Technical Interview Fundamentals

This site already has real, working DCF, LBO, M&A, and Trading Comps templates in Model Templates — genuinely useful tools once you already know what you're doing. This lesson is the missing piece: turning those same four concepts into the specific, plain-language answers an interviewer is actually listening for.

"Walk me through a DCF"

This is close to the single most-asked technical question in finance interviews, across every seat type. The full mechanics live in the valuation learning plan in The Vault — here's the compressed, interview-ready version, in the order you should actually say it out loud:

1. Forecast unlevered free cash flow for 5ish years — start from revenue, apply a margin assumption to get to EBIT, tax-affect it, add back D&A, subtract capex and the change in net working capital.
2. Discount those cash flows back to today using the company's WACC (weighted average cost of capital) — the blended return investors require given the company's mix of debt and equity.
3. Estimate a terminal value for everything beyond the forecast window — either a perpetuity growth rate (assume cash flow grows modestly forever) or an exit multiple (assume the business sells for a typical trading multiple in the final year). Discount that back too.
4. Sum the discounted cash flows and the discounted terminal value to get Enterprise Value.
5. Bridge to equity value: subtract net debt, divide by shares outstanding to get a per-share value.
6. Compare to the current share price.

The one line that signals real understanding, not memorization: "A DCF is only as good as its assumptions — I'd always sensitize it across a range of WACC and terminal growth, not present one number as if it were precise." Interviewers hear the six-step recitation constantly; they remember the candidate who volunteers the caveat unprompted.

"Walk me through an LBO"

The core question an LBO answers: can a private equity firm buy this company mostly with borrowed money, use the company's own cash flow to pay that debt down, and sell it later for a return that justifies the risk?

1. Sources & Uses: how much of the purchase price comes from debt vs. the sponsor's own equity (typically 60-70% debt in a traditional LBO).
2. Build a debt paydown schedule: the company's free cash flow each year goes toward paying down that debt (mandatory amortization plus, often, a cash sweep).
3. Project an exit in year 3-7, usually at a similar multiple to what was paid at entry (assuming no multiple expansion, the conservative assumption).
4. Back out returns: the sponsor's equity check at entry vs. what they receive at exit (equity value at exit = enterprise value at exit minus remaining debt) gives you IRR and MOIC (multiple on invested capital).

The interview-ready insight: LBO returns come from three levers — debt paydown (the company's own cash flow reducing what's owed), multiple expansion (selling for a higher multiple than you paid, not guaranteed), and EBITDA growth (the business actually getting bigger). A good candidate can name which lever is doing the most work in a given deal, not just recite the mechanic.

"Walk me through an M&A model" (accretion/dilution)

The question this answers: if Company A buys Company B, does the deal increase or decrease Company A's earnings per share?

1. Combine the two companies' financials.
2. Figure out the financing mix: cash, new debt, new stock issued, or some blend — this single choice drives almost everything else.
3. Compute pro forma net income (combined, adjusted for financing costs — new interest expense if debt-funded, lost interest income if cash-funded).
4. Compute pro forma shares outstanding (up, if stock-funded).
5. Pro forma EPS = pro forma net income ÷ pro forma shares. Compare to the acquirer's standalone EPS: higher is "accretive," lower is "dilutive."

The nuance interviewers actually want: a cheap deal funded with cash is almost always accretive; a deal funded with stock is accretive only if the acquirer's own P/E is higher than the target's (a rule of thumb worth internalizing: buying a company at a lower P/E than your own, funded with your own richly-valued stock, is basically always accretive — that's the entire logic behind why high-multiple acquirers can "buy" earnings growth via stock deals). And, as covered in the valuation plan: accretive doesn't automatically mean "good deal." A strategically sound acquisition can be dilutive for a year or two before it pays off — EPS math is not the same thing as value creation.

"Walk me through a comps analysis"

The simplest of the four, and often underestimated because of that:

1. Pick a genuinely comparable peer set — same industry, similar size, similar growth/margin profile (not just "same sector label").
2. Compute each peer's multiples: P/E, EV/EBITDA, EV/Sales, P/B.
3. Take the peer median (not average — one outlier shouldn't swing the read).
4. Apply that median multiple to your subject company's own metric to get an implied valuation, and compare to where it actually trades.

The answer that signals real judgment: "If my subject trades meaningfully below the peer median, that's not automatically a buy signal — it could mean the market is pricing in something real (weaker growth, more leverage, governance risk) that a simple multiple doesn't capture." This is the exact discipline this site's own Hype vs Fundamentals module is built around: a gap between price and multiple is a question to investigate, not an automatic conclusion.

Practice on this site

Every one of these four models exists as a real, downloadable template in Model Templates, prefilled with real data for any company you pick — every cell is a live Excel formula, so you can trace exactly how changing one assumption moves the whole output. The Trading Comps template specifically supports up to six real peers with real prefilled multiples, which is the fastest way to build genuine pattern-recognition for what a "normal" versus "unusual" comps table actually looks like.