Hello everyone,
So I'm currently a senior in college and am preparing for some interviews soon. My main problem is that my school has a very small finance program. While I am a finance major, I haven't actually taken a finance class in nearly a year. I don't plan on getting too many interview opportunities in IB, however hope to land at least a few in the coming future.
If anyone can please direct me to the best resources for sharpening up my technicals, that would be great. I plan on buying BIWS's fundamental modeling package, however am just curious if anyone can suggest any resources which would be free (and supplementary to BIWS)..
Mainly looking for stuff on accounting and the financial statements, such as how a decrease of COGS would flow through the different statements.
Any tips or help would be greatly appreciated! Thanks-
I think:
http://www.ibankingfaq.com/
I always liked the question: If two companies have similar P/E ratios, but one has a larger EV/EBITDA multiple, which one has more debt.
In my head, I'm thinking:
P/E ratio is equivalent to equity value/net income. If one has a larger EV/EBITDA multiple, but the firms have equivalent equity values, the firm with the larger EV/EBITDA multiple will have more debt?
I don't know, that's all I could really think of. This assumes that the firms actually have equivalent net incomes (in dollar terms) and similar EBITDA ratios, but that seems like a dangerous assumption to make.
You don't assume they have the same net income in dollar terms. You assume they have the same relationship on a relative basis.
Company A: NI: $1 Equity Value: $10 P/E: 10x Company B: NI: $2 Equity Value: $20 P/E: 10x
Hope that points you in the right direction.
In my mind; (forgive my hopefully not too apparent lack of tech skills) the companies have same P/E ratio so:
If assuming the two companies have same EBITDA, the one with larger EV will have more debt. So the one with the larger EV/EBITDA multiple will have more debt. SO I pretty much agree with your conclusion, however this IS assuming similar EBITDA numbers. Which, like you said, is perhaps a little presumptuous but unless there is more info, cannot really be completely accurately deduced.
Unless there is a more intelligent way about going through the process?
Thanks, I will definitely review these a lot. Of course Investopedia is good too I know (in my opinion)
Also, if anyone could recommend a better tool than BIWS or if they think BIWS is the best, please let me know!
I used a combo of BIWS and the Rosenbaum/Pearl's "Investment Banking" to prep for interviews. They're good.
I'm at a lib arts school with little finance background, and so far have nailed my technicals. Most of them are easy, except for one of the elite boutiques which asked some tougher ones. Still, I knew enough to get all the answers right, though sometimes they'd throw me a hint if I was on the right track but a little stuck.
For accounting, it's really just memorizing. For valuations, just know the details and you can put two and two together.
Thanks! I've been looking a little at Rosenbaum's "Investment Banking", and plan on getting BIWS.
There you go brother man, this should be very helpful.
http://www.macabacus.com/
[quote=Falcon]There you go brother man, this should be very helpful.
http://www.macabacus.com/[/quote]
Gracias, truly appreciate the help!
@A Fellow Linguist and GEDorBust
Just thought of something I wasn't sure about. Wouldn't the amount of debt have an effect on the interest of EBITDA, therefore reducing the earnings in the P/E ratio?
Streetwannabe: My beleif is that you're correct, the higher EV/EBITDA multiple is indicative of more debt. So increse the numerator and maintain the denominator, the more leveraged company should have a lower EV/EBITDA.
The question including interest could become a factor, but the reality is that the propotions of the debt and interest payments being in alignment such that the company with the greater leverage having a higher EV/EBITDA is pretty far fetched. You'd be looking to adjust the denominator in a proportional amount to the numerator, possible, not probable. Having been asked this question in interview, this is the way I've explained it and been correct.
I'm not interested in undertaking the exercise, but we could get a quant to crank out numerical examples.
Okay, good stuff. I tend to overanalyze and end up making myself more confused than I was at the start. Thanks though.
Okay, so because I'm a geek, and I'm waiting out till my last day, I took the five minutes do the math.
Company A - Debt: 100, Equity: 100, EV: 200, Earnings: 9, Interest 1, EBITDA: 10. P/E 11.11, EV/EBITDA: 20
Company B - Debt: 200, Equity: 100, EV: 300, Earnings: 9, Interest 6, EBITDA: 15. P/E 11.11, EV/EBITDA: 20
To be fair, the 3x higher interest rate could happen, especially with a company that has a 2:1 D/E and only a 2.5x interest coverage. but I'll stand by my previous answer, that the more levered company will have a higher EV and unless it's paying a disproportionate amount of interest will have a relativley constant EBITDA, so it'll carry a higher EV/EBITDA multiple.
Not to be nit-picky; but your EV/EBITDA are the same for both companies. Original Q is which has higher EV/EBITDA ratio with same P/E?
I'd check out WSO's IB Prep Package...that includes the best selling WSO Tech Guide, the Behavioral Interview Guide AND the WSO Networking Guide for $79.99 (the equivalent from BIWS is ~$200 and I'd argue ours does a much better job at breaking things down with visuals and level of difficulty)... all 3 guides have been revamped in the last year so they are a big step up.
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