Module II· Interview Essentials — ValuationIntermediate
Question
What are the most common junior pitfalls in DCF models that senior analysts/associates spot immediately?
Answer
Top 10 junior pitfalls:
- Cash-flow sign errors: capex entered as positive instead of negative in the FCF bridge.
- Stub-period discounting wrong: the first period isn't adjusted for the stub months.
- Mid-year convention forgotten: cash flows should often be discounted with a half-year, not end-of-period.
- Terminal-year cash-flow inconsistency: the TV cash flow must be 'steady state' — no investment spike, normalized capex, normalized working-capital changes.
- Implied terminal multiple sanity check missing: the TV often implies 30x EBITDA — implausible.
- WACC beta levering inconsistent: beta not relevered to the target capital structure.
- Tax-shield double-counting in UFCF + WACC.
- Net-debt cut-off date: taken at the last balance-sheet date rather than the valuation date.
- Forward-EBITDA ring-fencing: using an NTM multiple but LTM EBITDA, or vice versa.
- Sensitivity table not symmetric.
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Pitch tip
'Run these 10 points as a checklist before every MD submission — every junior makes 2–3 of them, top analysts make 0.'