Goldman's valuation techniques?

Rank: Monkey | 52

I'm interviewing with Goldman's currently, but not in M&A. I need to have a decent knowledge of valuation methods and know that Goldman's don;t really use the DCF. In this case what do they use to value companies? EV/EBITDA etc.?

Comments (37)

 
Apr 30,2010

clarify your question

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Apr 30,2010

Goldman doesn't have an m&a team. And they most def do dcf valuations. I hope u know that valuation techniques depends on the type of deal. Not type of bank.

 
Apr 30,2010

I hear Goldman MDs get a call from GOD in order to price deals so perfectly and accurately... Can some one please confirm?

 
Apr 30,2010

^ confirmed. i heard it from an md when i worked there.

BossMode

 
Apr 30,2010

Yep. When Blankfein says he's doing God's work he's not exaggerating at all. The man upstairs actually does all the pricing -- with divine accuracy. The good folks at goldman just convert His will to excel and powerpoint, then execute.

 
Apr 30,2010

lol good ones

"Whenever I'm about to do something, I think, 'Would an idiot do that?' And if they would, I do NOT do that thing."
-Dwight Schrute, "The Office"-

 
Apr 30,2010

On a side note, please do NOT refer to it as "Goldman's." Good grief, it's an investment bank -- NOT the neighborhood pizza joint.

 
Apr 30,2010

The role is in equities and as part of the interview process i need to understand valuation techniques. My question really is, if you want to value a company for investment purposes (i.e. from the point of view of an equity investor) and aren't doing it with a DCF to arrive at a target share price, how else would you value the firm to assess it's investment potential against peers in the same sector?

 
Apr 30,2010
analyst123:

I'm interviewing with Goldman's currently, but not in M&A. I need to have a decent knowledge of valuation methods and know that Goldman's don;t really use the DCF. In this case what do they use to value companies? EV/EBITDA etc.?

lol, it's pretty hard to get an interview for GS M&A, even harder than getting an interview with Lehman these days.

looks like someone's gonna get dinged before he even walks in the door...

 
Apr 30,2010

It's a good job the interview is in equities then, read my post.

 
Apr 30,2010
analyst123:

It's a good job the interview is in equities then, read my post.

I read your post

and you sound like an AUTO DING

but good luck though

and also, I bet they WILL ask you about a DCF, so I recommend you brush up on that, along with the comps

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7,548 questions across 469 investment banks. The WSO Investment Banking Interview Prep Course has everything you'll ever need to start your career on Wall Street. Technical, Behavioral and Networking Courses + 2 Bonus Modules. Learn more.

 
Apr 30,2010

On a side note, please do NOT refer to it as "Goldman's." Good grief, it's an investment bank -- NOT the neighborhood pizza joint.

"Goldmans" is the Brit/Aussie/Honkie way of saying "Goldman Sachs" - only us yanks don't call it that

 
Apr 30,2010
Go Native:

On a side note, please do NOT refer to it as "Goldman's." Good grief, it's an investment bank -- NOT the neighborhood pizza joint.

"Goldmans" is the Brit/Aussie/Honkie way of saying "Goldman Sachs" - only us yanks don't call it that

Interesting.

 
Apr 30,2010
analyst123:

I'm interviewing with Goldman's currently, but not in M&A. I need to have a decent knowledge of valuation methods and know that Goldman's don;t really use the DCF. In this case what do they use to value companies? EV/EBITDA etc.?

As far as I know, Goldman's doesn't really use DCF, you are right. The Goldman's use comparable company multiples, almost always, such as Price/Unlevered FCF and EV/EPS. EV/EBITDA is used from time to time, but it's outdated. Study up on those two multiples, how you derive it...think really hard.

"Whenever I'm about to do something, I think, 'Would an idiot do that?' And if they would, I do NOT do that thing."
-Dwight Schrute, "The Office"-

 
Apr 30,2010
BespokeAnalyst2010:
analyst123:

I'm interviewing with Goldman's currently, but not in M&A. I need to have a decent knowledge of valuation methods and know that Goldman's don;t really use the DCF. In this case what do they use to value companies? EV/EBITDA etc.?

As far as I know, Goldman's doesn't really use DCF, you are right. The Goldman's use comparable company multiples, almost always, such as Price/Unlevered FCF and EV/EPS. EV/EBITDA is used from time to time, but it's outdated. Study up on those two multiples, how you derive it...think really hard.

Dude - this is genius...

From the ghetto....

 
Apr 30,2010

When they want something valued, Chuck Norris says, this company is worth "$xxxx"

.............

