I was asked 2 questions in a finance interview. I just graduated and was stuck answering thesm. Can you guys help me with answering them for future interviews? Thanks. 1) If you chose a company, how would you know it was long or short, why? 2) What is the company’s valuation relative to its current price?
Why don’t you try to answer first. Then ask for feedback
Well, as for the 1st question, I dont know what theyre trying to get at. But I think its trying to find out the present value of a company’s future cash flows using DCF (discounted cash flow) method. After thats been deirved, I guess it can then be compared to the industry’s average present value of a firm’s future cash flows. Is this correct?
As for the 2nd question, I assume that youre trying to find the p/e multiples. So if I find that out, I could then compare it the the average p/e of the conpany’s industry. Is this right?
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I’d talk about financial metrics relative to expectations. That’s the key on if its a long or short. If things are going great, but the expectation is for god like, then it may not be a good long
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valuation relative to current price doesn’t ask anything about industry. So I’d talk about specific multiples for specific industries. EV/EBITDA, PE, TBV, etc
but these questions would depend on the type of role (SS ER, Buyside, Long only, value fund, long/short, etc)