URGENT Duff & Phelps Valuation Analyst Interview Help

Hi bankers,

I have a Valuation Analyst interview tomorrow w/ Duff & Phelps.

I have only ever skimmed these types of questions, but am now seeking help/advice.

I am expecting them to ask the following questions. Seeking any help. Thanks in advance!

Duff and Phelps Valuation Interview Tips

While it’s always good to start preparing for an interview as soon as you hear about it and not the night before, the WSO forum may be able to come to your rescue. To prepare for a valuation associate interview with Duff & Phelps, here are some of the questions past candidates have been asked and answers provided by WSO users, including these master lists:

Walk me through a DCF

What is WACC?

What's FCF?

Would you prefer a firm with all equity and no debt or a firm with some debt and the rest as equity?

How do the different statements link to each other?

Beta, what it means, how to get it, CAPM model application?

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Not to be a jerk, but if they're asking you those questions and you literally have no idea what to say or where to look then you're screwed. I can understand being a little fuzzy on WACC and a DCF valuation, but if you don't even know where to look to refresh your memory then you're going to be in trouble. The fact that you're asking what FCF means is a big indication that you're beyond overnight help.

My advice is to just be yourself and use the interview as practice. If they ask you technical questions about valuation then you're not going to be able to fool them into thinking you know what you're talking about. If they are more interested in personality, work ethic, etc. then you may have a shot. Don't stay up all night trying to cram for something that you can't cram for though.

 

With most of your comments, but know that I am an Economics major and do not focus on the Finance/Accounting curriculum.

Never intended to go into a banking interview, so I've just barely went through these topics.

Interview preselects were only 1 week...probably still not ample time to get this stuff down

Was just seeking any tips/shortcuts/what to make points on regarding typical valuation questions?

(I may know the formulaes, but may have more trouble defining the true meaning behind the numbers)

 

value company through multiples or dcf FCF = ebit(1-t) + deprec - capex - increase in wc

get terminal value similar to a growing perpetuity discount fcfs and the terminal value using the discount rate you get through the capital asset pricing model which is Rd = risk free return + beta(return of market - risk free return) wacc = weighted average cost of capital wacc = e/d+e times cost of equity + d/d+e times cost of debt times (1-tax rate) to put in very simple terms

 

Just to help you understand the concepts behind those formulas as well:

In a nutshell, FCF is the leftover cash that flows to the debt and equity holders after the expenditures for growing the business (e.g. CAPEX). So say if you invested in company A, the value that accrues to you as an investor would be these FCFs in the future. But since these are cashflows in the future, you need to discount them because money today is worth more than the money tomorrow. You discount them using the WACC. The WACC is basically the debt holder's and equity holder's (you included) required return, given the perceived RISK of the investment. It's essentially saying, if $110 will go to you a year from now, how much would you invest in to get a 10% return? You would put in a $100. The discounting formula is just a way to "back out" to the amount that you're investing based on your required rate of return.

I think it's easier to remember the steps and the formula if you understand the underlying concept. Hope this helps.

 

for 3) Would you prefer a firm with all equity and no debt or a firm with some debt and the rest as equity?

I would have said...

Mixture of Debt + Equity Easier to raise capital (EQ would dilute share price) Debt w/ interest expense can be deducted from Taxable Income Leverage? Ability to better secure short term funding (CP) - Usually based on ratings

Any obvious ones that I missed? (probably alot)

 

Went in today, dressed to impress and definitely did a solid job.

Asked the questions posted by indian banker except for linking the 3 financial statements.

Started w/ talking about work experience, team related, solving conflicts, the usual.

I downplayed my analytical skills saying I was Econ major, enjoyed the markets, the macroeconomy, how the small parts make up the big picture

then asked if i knew anything about dcf...walked her through. got a lot of "thats correct yesyesyes"

she asked about Beta, what it meant, how to get it, CAPM model application...asked if I would want company w/ debt + equity or no debt...asked which company would have higher Beta (all equity)

Essentially, I was ready for this thanks to you all. Appreciate the help from you all and I will let you know when I hear back.

