Below are some examples that would assist in this sort of valuation:

• EV/EBITDAR
• Gross Margin
• Days Inventory
• Sales/sq.ft.
• Average Product Price

Don’t get thrown off when the interviewer mentions CFO. This question is meant to determine how you would handle difficult situations.

Answers may vary for this question, but you must have relevant information to support your position. For example, for this question, it is suggested that you mention how you’d preserve cash flows since revenue is low.

Here is how a WSO user answered this question:

“As CFO, there are several measures I’d suggest. Firstly, I’d stop dividends and buybacks temporarily if the situation is drastic.

If not, then I’d reduce executive compensation by decreasing bonuses and excessive payments. Another route I’d take is to address pay back dues and defer them as late as possible.”

There are a few different ways to approach this question. However, a simple yes or no wouldn’t be sufficient. Instead, this question requires you to understand why there was a stock drop and what would or would not make this situation justifiable.

The position you take is entirely up to you. All you need is support for your answer. For this question, it’s recommended that you explain your thought process to show the interviewer that you understand the ins and outs of what caused the stock drop.

Since there was no background information about the company, you should ask some questions to better understand the company’s situation. For example, ask about their cash flows, why they chose to use assets to pay, and which assets.

The question may seem tricky, but here is what a WSO user recommends:

“Ask which one of their assets was sold to cover the litigation. When I asked, the interviewer told me that the company sold a division worth $100. With this information, I assumed it was a profitable division that generated a solid return on assets (ROA).

And so, I estimated that there was a 5% ROA thereby allowing their cash flow to hit $5 a year under the assumption that Net Income = Cash Flow. With this in mind, I asked for the discount rate, which they said was 10%. This means that the justified hit to market cap was $50.

Since the market cap only went down $40, then the company is overvalued by $10. This means that the stock price drop is justified.” 

Usually, when asked this question, the common answer is to mention the three main ones. However, since this question asks for different types, you can bring up some of the other methods.

The main three valuation methods are Discounted Cash Flow, Trading Comparables, and Precedent Transactions.

Some of the other methods include: 

• LBO model
• Merger Premiums
• The sum of the parts
• Liquidation Value
• Replacement Value
• Dividend discount model
• Future share price model

By asking this question, the interviewer wants to know if you understand what these metrics mean for the company’s profitability. Of course, your answer is dependent on your investing style, i.e., passive or aggressive.

Also, knowing that ROIC stands for ‘return on invested capital’ is helpful.

Here is what a WSO user said:

“I’d invest in the first company, especially if I’m investing in the long-term, which I typically do. So even though the latter option would outperform the former, the growth would compound the capital to an extent where 5% ROIC > 15% ROIC of the slower compounding amount.”

The price-to-earnings ratio, or P/E, decreases since the market cap decreases. However, your Net Income (NI) would stay the same. This means the yield rises since you have the same earnings but are divided among fewer shares.

Your answer here is entirely up to you. However, you should be able to determine which company would be more profitable based on the amount of debt and equity they have. Nonetheless, if you can support your answer, you’ll be okay.

Here is how a WSO user answered this question:

“I’d purchase the company with $90M equity and $10M debt. Typically, I prefer a company that has higher leverage since that increases equity returns.

It’s also good to think about whether or not the company may be overleveraged, which is what I think happened to the first company since they have 9 times debt to equity ratio (D/E).”

For a little background information, CAPM is the capital asset pricing model used to determine the expected rate of return. The formula is as follows:

ERi = Rf + Bi (ERM - Rf)

• ERI = Expected Return on Investment
• Bi = Beta
• ERM - Rf = Market Risk Premium
• Rf = Risk-Free Rate

In the formula, the 10-year treasury yield is used to represent the risk-free rate.

This is an example of a market estimate question; interviewers always find a way to sneak one or two. The reason is that these questions do an excellent job of helping the interviewer gain some insight into your thought process.

There are no right or wrong answers. All you need to do is give a reasonable and plausible estimate. It’s also helpful to walk through your thought process as you answer the question so that the interviewer may get the idea that you know what you’re talking about.

