Hey future banker,

Welcome back to Finterview! We hope your recruiting is going well.

Now, let’s jump into today’s interview question.

How would the valuation multiples of a software company, retail store, and computer chip company compare?

Let me break it down simply:

Think of these businesses like different types of cars. A Ferrari (software) commands premium prices, a Toyota (retail) is reliable but not exciting, and a specialized truck (chips) sits somewhere in between.

Software companies usually get the highest multiples. Why? High margins, recurring revenue, and scalability. They can double revenue without doubling costs - like selling digital copies of a book with near-zero extra cost.

Retail stores get the lowest multiples. Thin margins, high competition, and expensive growth. Want to double revenue? Build twice as many stores. Plus inventory and staffing headaches. It's a tough business.

Chip companies land in the middle. They have high margins like software but need massive capital investment for growth. Each new factory costs billions - that capital intensity hurts their multiples.

Remember: Multiples reflect business quality. Software's high multiples come from capital-light growth and sticky revenues. Retail's low multiples reflect tough economics. Chips balance good margins against heavy investment needs.

Talk soon,

Sam