【留学人才网】投行面试经典答案集

【留学人才网】投行面试经典答案集1What are the three main financial statements?Income StatementRevenues – Cost of Goods Sold – Expenses = Net IncomeBalance SheetAssets = Liabilities + Shareholders’ EquityStatement of Cash FlowsBeginning Cash + CF from Operations + CF from Investing + CF from Financing = Ending CashHow to summarize during the 1st phone interview?The three main financial statements are the Income Statement, the Balance Sheet, and the Statement of Cash Flows.The Income Statement shows a company’s revenues, costs and expenses, which together yield net income.The Balance Sheet shows a company’s as sets, liabilities, and equity.The Cash Flow Statement starts with net income from the Income Statement; then it shows adjustments for non-cash expenses, non-expense purchases such as capital expenditures, changes in working capital, or debt repayment and issuance to calculate the company’s ending cash balance.2What is EBITDA?EBITDA = Revenues – Expenses (excluding interest, taxes, depreciation, and amortization)a. EV/EBITDA multiple, which estimates the Enterprise Value of a company using a multiple of its EBITDA.b.Leverage Ratio: Total Debt/EBITDA; Interest Coverage Ratio: Total Interest/EBITDAHow to summarize during the 1st phone interview?EBITDA stands for Earnings before Interest, Taxes, Depreciation, and Amortization. It is a good metric for ev aluating a company’s profitability.It is sometimes used as a proxy for free cash flow because it will allow you to determine how much cash is available from operations to pay interest, capital expenditures, etc.EBITDA removes the effects of financing and accounting decisions such as interest and depreciation, it’s a good way to compare the performance of different companies.3What is Enterprise Value?Enterprise Value is the value of an entire firm, both debt and equity, according to the equation below.This is the price that would be paid for a company in the event of an acquisition.Enterprise Value = Market Value of Equity + Debt + Preferred Stock + Minority Interest – CashHow to summarize during the 1st phone interview?Enterprise Value is the value of a firm as a whole, to both debt and equity holders.To calculate Enterprise Value in its simplest form, you take the market value of equity (the company’s market cap), add the debt and the value of outstanding preferred stock, add the value of minority interests the company owns, and then subtract the cash the company currently holds.4Walk me through a Discounted Cash Flow modelThis is one of the most common questions in investment banking interviews. Don’t mess it up!To begin, project free cash flows for a specified period, usually five to ten years. Free cash flow is equal to EBIT (earnings before interest and taxes) multiplied by (1-the tax rate) plus (depreciation and amortization) minus capital expenditures minus the change in net working capital.Next, predict free cash flows for the years beyond the five or ten years projected. This requires establishment of a terminal value, as is detailed in the next question below.Once future cash flows have been projected, calculate the present value of those cash flows.First, establish an appropriate discount rate –the Weighted Average Cost of Capital, or WACC. This calculation is discussed in the following two questions.To find the present values of the cash flows (which is equal to the company’s Enterprise Value), we discount them by the WACC, as follows. Enterprise Value = CF1 / (1+WACC)1 + CF2/ (1+WACC)2+…… CF n / (1+WACC)nThe final cash flow (CF n) in the analysis will be the sum of the terminal value calculation and the final year’s free cash f low.How to summarize during the 1st phone interview?First, project the company’s free cash flows for about 5 years using the standard formula. (Free cash flow is EBIT times 1 minus the tax rate, plus Depreciation and Amortization, minus Capital Expenditures, minus the Change in Net Working Capital.) Next, predict free cash flows beyond 5 years using either a terminal value multiple or the perpetuity method. To calculate the perpetuity, establish a terminal growing rate, usually about the rate of inflation or GDP growth, a low single-digit percentage. Now multiple the Year 5 cash flow by 1 plus the growth rate and divide that by your discount rate minus the growth rate.Your discount rate is the Weighted Average Cost of Capital, or WACC. Use that rate to discount all your cash flows back to year zero. The sum of the present values of all those cash flows is the estimated present Enterprise Value of the firm according to a discounted cash flow model.5How do you calculate a firm’s terminal value?Terminal value＝FCF10 (1+g)/(WACC-g)To establish a terminal value, either you can use the formula above, which is the perpetuity growth methodology, or you can use the terminal multiple method.In the terminal multiple method, you assign a valuation multiple (such asEV/EVITDA) to the final year’s projection, and use that as the “terminal value” of the firm.In either case, you must remember to discount this “cash flow” back to year zero as you have with all other cash flows in the DCF model.How to summarize during the 1st phone interview?There are two ways to calculate terminal value. The first is the terminal multiple method. To use this method, you choose an operation metric (most commonly EBITDA) and apply a comparable company’s multiple to that number from the final year of projections.The second method is the perpetuity growth method where you choose a modest growth rate, usually just a bit higher than the inflation rate or GDP growth rate, and assume that the company can grow at this rate infinitely. You then multiple the FCF from the final year by 1 plus the growth rate, and divide that number by the discount rate (WACC) minus the assumed growth rate.。