Investment banking technical interview questions

Question

Would anyone be able to post up difficult technical, accounting and valuation questions that they have heard of or have been asked?

Whiskey5 · Accepted Answer

yes technically your formula is correct, however from a PE / LBO stance, iRX is 100% correct. if the company stays the same, assume your customers have collectively negotiated new AR terms from 60 to 90 days, so therefore your WC eats up more cash.

One of the ways to generate value in a LBO is to paydown debt as much as possible and as quickly as possible. If WC is eating % more cash, do you think a PE firm will have the same valuation on the business? AR change from 60-90 days is a material change and as such, valuation will change materially, downwards.

Window View · Answer

YoungHoe

I agree its not realistic but I still think it is a  necessary assumption. I feel that your answer of assuming the second last roll falls on exactly 100 is quite arbitrary as there is not statistical basis for it to be 100. Why not 99/98/97 etc? If your 2nd last role is 97 then the expected value you proposed of 105.5  is completely different since 110/109 etc are not achievable. As the 2nd last role is really the EV of all prior roles, you could continue to back step until you arrive back at the initial role.

GenghisKhan · Answer

Actually, you need to be precise in your language.  The question is not only one of "security" (which implies collateral) but also one of "seniority".

The secured credit lines stand first in line because they have a perfected legal claim upon specific assets.  That is, if the debt is secured and perfected versus the company's receivables or real estate, for example, the creditor may seize those specific assets free and clear of claim by unsecured creditors.

The bank loans are the next in line because they are the most senior of the unsecured creditors.

crackjack · Answer

This is what I see from your scenarios.

Scenario 1. Let's say inventory is sold for 200 cash, and cost 150.

So Sales +200, Cash +200, COGS +150, Inv -150
I/S: 200 Sales - 150 COGS = 50 NI
SCF: NI = 50, add back in 150 for decrease in Inv = 200 CFO
B/S: Cash +200, Inv -150, RE +50

If you substitute cash for AR, NI stays the same, CFO = -150, and the B/S stays the same (AR switched for cash)

Scenario 2: If an inventory is destroyed, it has to be revalued. Inventories are valued at the lower of cost or market. Therefore, you would have to readjust the inventory to cost or market.

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Investment banking technical interview questions

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Investment banking technical interview questions

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