CPFM Corporate Valuation Methods 3

Question 1

Which valuation approach values a company by comparing it to similar publicly traded firms?

Accepted Answer

Comparable company analysis (trading comps)

Answer

Trading comps derive value from market multiples of similar public companies.

Question 2

The EV/EBITDA multiple is preferred over P/E in cross-company comparisons primarily because it is:

Accepted Answer

Capital-structure neutral

Answer

EV/EBITDA ignores differences in financing and is therefore comparable across firms with different leverage.

Question 3

In precedent transaction analysis, valuation multiples typically include a:

Accepted Answer

Control premium reflecting acquisition prices

Answer

Precedent transactions reflect prices paid to acquire control, which include a control premium.

Question 4

Which multiple would be most appropriate for valuing an early-stage company with negative earnings?

Accepted Answer

EV/Revenue

Answer

EV/Revenue works when earnings are negative because revenue remains positive.

Question 5

When selecting comparable companies, the most important criterion is similarity in:

Accepted Answer

Industry, size, and growth profile

Answer

Strong comparables share business model, industry, size, and growth characteristics.

CPFM Practice Test