Cheers

 
Best Response

Hey there. I did superday for D&P 2 years ago, but from what I understand the process hasn't changed too much. The technical portion is still pretty basic. You'll get some variations on the DCF question. For example, my interviewer drilled me on all the "what ifs" of a DCF - what if your company doesn't have any physical assets (SaaS companies, for example)? What companies would be more leveraged, industry A or industry B, and how does that affect the precision of your valuation? How to estimate transx multiples when your company is in a niche/nascent industry? etc.

Group case study - four of you sit in a group and are given copies of a case (usually either an acquisition or a market entry type). You have something like 20-30 minutes to prepare a Powerpoint answering the 5-6 questions given to you. Then the interviewers come back in the room, you present your slides to them, and they grill you with a ton of questions.

Currently: future neurologist, current psychotherapist Previously: investor relations (top consulting firm), M&A consulting (Big 4), M&A banking (MM)
 
chicandtoughness:
my interviewer drilled me on all the "what ifs" of a DCF - what if your company doesn't have any physical assets (SaaS companies, for example)

Can you go into a little bit more detail for these? I mean wouldn't a DCF just still at its core be discounting projected cash flows? Would you say something like the depreciation of the physical assets won't be as a big factor to cash flow anymore (when converting from earnings)? Or am I missing something else?

 

also, does anyone happen to know what kind of exit ops there are for a valuation analyst at d&p (top 5-10 b-school? PE?) and anyone know about their superday? my first round was about 90% technical, and not so sure im looking forward to 6 more hours of technical! and what about compensation? is it usually pretty competitive? (im not expecting BB IB salaries/bonuses, but still)

thanks in advance!

 

yo bro I just got invited to their superday at the philly office. im wondering the same thing as you--but especially if anyone has any information regarding their final round. im guessing itll be pretty technical but im just curious if it will be as rigorous as most GS/MS/BAML/etc interviews or just the big ideas.

does anyone have any info?

 

I dont know whether you care but I've seen a lot of Duff's work and its almost universally shit. My understanding is that they've lost a ton of people recently due to attrition (and probably layoffs). I wouldn't want to work there.

 

their group is definitely top in terms of valuation for financial reporting. some of their big clients are oracle, cisco, apple, google, etc. the valuation group focuses on purchase price allocations, goodwill impairment testing, and stock option valuation. if you're looking for a finance heavy valuation job but don't want the IB hours and like work life balance - Duff and phelps is the place to go.

I would be interested in b-school opportunities as well. Anyone wanna comment?

 

They were recently engaged as the sole financial advisor on the Lehman engagement and they are growing and beginning to get their name really out there in the financial world. Not sure about the exit opportunities though.

 

Thanks for responses. It is Morristown NJ office... strategic advisory group.... I expect regular banking questions such as DCF, valuation techniques and some accounting stuff. Are there any other types of questions you may think of?

 

I interned at D&P last summer so I am familiar with the interview process. It should be noted, however, that this was for the Philadelphia office- the interview process could possibly differ across offices.

With that in mind, it was fairly straight forward. I had four interviews: one technical, one brainteaser, two fit. The brainteasers were ultimately unchallenging and for the technical interview, I kind of steered it into the direction I wanted in order to highlight my own strengths. Fit was fit- nothing really surprising there.

May I ask which office you're interviewing for?

 

i had my interview a couple of days ago with D&P. I won't bother getting into the fit questions but here are the technical;

1) How do you calculate the WACC? 2) In WACC, why do you multiply cost of debt by (1-t) 3) Walk me through a DCF 4) How does increasing depreciation affect the DCF 5) What are the main components of an income statement and a balance sheet

all of them are simple. don't worry.

 
godofsmallthings:
4) How does increasing depreciation affect the DCF
Can anyone provide some insight about this?

I assume it increases FCF through its effect on the operating activities in statement of cash flows, because depreciation is added back, increasing net income. Thus, it increases the numerator/CF in DCF analysis, and adds value to the company?

 
persnxcrzy87:
I thought FCF increases.

FCF = Net Income + Depreciation/Amortizatoin - CapEx - Increase in Working Capital... so increase in depreciation ... increases FCF... am I wrong?

No, you are correct.

On a side note, I was always taught that FCF = EBIT(1-T) + D/A + ..., rather than Net Income.

Do you maybe use Net Income for equity valuation and EBIT(1-T) for firm valuation, because it deals with paying all holders of capital?

 

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