Recruiting in times of AI

As probably most of you have already seen, ChatGPT has brought a huge change in the AI usefulness. With that said, what are your thoughts on the future of typical IB/PE analyst and associate roles when all the tasked could be easily performed by the AI which would do it quicker and doesn't require 180k$ salary and work-life balance? 

With the ChatGPT-4 rumors of it being 5x times as powerful we may really have no need for Excel monkeys anymore. Instead, banks will need way more engineers and CS kids. What are your thoughts (both optimistic and pessimistic)? 

Just an example of the answer it showed me this morning for this Street of Walls paper LBO - 

http://www.streetofwalls.com/finance-training-cou…

1. Calculate the purchase price

To calculate the purchase price of ABC Target Company, we need to first determine the Forward 12 months (FTM) EBITDA of the company. We can do this by using the information provided about the company's expected sales revenue and EBITDA margin in Year 1.

First, we calculate the expected EBITDA for Year 1 by multiplying the expected sales revenue of $100 million by the EBITDA margin of 40%:

EBITDA = $100 million * 40% = $40 million

We then use this EBITDA figure to determine the FTM EBITDA by assuming that EBITDA will remain flat over the next 12 months:

FTM EBITDA = $40 million

With the FTM EBITDA calculated, we can now determine the purchase price of ABC by multiplying the FTM EBITDA by the acquisition multiple of 5.0x:

Purchase price = FTM EBITDA * acquisition multiple = $40 million * 5.0 = $200 million

This is the purchase price of ABC Target Company at the time of acquisition by XYZ Private Equity Partners.

2. Calculate the debt and equity funding amount 

To calculate the debt and equity funding amounts used to pay the purchase price of ABC Target Company, we need to first determine the total amount of debt and equity that will be used to finance the acquisition. We can do this by using the information provided about the debt-to-equity ratio for the acquisition, which will be 60:40.

We can express this ratio as a decimal by dividing the debt portion by the total:

Debt ratio = 60 / (60 + 40) = 0.6

We can then use this ratio to determine the total amount of debt and equity funding that will be used for the acquisition by dividing the purchase price by the sum of the debt and equity ratios:

Total funding = Purchase price / (Debt ratio + Equity ratio) = $200 million / (0.6 + 0.4) = $200 million / 1.0 = $200 million

With the total funding amount calculated, we can now determine the amount of debt and equity funding that will be used by multiplying the total funding amount by the debt and equity ratios, respectively:

Debt funding = Total funding * Debt ratio = $200 million * 0.6 = $120 million Equity funding = Total funding * Equity ratio = $200 million * 0.4 = $80 million

These are the amounts of debt and equity funding that will be used to pay the purchase price of ABC Target Company.

3. Income Statement

To build the income statement for ABC Target Company, we need to first determine the company's expected revenues, expenses, and profits for each year of the investment term. We can do this using the information provided about the company's expected sales, margins, capital expenditures, and other expenses.

First, we need to determine the expected sales revenue for each year of the investment term. We can do this by using the information provided about the expected sales revenue in Year 1 and the expected year-over-year (y-o-y) increase in sales of 10%:

Year 1 sales = $100 million Year 2 sales = (1 + 10%) * $100 million = $110 million Year 3 sales = (1 + 10%) * $110 million = $121 million Year 4 sales = (1 + 10%) * $121 million = $133.1 million Year 5 sales = (1 + 10%) * $133.1 million = $146.41 million

Next, we need to determine the expected EBITDA for each year of the investment term. We can do this by using the information provided about the EBITDA margin of 40% and the expected sales revenue for each year:

Year 1 EBITDA = $100 million * 40% = $40 million Year 2 EBITDA = $110 million * 40% = $44 million Year 3 EBITDA = $121 million * 40% = $48.4 million Year 4 EBITDA = $133.1 million * 40% = $53.24 million Year 5 EBITDA = $146.41 million * 40% = $58.564 million

We can then use the expected EBITDA for each year to determine the expected earnings before interest, taxes, depreciation, and amortization (EBITDA) for each year by subtracting the expected capital expenditures and operating working capital from the EBITDA:

Year 1 EBIT = EBITDA - Capex - OpWC = $40 million - ($100 million * 15%) - $5 million = $26 million Year 2 EBIT = EBITDA - Capex - OpWC = $44 million - ($110 million * 15%) - $5 million = $27.9 million Year 3 EBIT = EBITDA - Capex - OpWC = $48.4 million - ($121 million * 15%) - $5 million = $29.94 million Year 4 EBIT = EBITDA - Capex - OpWC = $53.24 million - ($133.1 million * 15%) - $5 million = $32.22 million Year 5 EBIT = EBITDA - Capex - OpWC = $58.564 million - ($146.41 million * 15%) - $5 million = $34.757 million

We can then use the expected EBIT for each year to determine the expected net income for each year by subtracting the expected interest expense, taxes, and depreciation from the EBIT and adding back the expected amortization:

Year 1 Net Income = EBIT - Interest - Taxes + Amortization = $26 million - ($120 million * 10%) - ($26 million * 40%) + $20 million = $11.6 million Year 2 Net Income = EBIT - Interest - Taxes + Amortization = $27.9 million - ($120 million * 10%) - ($27.9 million * 40%) + $20 million = $12.34 million Year 3 Net Income = EBIT - Interest - Taxes + Amortization = $29.94 million - ($120 million * 10%) - ($29.94 million

FYI gives correct answers with different assumptions and drivers