Valuation Drill For Big Four Talent
This conversation was generated using Cook'd AI's career assistant and reviewed by Fallon Han from our editorial team for accuracy.
I am a third-year accounting student in Australia on a student visa, and I am targeting Big Four valuation advisory in Sydney. Can we do a technical valuation drill? I want you to walk me through enterprise value adjustments first, then I will answer each step and you challenge me with follow-up questions.
Absolutely. Let us run it like a real interview.
Step 1: Start with market capitalization, then add debt, preferred equity, and minority interest, and subtract cash and cash equivalents to get enterprise value.
First question: why do we add debt to equity value in a valuation context, and what is the logic for subtracting cash? I want your answer in interview style, not textbook style.
We add debt because enterprise value reflects the value of the whole operating business, not just the equity. Debt is a claim that the buyer would assume or refinance, so it belongs in EV. Cash is subtracted because it is non-operating and reduces the effective purchase price. So EV is like the value of the business before financing structure.
Good. That is directionally correct.
Follow-up: in a valuation for an operating company, would you always subtract all cash on the balance sheet? Be careful here. Tell me what kind of cash might be excluded, and what accounting trap could make the balance sheet cash number misleading.
Not always. Excess cash is usually subtracted, but operational cash needed for day-to-day business may be treated differently. Also, restricted cash or cash trapped in overseas subsidiaries may not be fully available to equity holders, so it should be assessed separately. The trap is assuming all cash is freely available just because it appears on the balance sheet.
Strong answer. You spotted the key trap.
Now move to comparable companies. If you are building a trading comps set for a Sydney advisory interview, what metrics would you use first, and how would you decide whether EBITDA or revenue is more appropriate? Also, tell me one common mistake candidates make when comparing a bank-like or asset-light business.
I would start with EV to EBITDA for profitable operating companies and EV to revenue for early-stage or low-margin businesses. I would choose EBITDA when the company has more stable earnings and comparable capital intensity. I would use revenue when profitability is distorted or not yet meaningful.
A common mistake is using EBITDA for a financial business or another company where debt is part of operations, because EBITDA is not always the right denominator. Another mistake is comparing companies without adjusting for different accounting standards, leases, or non-recurring items.
Good. Let me push you on accounting traps.
Suppose one of your peers has higher EBITDA because it capitalises more costs, while another expenses them immediately. How would that affect comps, and what would you do to normalise the analysis? Also, if the target has large lease liabilities, how should you think about enterprise value and comparability?
If one company capitalises more costs, EBITDA will look artificially higher because expenses are deferred to the balance sheet. That makes comps less comparable unless I adjust for the accounting policy difference and recast EBITDA on a consistent basis.
For lease liabilities, I would check whether they are treated as debt-like items in EV. Under AASB 16, lease liabilities can inflate reported debt, so I need to be consistent across the set and avoid double counting. I would also look at EBITDAR if leases are material.
That is a solid technical answer, and your lease point is especially relevant for advisory work.
Final question: give me a clean 30-second interview answer that ties together EV bridge, comps, and accounting adjustments for a valuation mandate. Then I will score it and tell you what would improve it for a Big Four Sydney interview.