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hardFinancial Analyst interview question

How do you choose and adjust a set of trading comparables for a valuation?

What the interviewer wants to hear

  • Select peers by business model, sector, size, growth, geography
  • Use consistent metrics: LTM or forward, same accounting basis
  • Normalise for one-offs and accounting differences such as leases
  • Use enterprise value multiples for operating metrics and P/E for net income
  • Look at median and range and explain why the target deserves a premium or discount

Model answer

I start with the business model, not just the industry label. A D2C beauty brand should be compared with consumer brands of similar growth and margins, not with every retail company. I then filter by size, growth, profitability and geography, and accept I may need a few global peers if Indian or Gulf listed peers are limited. I make the numbers consistent: same period, either last twelve months or next year forecast, and the same accounting basis, for example adjusting EBITDA for lease accounting and removing one-off gains or restructuring costs. I use EV-based multiples like EV/EBITDA or EV/Sales with operating metrics, and P/E with net income. I look at the median and the range rather than the average, which outliers can distort. Finally I explain why the target should sit above or below the median, for example faster growth or higher customer concentration risk.

Can you answer it under time pressure?

Take a timed hard round and get scored on every answer.

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