Here is an example of how a WSO user answered:

“I know for a fact that there are 50 states in the USA, and in each state, there are several counties. So I estimated that each state approximately has anywhere between 50 to 60 counties.

With this in mind, I assumed that each would hold 50 gas stations. So in total, there are about 125,000 to 150,000 gas stations in the USA.”

This question is particularly common. It’s usually asked by interviewers so that they can determine whether or not you’re keeping up with the news.

There’s no fixed answer to this question since the treasury yield changes frequently, so you should pay attention to it. You can follow it here. 

KMart: its customers have the lowest disposable income; when that income lowers further, they don't have money to spend on retail consumer goods outside of basic necessitiesWhat is the P/E of cash if the interest rate is 0.5%?

This depends on the tax rate, but ignoring the impact of taxes for a moment, one must invest $200 to get $1 of the interest income (earnings), so the P/E of cash is 200.

Excess cash is a non-operating asset and should be removed since Equity Value already incorporates excess cash.

There is no doubt that the interview process and the position are nerve-wracking. Everyone understands that. However, if you are asked this question, you shouldn’t be fully transparent about how nervous you may be.

Below is an example of an answer from a WSO user. Note this question was asked to an incoming intern.

“Being a sophomore, I understand that this is the time when I need to try my hardest to break into the industry. And so, what makes me the most nervous is that if I don’t get this internship or any of the others that I’ve applied to, then I may miss the opportunity to pursue a career in IB.”

This example shows that the interviewee was sincere and honest about their feelings, which the interviewer always appreciates.

One thing that stands out in this answer is that the interviewee mentioned that they had secured interviews at other firms. This will show that they are proactive in trying to secure this internship.

But don’t be too stressed out. The user who provided the answer offered this piece of advice. They said, “When you're in that 120th hour and perfection is still expected of you, I wonder how I'll be able to pull it off, but from what I hear from friends, people surprise themselves.”

So maybe you’ll surprise yourself. 

Net Profit After Tax, or NPAT, measures a company’s performance after removing its expenses, debts, and tax. It’s calculated by taking out expenses, which results in gross profit, or EBITDA.

Taking out depreciation and amortization gives you EBIT. After Interest and tax are taken out, you’ll have Profit Before Tax (PBT).

Having weaknesses is natural. Everyone has them. However, not everyone can identify their weaknesses. During the interview process, it’s highly likely that your interviewer will want to know about your strengths and weaknesses. 

Aside from learning about your weaknesses, this question wants to know if you’ve taken measures to work on them. Here is what a WSO user had to say:

“I’ve been told frequently that I need to work on delegating. I know that I tend to micro-manage, and while that generally results in high-quality work products, it doesn't foster the best out of the entire team. 

I've addressed this by making sure I get regular feedback from my peers and supervisors to ensure that there's more transparency on what everyone's doing and that everyone's comments get incorporated as the project evolves.” 

In finance, it is typical to have last-minute assignments come up during the work day. The situation described in this question is one such example of this.

Ideally, you should prepare information that would be important enough for your MD and the CEO to discuss, and it should be condensed since this is a memo. If you’re aware of a meeting that has just happened or a recent deal, then information about that should be included.

Here is what a WSO user said:

“In a general sense, I would include metrics, key financials, and a sector overview of the company. Additionally, I will add something about the background of the CEO, just in case this is the first time that my MD would be speaking to them.”

This is because a highly leveraged capital structure implies a greater risk and, therefore, a higher cost of equity. Shareholders will accept the risk but will require a greater rate of return in exchange.

This, in turn, leads to a higher Weighted Average Cost of Capital (WACC) than the one used in a Discounted Cash Flow (DCF) and, therefore, a lower valuation.

Silver Lake is a company that considers the behavioral aspect of every candidate. That’s why they ask a lot of these questions to gain insight into who you are and where your interests lie.

In answering this question, it’s best not to say you’d still work in finance. While it may be true, the interviewer probably won’t believe it. Instead, they’re looking for honesty and an interesting answer that draws parallels between the skills you’d require in finance.

Below is an example of what a WSO user said:

“Growing up, I was always interested in Egyptian history, and this made me start thinking of becoming an archaeologist. As a child, I remember reading that Queen Cleopatra said that no man would ever find her tomb, and so I wanted to be the woman to find it.

