Corporate Valuation Methods Flashcards
7 cards from real CPFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Corporate Valuation Methods flashcards as text
Which valuation approach values a company by comparing it to similar publicly traded firms?
Answer: Comparable company analysis (trading comps)
Trading comps derive value from market multiples of similar public companies.
The EV/EBITDA multiple is preferred over P/E in cross-company comparisons primarily because it is:
Answer: Capital-structure neutral
EV/EBITDA ignores differences in financing and is therefore comparable across firms with different leverage.
In precedent transaction analysis, valuation multiples typically include a:
Answer: Control premium reflecting acquisition prices
Precedent transactions reflect prices paid to acquire control, which include a control premium.
Which multiple would be most appropriate for valuing an early-stage company with negative earnings?
Answer: EV/Revenue
EV/Revenue works when earnings are negative because revenue remains positive.
When selecting comparable companies, the most important criterion is similarity in:
Answer: Industry, size, and growth profile
Strong comparables share business model, industry, size, and growth characteristics.
A company trades at an EV/EBITDA of 8x while peers average 12x. This may indicate the company is:
Answer: Potentially undervalued relative to peers
Trading below the peer multiple suggests possible undervaluation, though further analysis is needed.
What is a key disadvantage of relying solely on comparable company analysis?
Answer: Market mispricing of peers distorts the valuation
Comps inherit any over- or under-valuation present in the peer group's market prices.