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Investment Banking Interview Questions With accurate answers, 2022/2023 Latest Updates, Graded A

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Investment Banking Interview Questions With accurate answers, 2022/2023 Latest Updates, Graded A Why do you want to do investment banking? - ✔?In no other field out of college can you get a mor... e meaningful corporate experience, I feel like I would be selling myself short any other way. I'm always looking for a challenge, and by working with the sharpest people in the industry, it will force me to always bring my A game and I like that. What do investment bankers do? - ✔?Investment bankers help companies raise capital or advise them on a transactions like mergers or acquisitions. Walk me through your resume. - ✔?• Growing up in valley, I never had a set path in mind. I worked in retail and even took some time off from school trying to get signed as a drummer in a rock band, but once college came around, I decided to make my mom happy, I entered UCLA as a pre-med major • Spoke to my only cousin in investment banking, and he urged me to get involved on campus and find out what I really wanted to do • Found a business organization on campus and met many inspiring, successful people in a variety of different industries • DSP opened many doors in terms of professionalism to me and introduced me to new fields in finance that I had not ever been aware of • Got my first finance internship at McComsey Asset Management, I learned more about investing and was able to have direct client interaction - but wanted something more impactful and on a larger scale • Tried banking at the public finance investment bank De La Rosa & Co. Worked with debt financing and municipal bonds, it was my first time in banking and it was amazing being in such a new and challenging environment - but I really wanted to be sure that this was the right industry for me • Worked at Siemer & Associates, a digital media investment bank in Santa Monica. There I had experience with private placement and M&A transactions in the tech space. • Having worked at two investment banks, I have decided that the fast paced culture is right for me, and as a junior now I am eager to bring your firm a dedicated summer analyst Say you are supposed to meet your girlfriend for dinner but the MD asks you to stay late. What do you do? Can you give me an example of a similar situation you have faced before? - ✔?My job is always my top priority, and I will have to reschedule with my girlfriend. There was a time at Siemer where I took on a larger role than I was used to, and had to reschedule with some of my friends. Why should we hire you? - ✔?If I were in your shoes, I would be looking for a candidate that is hard working, does great work and is someone that you can spend however many hours with every week. I really believe I can bring you a Summer Analyst who will fulfill each of those roles, and who will always prioritize his work over everything else. Why do you want to work for Citi? - ✔?After speaking with Ryan, Sarah and Brent, I was drawn to the leaner deal teams at Citi, and the greater responsibilities it gives you at the analyst level. Something that also stood out to me is how much Citi invests in their analysts. After finding out that a majority of senior bankers have started at the analyst level, it really makes me believe I'm joining a culture of people who are vested in their junior bankers. It's really my goal to learn and contribute as much as I can, and I think Citi is the perfect place for me to do that. Give me an example of a project that you've done that involved heavy analytical thinking. - ✔?One of the deals I worked on was the sale of a $23M NFC mobile advertising company. They were looking to sell because of projected mobile advertising spend growing at a CAGR of 58% into 2015. With ad budgets shifting toward mobile, the company thought that they could receive a premium valuation. The company had capital limits, and was an early stage company, so it sought to sell because there were competitive limitations by being a standalone company. We reached out to buyers in the mobile brand management space. What is your favorite website? - ✔?techcrunch.com Tell me about a stock you like? - ✔?• Textura is a construction software company that allows construction projects to consolidate all of the operations • Revenue has grown over the 72% over the past period, with construction projects increasing by 32% y-o-y. • Just acquired LATISTA, a mobile construction analytics platform increasing their competitive edge • High industry concentration Give me an example of a time you worked as part of a team. - ✔?• A client presentation needed to be produced by the end of the week at Siemer. Worked in a team of five interns, and we each had our own set of skills o Delegated assignments based on talent and sections o Compiled and revised together quickly and efficiently What is the most striking thing you've read recently in The Wall Street Journal? - ✔?... Can you give me an example of an experience of failure? - ✔?As a sophomore in high school, I left public school and began an independent study home school program to dedicate all of my time to playing the drums in a rock band I had at the time. We had producers and an EP that we were shopping to record labels, but unfortunately didn't end up getting signed. It was a great experience for me in that I could follow my passion, but I learned that I should act more rationally rather than jumping on my emotions. Tell me about an accomplishment you are proud of. - ✔?