However, that dream faded away as I started university. Thinking back about this, I believe that the skills that I would’ve developed as an archaeologist could’ve helped me with a career in finance.

For example, there would be a mix of independence and teamwork whilst being on dig sites or even doing research. This loosely translates to what I would expect to do as an analyst. Just less digging in the earth and more digging online.”

This question is more of a personal one. There’s no right or wrong answer here since the world needs leaders and followers. However, you’ll be judged by the interviewer regardless of what you say. So just ensure that you support your choice.

If you say you’re a leader, you should explain why you lean more towards leadership roles. You can mention your experience holding such positions, whether in your career or through volunteer work. Try to highlight your skills that resonate with being a leader.

Similarly, if you say you’re a follower, you should take a similar approach. Explain to your interviewer why you chose this option and emphasize the strengths of being a follower. Think about teamwork, critical thinking, and eagerness to help.

Since there are no right or wrong answers here, you can choose whichever option you’d like. However, you should provide enough support to justify your answer. In this case, you can mention economic facts to add to your claim.

If you don’t know much about the current economic state of either of these two countries, you may be in trouble. This is why it’s highly suggested that you follow the news and current events, especially for instances like this. Below is what a WSO user said.

“Both options would help strengthen trade, but I would choose China over Russia. The reason is that China is relatively stable when taking into consideration its politics, and its GDP growth has been stronger over the past several years.

In addition to this, Mongolia is a strong complement as a resource supplier and China as a manufacturing nation.”

It’s common for interviewers to ask these types of questions. Riddles are one of the best ways to test a candidate’s problem-solving skills and ability to think logically and creatively, which is highly sought after in IB.

There are a few different ways that you can solve this riddle. The simplest way is to separate the coins into two groups, one with 10 and the other with 16. Then, you turn over all the coins in the group.

Below, you can find alternative explanations provided by some WSO users.

“If you make a group of ten coins, that group will have the same number of tails as those that have heads. Simply turn the group of 10 over, and then the heads match!”

“In the group of 10, if there are x number of heads, there are (10 – x) number of heads in the other group and (10 – x) number of tails in the same group. So flipping all the ten would equal the number of heads.”

“This works for every pair of ‘a’ heads and ‘b’ tails. Divide the coins into groups of ‘a’ & ‘b’. For x heads in the ‘a’ group, there are (a – x) tails in the same group & the same number of heads in the other group. Flipping the ‘a’ group equates to the number of heads in both the groups.”

There are two things that your interviewer is trying to understand about you from this question. First, they want to hear about your thought process for evaluating the mine, and they want to know if you know what the different valuation methods are.

There are three main valuation methods - DCF analysis, comparable company analysis, and precedent transactions. Ideally, you can use any of these methods for the valuation to justify why you chose this option.

A WSO user said the following:

“I talked about how you could liken it to comparables valuation. By looking at other coal mines and their value, comparing it proportionally by size - you could get a fair estimate of the current value of the coal mine.”

During finance interviews, there is a strong chance that you’ll have to share some sort of story with the interviewer. This is because they want to get to know you as an individual to determine if you’d be a good fit for their company.

In this instance, you’re being asked to share a moment where you had to choose between two decisions. Although the question didn’t ask for it, you should mention the results of your decision. By adding this bit in, you sound more comprehensive when presenting your story.

Here is what a WSO user said:

“The most recent instance that I can think of where this is applicable is during my last job. I was evaluating closing on a deal versus extending a deal with the seller. It was a tough decision, but in the end, it was worth it to us to extend with the seller because we could not risk investor money on closing on a deal we did not have full confidence in.”

This question is a little difficult to answer since no metrics were provided. And so, you can answer this question in two ways. You can make assumptions and use numbers to explain what would happen, or you don’t use the figures.

Below you can find a sample answer:

“What would happen would depend on the level of exports. If the volume of exports, in dollar value, were higher than the demand for US dollars within the country (there was oversupply), then the exchange rate would decrease (revaluation). 

However, if the volume of exports, in dollar value, was lower than the demand for US dollars within the country (there was scarcity), then the exchange rate would increase (devaluation).”