U.S. implied ERP of 4.23% (8.41% expected return, 4.18% T-bond). Checked 2026-09-24.
- Damodaran costs of capital by industry (U.S.) — January 2026 software vs utility WACC and beta. Checked 2026-09-24.
- Damodaran enterprise value multiples by sector (U.S.) — January 2026 EV/EBITDA for software and utilities. Checked 2026-09-24.
- Damodaran PE ratios by sector (U.S.) — January 2026 current P/E for software and utilities. Checked 2026-09-24.
- Apple Inc. Form 10-K for the fiscal year ended September 27, 2025 — $132.4B cash and marketable securities, debt line items, ~$3.25T non-affiliate market value disclosure. Checked 2026-09-24.
CoachNed is not affiliated with McKinsey, BCG, Bain, Deloitte, or any investment bank named in recruiting materials.