I have a few IB interviews coming up.
What are the MUST know technicals?
Outside of walk me through the 3 statements, how they connect, what is a DCF, and walk me through one. Then along with what’re the diff valuation methods?
What are the MOST COMMON asked technicals outside of these?
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$10 increase in depreciation? Just a prospect so just my 2 cents.
Yeah. This is a must know, and basic enough that a lot of interviewers would consider it a gimme (especially if you're coming from a school like wharton, or if you're a business major).
Id just know the ins and outs of how non cash items impact the three statements. Then just make sure you're going the logical route of income statement, cash flow statement, balance sheet.
The hardest version of these questions is some form of factory problem where you're buying a factory financed with some combination of equity and debt (try pik debt too), and you walk forward a year of performance and then sell the factory for some gain or loss (maybe even try some debt forgiveness or call premium at the end).
That question is likely harder than any you will see in interviews, but if you get the hang of it, you'll have the accounting problems locked.
Thanks for the great advice!
Bump.
I just started reading through the mergers and inquisitions 400 question interview guide, and it covers a ton of stuff if you haven’t read through that already
Cannot stress how important market awareness is. I’ve noticed more experienced bankers tend to incorporate technical questions in commercial awareness scenarios which gets a lot of people.
Where do I get information over market awareness then? Like where the hell do I look for this?
My industry is food, beverage, & agribusiness lol
Read major headlines in your sector. WSJ and Bloomberg are good places to start
I’d follow Cara Lombardo and Nick Tirimaos on WSJ. Cara is the goat M&A reporters — breaks the biggest and most newsworthy deals before anyone else.
Nick reports on all things Federal Reserve. Think these are two ends of the market that will help your awareness significantly.
Edit: Just saw your food & beverage sector comment. I’d read through sector reports from Investment Banks with strong C&R/food and bev teams. They typically come out quarterly. Following these for a few quarters, and maybe reading the last few quarters’ ones is great for understanding a sector and how buyers / sellers in the space think or will operate.
Paper LBO
Just had an IB interviewI was askedExplain the 3 financial statements and how they link.What are the methods of valuations?Walk me through a DCF
Was at a boutique off cycle
The questions for junior jobs are all pretty standard and the guides do a great job getting you ready.
When I was younger I had a Greenhill interview and I remember them asking me this question which I now ask juniors:
I have a $100mm bond paying 10%, half is cash interest and half is PIK. Walk me through the statements.
That would 100% get me... mind walking through it?
So you walk through the cash interest first. That’s rather standard. Interest lowers pretax income and show the tax shield you get from it. If you Google walk me through interest on the three statements you will be shown every step.
The trick here is the PIK. PIK is non cash, so it shows up on the income statement, but you have to add it back on the cash flow statement and it accrues on the balance sheet.
$10mm of interest exp on P&L, 30% tax rate so NI down by $7. On CFS $5 is PIK so non cash, CFS down by $2. BS cash down by $2, debt goes up by 5, RE goes down by $7.
I/S: Pre-tax income down by $10 mm. Assume 40% MTR, then net income down by $6 mm.
CFS: Net income flows into cash flow from operations which is -$6 mm from above. However, we need to add back the non cash interest expense from the PIK, which is $5 mm (50% of $10 mm of interest). CFO is therefore down by $1 mm. No other changes to CFS, so net cash is down by $1 mm.
B/S: Cash is down by $1 mm, debt (which is a liability) is up by $5 mm because of the PIK, and retained earnings (part of stockholders equity) is down by $6 mm. Assets are down by $1 mm and liabilities + stockholders equity is down by $1 mm (-6+5) so we are balanced.
Think I'm right but if I'm not anyone feel free to correct me
yeah, that's what I got as well.
A lot of people underestimate the importance of understanding the mechanics of EV and Equity value. Understand how they react to changes in the statements, how to get from one to another, and what they actually mean. This will force you to know all the accounting you need to know.
Also know general valuation concepts. I was grilled one time on WACC, so definitely know what it is on a conceptual level.
I was never asked anything beyond that in my boutique, MM, and BB interviews.
I’ve been asked why one company would buy another, why one company’s stock might be higher than another, and asked if I know what beta is.
- DCF intuition
- how to calculate UFCF
- WACC
- EV to Eq V and vice versa
- EV vs EqV multiples
- trading comps transaction comps (+ control premium)
Know the big picture stuff in addition to memorizing technical formulas to understand how it all fits. Why use a DCF over comps? What are each valuation's strength and weaknesses. How can PE firms exit, div recap, etc. etc.
