Jefferies Interview Question: What if FCF's are negative in... | Glassdoor

Interview Question

Investment Banking Analyst Interview San Francisco, CA

What if FCF's are negative in your terminal year?


Interview Answer

2 Answers


Firm is probably not stable yet - DCF assumes a stable company so if FCF's are negative, DCF is probably not best approach.

Interview Candidate on Oct 3, 2011

You would probably want to wait and extend your planning period until your free cash flow levels out - a terminal value multiple is no good if it is not based on a stable or somewhat stable cash flow. Remember that applying a terminal value multiple, or even a growth rate to your FCF is best at these scenarios:

1. Your company comes out of a business cycle
2. Your company realizes whatever investments they've undertaken
3. Your earnings stabilize (either from a peak or trough)

Anonymous on Oct 6, 2011

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