What is a company worth? This seemingly simple question has no single right answer, but several – depending on which method you choose and which assumptions you make. That is exactly what makes company valuation so fascinating and, at the same time, so demanding.

At its core, there are two schools of thought. One derives value from the market: what are investors or buyers currently paying for comparable companies? The other derives it from the company itself: what cash flows will it generate in the future, and what are those worth today? All the standard methods flow from these two perspectives.

In this guide we work through each method, show you worked examples, place the approaches in a DACH context, and flag the questions that keep coming up in interviews. If you are preparing for a specific interview, you will find a direct path to structured practice cards at the end.

Why company valuation matters so much

Company valuation is the common language of the entire financial world. Whether an investment banker is structuring a sale, a private equity fund is screening an acquisition target, or an analyst is assessing a stock – it always starts with the question of value. Master this logic and you understand practically every transaction.

For breaking into investment banking, the topic is doubly relevant. On the job, as an analyst you build exactly these models. And in the interview, valuation is the single most tested technical area of all. Questions like “Name the three valuation methods” or “Walk me through a DCF” are part of the standard repertoire.

The reason is simple: anyone who can explain the valuation methods cleanly immediately shows they have understood the fundamentals of corporate finance. Conversely, this is where it becomes obvious who has merely memorized – because every method is followed by questions about the why.

The basics: Enterprise Value vs. Equity Value

Before you apply a single method, there is one distinction you have to command with confidence – it is the foundation for everything else and, itself, a popular opening question in interviews.

The equity value is the value that belongs to the owners. For a listed company it equals the market capitalization, i.e. share price times number of shares.

The enterprise value is the value of the operating business – regardless of how it is financed. It shows what the company costs as a whole if you acquire it and take on its debt. The bridge is:

Why does this matter so much? Because valuation methods and multiples each relate to one figure or the other. Metrics before interest (such as EBITDA or EBIT) belong to enterprise value, because they are independent of financing. Metrics after interest (such as net income) belong to equity value. Mix up this mapping and your math is wrong.

The valuation methods in detail

There are four common approaches. In a transaction-oriented environment (M&A, investment banking, private equity), the first two dominate. The last two mainly come into play in special or legally driven situations.

1. Multiples analysis (market-based)

The basic idea: similar companies should be valued similarly. You take a metric of the company you are valuing (such as EBITDA) and multiply it by a multiple that the market pays for comparable firms. There are two variants:

• Comparable Company Analysis (Trading Comps): multiples of listed peer companies. Typical ones are EV/EBITDA, EV/EBIT, EV/Revenue and the price-to-earnings ratio (P/E).
• Precedent Transactions: multiples derived from prices actually paid in past acquisitions. They tend to be higher, because the purchase price includes a control premium.

Multiples are fast, market-driven and easy to communicate – which is why they are the everyday valuation staple. Their weakness: they are only as good as the peer group and reflect market sentiment, not necessarily the “true” value.

2. Discounted Cash Flow (DCF, intrinsic)

The DCF derives value not from the market but from the company itself. The logic: a company is worth the sum of all its future free cash flows, discounted back to today. In five steps:

• Forecast the unlevered free cash flows for typically five to ten years.
• Determine the discount rate – the weighted average cost of capital (WACC).
• Discount the projected cash flows at the WACC to their present value.
• Calculate the terminal value (using the Gordon Growth or exit-multiple method) and discount it as well.
• Sum all present values to get the enterprise value, then subtract net debt to arrive at the equity value.

The DCF is considered the theoretically cleanest method, but it is highly sensitive to its assumptions. Even small changes to the growth rate or WACC move the result sharply – which is why you always pair it with a sensitivity analysis.

3. Income approach (the German standard)

In German-speaking markets, the income approach (Ertragswertverfahren) under the IDW S1 standard is the established method for legally or tax-driven valuations – for instance in squeeze-out compensation, inheritance cases or reorganizations. In principle it resembles the DCF: here too, future financial surpluses are discounted to present value using a risk-adequate capitalization rate. The difference lies in the detail of the reference figure and in how the rate is derived. For students in the DACH region it is worth knowing this term, because it is central to German textbooks and exams.

4. Asset-based approach (net asset value)

The asset-based approach views the company as the sum of its assets less its liabilities – that is, the net asset value. This method is mainly relevant for asset-heavy companies, real estate firms, or in liquidation scenarios. For growth or high-earning companies it systematically understates value, because it ignores future earnings and intangibles such as brand or customer relationships. In transaction practice it usually serves only as a floor.

Practical examples

The following figures are simplified worked examples to illustrate the methodology – not real market values.

Example 1: Valuation via EV/EBITDA multiple

Example 2: The logic behind the WACC

The WACC is the discount rate in a DCF and weights the cost of equity and debt by their share of the financing. Put simply: the riskier a company and the more expensive its capital, the higher the WACC – and the lower the present value of its future cash flows. The cost of equity is usually derived via the Capital Asset Pricing Model (CAPM), which adds a risk premium to the risk-free rate. Remember for the interview: if the WACC rises, the DCF value falls – and vice versa.

Expert tips for valuation & interview

• Understand the logic, not the formula. In the interview, what counts is whether you can explain why EV/EBITDA is capital-structure neutral – not whether you can recite a formula from memory.
• Map every metric correctly. Before interest belongs to enterprise value, after interest to equity value. This one rule prevents the most common mistakes.
• Know the ranking of values. Precedent transactions usually sit above trading comps because of the control premium. Being able to explain that is convincing.
• Think in sensitivities. In a DCF, no number is set in stone. Show that you understand the levers (growth, WACC, terminal value) and their effect.
• Practice the classics out loud. “Name the three methods”, “Walk me through a DCF”, “EV vs. equity value” – these questions come up almost every time. Rehearse the answers until they are second nature.

Common valuation mistakes

• Confusing enterprise and equity value. An EBITDA multiple gives you enterprise value, not equity value. Forget net debt and your math is wrong.
• Choosing an unsuitable peer group. Multiples only work with genuinely similar companies – by industry, size, growth and margins.
• Underestimating the terminal value. In a DCF, the terminal value often makes up the largest part of the value. Small errors in the growth rate or WACC have an outsized effect here.
• Relying on a single method. No serious valuation rests on one number. Triangulating across several methods is standard.
• Not questioning your assumptions. “Garbage in, garbage out” applies especially to the DCF. Realistic assumptions matter more than complicated models.

Best practices

Whether for university, the job or the interview – these principles help you build a solid grasp of valuation:

1. Always start by asking which perspective is called for: market-based (multiples) or intrinsic (DCF).
2. Keep the enterprise-/equity-value bridge in mind for every calculation.
3. Combine multiple methods and present the results as a range, not a point estimate.
4. Document your assumptions openly – they are the real core of any valuation.
5. Practice the technical interview questions in a structured way and with repetition, rather than skimming them once.

Methods compared

In transaction-oriented roles (IB, PE), multiples analysis and DCF dominate; the income and asset-based approaches are more relevant in legal or situation-specific cases.

Market-based vs. intrinsic: pros and cons

Frequently asked questions about company valuation

Conclusion

Company valuation follows two core perspectives: the market, via multiples, tells you what comparable companies are worth; the DCF derives value intrinsically from future cash flows. Add to these the income and asset-based approaches, two methods for special, often legally driven situations. Master the enterprise-/equity-value bridge and know which metric belongs to which figure, and you have laid the foundation securely.

In the investment banking interview, valuation is the most tested technical area – and one of the most rewarding, because it can be fully prepared for. Once you have understood the logic behind the methods, you will handle the follow-up questions with confidence too.