Always got asked the pros / cons of each valuation method.
Ive been through a couple technicals and some I got were;
- walk me through a DCF
- how would you value a mining company (M&M interview)
- walk me through two years of debt repayment scenario across the 3 F/S
- where are rates going
- where is gold going (M&M)
- what should the fed do to manage inflation right now
- talk to me about a recent deal that interested you
- Walk me through how to calculate TTM EBITDA and UFCF
What was the answer to the FED one?
tapering treasury buy backs
Following
I have an upcoming IBD M&A Analyst off-cycle one at a boutique. I'm sure alot of the stuff mentioned above is mentioned. However, it would be great if folks could shed some light on this front
See my comment below. Think really understanding Beta, gordon growth, mid-year convention and other nuances of the DCF are important.
Understanding comps and precedent transactions like the back of your hand are important too. Definitely know how to rank them in terms of valuations they spit out (lowest to highest, including LBO). This is often a trick question as DCFs don’t really have a set spot as they are very assumption heavy.
know the multi-step acc scenarios. If you can walk through all of them while switching up the numbers, you’ll be able to do almost any accounting question.
I also think from a more conceptual level, being able to talk about the M&A process as a whole is very important. Good luck!
Thank you!
What guides / resources do you use?
400 Qs
Always got detailed questions on the nuances of CAPM. Definitely more questions on that for FT than SA, but if you fan understand how changes in different parts of the model effect WACC / your FCF, you’ll be in a good spot.
I’d understand finding Diluted Shares outstanding from bonds converting and from stock options converting. Seems daunting at first but the math is really simple.
You’ll barely get asked the math on M&A accretion/dilution, esp at SA, but understanding what that even means is helpful. I’d also learn the 100% stock deal rule with P/E ratios as well. Better to be prepared for the simple Q’s coming out of the more advanced guides, if anything for easing your nerves going into the interviews
Oh, and I think it’s a good idea to be able to talk about how an LBO works (not necessarily how to calculate stuff—rare for SA to get questions here), but understanding its place among the valuations methods, why PE firms use it, and why the valuation is the lowest is important to understanding the M&A process as a whole.
At the end of the day, behaviorals are far more important, but understanding the concepts behind the technicals and not just memorizing specific questions will help you enormously in the process.
Lots of good ones here - the one I would add which isn't a "must-know" but still shows up enough is understanding Minority Interest / Non-controlling Interest, where it falls on the Balance Sheet, when to consolidate financial statements, and how it affects valuation multiples.
I’m on my phone so forgive the errors pls. I’ve found that technicals have different levels of sophistication. Some just ask for pure fact recall (e.g. five characteristics of a good LBO), some require basic calculations from the guides (e.g. A/D math, IRR/MOIC math), and some are out of left field (e.g. fixed/variable cost splits, etc.).
You want to get familiar with the buckets of questions that they tend to ask:
(1) Single or multi step accounting: “What happens if depreciation goes up by 10?” “What happens if we buy a building financed with debt in years 0 and 1?” These can get hairy but the fundamental mechanic is moving stuff through the three statements. You’ve just got to get comfortable with that and learn what all of the line items are.
(2) IRR and MOIC math: “If OpCo kicks of EBITDA of 10 and we buy at 10x using 50% debt, how much does EBITDA need to grow by to generate a 20% IRR if we repay 1/2 thr debt?” You can ask for whichever variable you feel like: required exit mult, IRR, MOIC, terminal EBITDA, required debt pay down, etc. People like asking these questions because it gets at the core return drivers of LBOs (growth, debt pay down, mult expansion, etc.) and really tests if you can practically apply EV/EqV. The trick to mastering these is to get confortable with the drivers and get a lot of practice running through examples.
(3) A/D Math: “OpCo A has 100 shares at a price of 10 and kicks off 20 of net income. It’s going after TargetCo B that did LTM NI of 10 and has equity value of 500. If OpCo A issued new stock / debt financed at 5% / used cash with foregone interest rate of 1% to finance its acquisition, what would pro forma EPS be and how A/D?” In my process, people usually wanted to get down to PF EPS but you could ask about anything.
(4) QUs out of left field: These will always be more challenging than questions that are ripped from the guides because you likely won’t have seen them before. I think the best prep that you can do is to get super comfortable walking from revenue down to FCF since a lot of them tend to rely on that as the key mechanism.
Best of luck
for an SA interview at a BB known to be technical-lite, what would be the best things to focus on, coming from a non-finance background?
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