How would you value a company in a cyclical industry?
A core Valuation interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Use normalized/mid-cycle earnings: average EBITDA over a full business cycle (5–7 years) rather than peak or trough. Apply multiples to mid-cycle metrics. In DCF: model the full cycle with explicit up/down years, then use a normalized terminal value. Never value a cyclical company at peak EBITDA with a peak multiple – that's a recipe for overpayment. D. IDW S1 & Germany-Specific (31–40)
WHAT INTERVIEWERS LISTEN FOR
- ✓Normalized mid-cycle earnings
- ✓Average EBITDA over full cycle
- ✓Apply multiples to mid-cycle metrics
- ✓DCF with explicit cycle modeling
- ✓Normalized terminal value
COMMON MISTAKES
- ✗Using peak EBITDA or peak multiples
- ✗Ignoring cyclicality in projections
- ✗Assuming constant growth without cycles
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