Comps Valuation Interview Walkthrough

Reviewed by Fallon Han· Updated 2026-06-01 21:30:02.151

This conversation was generated using Cook'd AI's career assistant and reviewed by Fallon Han from our editorial team for accuracy.

Can you unpack a comps valuation example step by step? I am a first-year MBA in the US on an F-1 visa, and I am pivoting from PM to bulge-bracket banking. I get the mechanics, but I want to understand how to choose the right multiple and how to explain why some comps are outliers.

Absolutely. Let us walk through it like you would in an interview. Suppose you are valuing a software company with stable growth and decent margins. Step 1 is to pick the right peer group. You want companies with similar business model, growth profile, and margin structure. If the target is subscription-based enterprise software, I would not mix in low-margin services firms just because they are in tech. Step 2 is to choose the primary multiple. For software, EV to forward revenue is often the cleanest starting point because earnings can be distorted by growth investments and stock comp. If the company is more mature and profitable, EV to EBITDA becomes more useful because it captures operating efficiency. Step 3 is to screen for outliers. If one peer trades at 25x revenue while the rest sit at 10x to 14x, ask why. Maybe it has much faster growth, higher retention, or a strategic takeover premium. If there is no real fundamental reason, you can say it should be discounted or excluded from the headline range, but still mentioned as a reference point. The interview answer should sound like: I used EV to forward revenue as the primary multiple because the company is still scaling and EBITDA is temporarily depressed. I sanity-checked with EV to EBITDA to make sure the result was not extreme. Then I trimmed outliers based on growth and profitability differences.

That helps. But if EV to revenue is the main multiple, how do I justify not using EV to EBITDA or P E? I do not want to sound like I picked revenue just because it is easier.

Good instinct. In an interview, the key is to connect the multiple to the economics of the business, not convenience. Use EV to revenue when the company is early in its scale-up, reinvesting heavily, or has temporarily compressed margins. Revenue is harder to manipulate and lets you compare companies before accounting choices distort earnings. Use EV to EBITDA when the business is more mature, margins are relatively stable, and capex or accounting noise is less of a concern. EBITDA is useful because it approximates operating cash flow before capital structure. Avoid P E as the primary multiple if leverage differs across peers or if net income is distorted by interest, taxes, or stock comp. Since P E is equity value based, it can be misleading when capital structures are not comparable. A clean interview line would be: I chose EV to revenue because profitability is still in transition, so EBITDA would understate value for the more heavily invested names. I used EV to EBITDA as a cross-check once I normalized for differences in margin and reinvestment. If they push further, you can say the best multiple is the one most correlated with the driver of value. For a software company, that is often revenue growth and margin expansion, not current earnings alone.

What if one peer has a much higher growth rate but lower margins, and another has slower growth but better margins? How do I explain which one should trade richer?

That is a very common trade-off, and it is exactly where a strong answer stands out. You can explain that higher-growth companies usually deserve a richer revenue multiple because the market is paying for future scale. Lower margins today are not necessarily a problem if the company is still investing in sales and product. On the other hand, a slower-growing company with strong margins may deserve a richer EBITDA multiple if the market believes the earnings are durable and the business has less execution risk. The trick is to compare value creation, not just one metric. Ask: is the company buying growth efficiently, or is it sacrificing too much margin for each point of growth? In practice, I would say something like: the higher-growth peer should trade at a premium on EV to revenue, but if its margins are structurally weaker and there is no path to profitability, I would limit that premium. The lower-growth peer may deserve a lower revenue multiple but a relatively stronger EBITDA multiple if its cash conversion is superior. If you want to sound sharper, mention that the market often balances growth, margin, and quality. That is why two names can look similar on revenue multiple but diverge on EBITDA multiple.

How do I actually deal with an outlier in the peer set during the walk-through? For example, what if one company had a one-time acquisition that makes its EBITDA weird?

You should address outliers directly and calmly. Do not ignore them, and do not overcomplicate the answer. First, identify the source of the distortion. If EBITDA is unusually high or low because of a one-time acquisition, restructuring charge, or integration cost, adjust it if the item is truly non-recurring and separable. Second, decide whether the company belongs in the core comp set. If the acquisition fundamentally changed the business mix, it may no longer be a clean peer for the target. In that case, you can leave it in a broad reference set but exclude it from the main valuation range. Third, explain the treatment in one sentence. For example: I excluded this peer from the headline multiple range because its EBITDA is distorted by acquisition-related items, which makes it less comparable to the steady-state operating profile of the target. If the interviewer asks whether excluding it is cherry-picking, respond by saying you are not removing it to force a valuation result. You are removing it because its multiple is not apples to apples. You can still mention it as a sensitivity or context point. That answer shows discipline and judgment, which matters a lot in banking.

Could you give me a short interview-style answer I could say out loud if they ask me to walk through the comp valuation from start to finish?

Sure. Here is a concise version you can use: First, I would define a peer set of companies with similar business models, growth, and margin profiles. Then I would value the target primarily on EV to forward revenue if it is still scaling, or EV to EBITDA if it is more mature and profitability is stable. I would screen for outliers by checking whether any peer is trading at a major premium or discount because of unique growth, margin, or transaction effects. If a peer is distorted by a one-time item or a different business mix, I would either adjust it or exclude it from the headline range. Finally, I would triangulate the implied valuation with a secondary multiple to make sure the result is reasonable. If you want, I can also help you turn that into a tighter 20 second version and a stronger follow-up if they challenge your multiple choice.