*Disclaimer first* my father actually passed away while I was pursuing my musical career, and it was a wakeup call for me to essentially find my priorities. It was then that I was able to make it back into my old high school, apply myself and get accepted in UCLA. In my opinion, that was the greatest accomplishment I have What are the four most commonly used valuation techniques? - ✔?1. Discounted cash flow (DCF) analysis 2. Multiples method 3. Market valuation 4. Comparable transactions method What are the four financial statements? - ✔?1. Income Statement 2. Balance Sheet 3. Statement of Cash Flows 4. Statement of Retained Earnings What are cash flows from operating activities? - ✔?Includes the cash effects of transactions involved in calculating net income. What are cash flows from investing activities? - ✔?Cash from non-operating activities or activities outside the normal scope of business. This involves items classified as assets in the Balance Sheet and includes the purchase and sale of equipment and investments. What are cash flows from financing activities? - ✔?Involves items classified as liabilities and equity in the Balance Sheet; it includes the payment of dividends as well as issuing payment of debt or equity. What is the CAPM equation? - ✔?reL =rf +ßL (rm -rf) What is the difference between the Income Statement and the Statement of Cash Flows? - ✔?The Income Statement is a record of Revenues and Expenses while the Statement of Cash Flows records the actual cash that has either come into or left the company. The Statement of Cash Flows has the following categories: Operating Cash Flows, Investing Cash Flows, and Financing Cash Flows. What is the link between the Balance Sheet and the Income Statement? - ✔?The main link between the two statements is that profits generated in the Income Statement get added to shareholder's equity on the Balance Sheet as Retained Earnings. Also, debt on the Balance Sheet is used to calculate interest expense in the Income Statement. What is the link between the Balance Sheet and the Statement of Cash Flows? - ✔?The Statement of Cash Flows starts with the beginning cash balance, which comes from the Balance Sheet. Also, Cash from Operations is derived using the changes in Balance Sheet accounts (such as Accounts Payable, Accounts Receivable, etc.). The net increase in cash flow for the prior year goes back onto the next year's Balance Sheet . Whats is EBITDA? - ✔?A proxy for cash flow, EBITDA is Earnings Before Interest, Taxes, Depreciation, and Amortization. Say you knew a company's net income. How would you figure out its "free cash flow"? - ✔?Start with the company's Net Income. Then add back Depreciation and Amortization. Subtract the company's Capital Expenditures (called "CapEx" for short, this is how much money the company invests each year in plant and equipment). The number you get is the company's free cash flow: Net Income +Depreciation & Amortization - Capital Expenditures - Increase in net working capital ------------------------------ = Free Cash Flow (FCF) Walk me through the major line items on a Cash Flow statement. - ✔?First the Beginning Cash Balance, then Cash from Operations, then Cash from Investing Activities, then Cash from Financing Activities, and finally the Ending Cash Balance. What happens to each of the three primary financial statements when you change gross margin? - ✔?Think about the definitions of the variables that change. For example, gross margin is gross profit/sales, or the extent to which sales of sold inventory exceeds costs. Hence, if gross margin were to decrease, then gross profit decreases relative to sales. Thus, for the Income Statement, you would probably pay lower taxes, but if nothing else changed, you would likely have lower net income. The cash flow statement would be affected in the top line with less cash likely coming in. Hence, if everything else remained the same, you would likely have less cash. Going to the Balance Sheet, you would not only have less cash, but to balance that effect, you would have lower shareholder's equity. What happens to each of the three primary financial statements when you change capital expenditures? - ✔?If capital expenditure were to say, decrease, then first, the level of capital expenditures would decrease on the Statement of Cash Flows. This would increase the level of cash on the balance sheet, but decrease the level of property, plant and equipment, so total assets stay the same. On the income statement, the depreciation expense would be lower in subsequent years, so net income would be higher, which would increase cash and shareholder's equity in the future. Why might there be multiple valuations for a single company? - ✔?There are several different methods by which one can value a company. And even if you use the rigorously academic DCF analysis, the two main methods (the WACC and APV method) make different assumptions about interest tax shields, which can lead to different valuations. Why are the P/E multiples for a company in London different than that of the same company in the States? - ✔?The P/E multiples can be different in the two countries even if all other factors are constant because of the difference in the way earnings are recorded. Overall market valuations in American markets tend to be higher than those in the U.K. What are the different multiples that can be used to value a company? - ✔?The most commonly used multiple is price-to-earnings multiple, or "P/E ratio." Other multiples that are used include revenue, EBITDA, EBIT, and book value. The relevant multiple depends on the industry. For example, Internet companies are often valued with revenue multiples; this explains why companies with low profits can have such high market caps. Companies in the metals and mining industry are valued using EBITDA. How do you get the discount rate for an all-equity firm? - ✔?You use the Capital Asset Pricing Model, or CAPM. How much would you pay for a company with $50 million in revenue and $5 million in profit? - ✔?If this is all the information you are given you can use the comparable transaction or multiples method to value this company (rather than the DCF method). To use the multiples method, you can examine common stock information of comparable companies in the same industry, to get average industry multiples of price-to-earnings. You can then apply that multiple to find the given company's value. What is the difference between the APV and WACC? - ✔?WACC incorporates the effect of tax shields into the discount rate used to calculate the present value of cash flows. APV adds the present value of the financing effects (most commonly, the debt tax shield) to the net present value