And that company listens

 
Apr 30,2010

I have a fairness opinion from GS on my desk that uses all 3 of the primary techniques: DCF, peer comps, and precedent transactions. Any true evaluation will include some derivation of a DCF (assuming you have access to historical data you can always build projections to derive a value of future cash flows). The major downside of DCFs, obviously, is its sensitivity to inputs and optimism.

You should buy Scoop Books Guide to IB, M&A Corp Fin before your interview otherwise I would say you are pretty F'd.

 
Apr 30,2010

OP has it right, GS does NOT use DCF.

Those on the inside know that GS generally uses these to value assets:

http://redkid.net/generator/8ball/yoursign.jpg

 
Apr 30,2010

I think equities is one of goldman's IBD groups

 
Apr 30,2010

BespokeAnalyst2010... dude.... you're an investment banking analyst so i presume you work in the IBD team, and you cannot even get your multiples correct. no one uses EV/EPS... that's like comparing apples to oranges. EV includes debt and EPS strips out debt so you cannot use one over the other. EV/EBITDA is fine as EBITDA is before the interest line.

and you're wrong... GS uses a range of valuation techniques and the 3 most common ones as highlighted by ppl here are dcf, comps and precedent transactions. you cannot rule out dcf use at GS... they may not favour it and not use it much but saying they dont really use it is like saying Morgan Stanley dont really use comps.

 
Apr 30,2010
bankertohk:

BespokeAnalyst2010... dude.... you're an investment banking analyst so i presume you work in the IBD team, and you cannot even get your multiples correct. no one uses EV/EPS... that's like comparing apples to oranges. EV includes debt and EPS strips out debt so you cannot use one over the other. EV/EBITDA is fine as EBITDA is before the interest line.

and you're wrong... GS uses a range of valuation techniques and the 3 most common ones as highlighted by ppl here are dcf, comps and precedent transactions. you cannot rule out dcf use at GS... they may not favour it and not use it much but saying they dont really use it is like saying Morgan Stanley dont really use comps.

Hey Sheldon, having some problems detecting sarcasme?

 
Apr 30,2010

Worst thread ever... OF COURSE GS uses DCF... you should slap whoever told you otherwise

 
Apr 30,2010

I bet bankertohk registered on WSO exclusively for the sake of opening our eyes on screaming ignorance of BespokeAnalyst2010 in the field of multiples.

 
Apr 30,2010

lol... no, it was not because of that. im not trying to be smart or arrogant myself, but annoys me when wanabe-bankers/existing bankers or alike make silly comments such as "goldmans dont really use dcf" or "ev/eps"

 
Apr 30,2010
bankertohk:

lol... no, it was not because of that. im not trying to be smart or arrogant myself, but annoys me when wanabe-bankers/existing bankers or alike make silly comments such as "goldmans dont really use dcf" or "ev/eps"

I hope you're kidding about EV/EPS...

 
Apr 30,2010

bankertohk can't you see BespokeAnalyst2010 was joking?? A JOKE?

http://en.wiktionary.org/wiki/sarcasm
"Insincerely saying something which is the opposite of one's intended meaning, often to emphasize how unbelievable or unlikely it sounds if taken literally, thereby illustrating the obvious nature of one's intended meaning."

"im not trying to be smart myself" -> SUCCESS

 
Apr 30,2010
bankertohk:

lol... no, it was not because of that. im not trying to be smart or arrogant myself, but annoys me when wanabe-bankers/existing bankers or alike make silly comments such as "goldmans dont really use dcf" or "ev/eps"

This just got funnier.... Dude, you serious? Or is this a double bluff???? Did I miss it?

From the ghetto....

 
Apr 30,2010
Cabol:

I bet bankertohk registered on WSO exclusively for the sake of opening our eyes on screaming ignorance of BespokeAnalyst2010 in the field of multiples.

And looks like syntheticproduct registered on WSO exclusively for the sake of opening our eyes on screaming ignorance of bankertohk in the field of sarcasm.

 
Apr 30,2010
 
Apr 30,2010

too many ego's flying around this friday. too many "experts" out there.

 
Apr 30,2010

With EV/EPS in the 8 billion range I think it is time for Google to do some reverse stock splits until it can comfortably fit its EV/EPS ratio on yahoo finance...I tend to screen out companies with EV/EPS in the 9 figure range +

 
Apr 30,2010

EV/EPS doesn't even make any sense. EV represents the whole capital structure while EPS only equity holders. Unless you only have equity holders which I doubt.

 
Apr 30,2010

So, getting back on topic, disregarding undergraduate/fresh analyst ego's, can anyone advise on valuation methods other than DCF which are relevant for valuing investment potential of public companies? If you were going to be interviewed about valuing companies what would you read up on apart from DCF?

 
Apr 30,2010
 
Apr 30,2010

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