Hi there,
Q: I was little stuck and unsure on the method to do so - e.g. DCF with y1r cash flow/WACC or alternative.
Most likely you had to use DCF method in that case, as you would have needed more information to use the other methods (eg a multiple or asset value).
The usual valuation methods in case interviews are the following:
1) DCF. Often used in case interviews. To use, you are normally going to apply the perpetuity formula
Where
- V = Value of the asset
- FCF = Free cash flow
- r= Discount rate
- g= Growth rate of FCF
For a more detailed answer, you can check the following:
▶ How to Find the Net Present Value of a Company
2) Multiples. Sometimes used in case interviews. To use, consider the average multiple used in equivalent transactions (eg P/E ratio). Then apply the multiple to the relevant variable of the target (eg Net Earnings of the target).
3) Asset Valuation. Rarely used in case interviews. To use, calculate the value as the fair value of assets minus liabilities. You will normally consider assets in isolation, doing so should give you the minimum price you could pay for the target (ie the value in case the target would be dismissed as an alternative to the sale).
Best,
Francesco