assuming an all-equity value, and calculates the adjusted present value. The APV approach is particularly useful in cases where subsidized costs of financing are more complex, such as in a leveraged buyout. How would you value a company with no revenue? - ✔?First you would make reasonable assumptions about the company's projected revenues (and projected cash flows) for future years. Then you would calculate the Net Present Value of these cash flows. What is Beta? - ✔?Beta is the value that represents a stock's volatility with respect to overall market volatility. How do you unlever a company's Beta? - ✔?Unlevering a company's Beta means calculating the Beta under the assumption that it is an all-equity firm. The formula is as follows: ßL = ßu [1+(1-t)(D/E)] Name three companies that are undervalued and tell me why you think they are undervalued. - ✔?... Walk me through the major items of an Income Statement. - ✔?Revenues Expenses Net Income Which industries are you interested in? What are the multiples that you use for those industries? - ✔?... Is 10 a high P/E ratio? - ✔?It Depends. P/E ratios are relative measurements, and in order to know whether a P/E ratio is high or low, we need to know the general P/E ratios of comparable companies. Generally, higher growth firms will have higher P/E ratios because their earnings will be low relative to their price, with the idea that the earnings will eventually grow more rapidly that the stock's price. Quick Ratio - ✔?Cash + AR/ Current Liabilities Shows the amount of liquid assets (i.e., cash or assets that can be quickly converted to cash) on hand to cover current debts Good if: Rising Current Ratio - ✔?Current Assets/Current Liabilities Similar to the Quick Ratio, but broader, since it includes less liquid assets that may be used to cover current debts Good if: Rising Cash Ratio (Liquidity Ratio) - ✔?Cash/ Current Liabilities Shows the cash on hand to cover current liabilities Good if: Rising Debt to Equity - ✔?Debt/Equity Shows the amount of shareholders' equity available to cover debts Good if: Falling Current Liabilities to Inventory - ✔?Current Liabilities/Inventory Shows how much a company can rely on unsold inventory to cover debts Good if: Falling Total Liabilities to Net Worth - ✔?Total Liabilities/ Net Worth Similar to the debt to equity ratio, but broader since it includes all the company's liabilities, not just debt Good if: Rising Collection Period (Day Sales Outstanding) - ✔?Account Receivable/ Sales X 365 Shows the average amount of time it takes a company to collect from customers Good if: Falling Inventory Turnover - ✔?Sales/Inventory Shows how quickly a company is selling its inventory Good if: Rising Sales to Assets - ✔?Sales/Assets Measures how efficiently a company is using its assets to generate sales Good if: Rising Sales to Net Working Capital - ✔?Sales/NWC Shows a company's ability to use short-term assets and liabilities to generate revenue Good if: Rising Gross Profit Margin (Return on Sales) - ✔?Gross Profit/Sales A measure of efficiency — shows profits earned per dollar of sales Good if: Rising Return on Assets - ✔?Net Income/Assets Shows profits relative to a company's assets Good if: Rising Return on Equity (Return on Net Worth) - ✔?Net Income/ Net Worth Shows profits relative to equity Good if: Rising If you add a risky stock into a portfolio that is already risky, how is the overall portfolio risk affected? - ✔?It depends on the stock's risk relative to that of the portfolio In modern portfolio theory, if you add a risky stock into a portfolio that is already risky, the resulting portfolio may be more or less risky than before. A portfolio's overall risk is determined not just by the riskiness of its individual positions, but also by how those positions are correlated with each other. For example, a portfolio with two high-tech stocks might at first glance be considered risky, but if those two stocks tends to move in opposite directions, then the riskiness of the portfolio overall could be significantly lower. So the risk effect of adding a new stock to an existing portfolio depends on how that stock correlates with the other stocks in the portfolio. Put the following portfolios consisting of 2 stocks in order from the least risky to the most risky and explain why: A. A portfolio of a cable television company stock and an oil company stock B. A portfolio of an airline company stock and a cruise ship company stock C. A portfolio of an airline company stock and an oil company stock. - ✔?Least risky: C. Then A. B is the most risky. Gotham Energy just released second quarter financial results. Looking at its balance sheet you calculate that it's Current Ratio went from 1.5 to 1.2. Does this make you more or less likely to buy the stock? - ✔?Less likely. This means that the company is less able to cover its immediate liabilities with cash on hand and other current assets than it was last quarter. Xeron Software Corporation's days sales outstanding have gone from 58 days to 42 days. Does this make you more or less likely to issue a Buy rating on the stock? - ✔?More likely. When the company's days sales outstanding (DSOs) decreases, it means the company is able to collect money from its customers faster. In other words, Xeron's customers went from taking an average of 58 days to pay their bills to 42 days. All things being equal, having faster paying customers is almost always a good thing. Of course, one caveat is that you want to make sure Xeron didn't achieve this by imposing much tighter credit terms on its customers and therefore. But if the company's sales grew at the same time its DSOs decreased, then as a research analyst or trader you'll be more likely to want to buy the stock. What kind of stocks would you issue for a startup? - ✔?A startup typically has more risk than a well-established firm. The kind of stocks that one would issue for a startup would be those that protect the downside of equity holders while giving them upside. Hence the stock issued may be a combination of common stock, preferred stock and debt notes with warrants (options [Show More]

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