IB Interview prep questions for Deutsche Bank

Had my CV funneled through a friend in Deutsche Bank. Expecting to interview and was given these questions to prepare for:

  1. How to get FCF from scratch?
  2. Why does a 2 day loan have a higher interest rate than a 2 year, but why a mortgage had a lower rate than credit cards?
    3.Which will have the highest interest rate, & which the lowest? Car loan, credit card debt, mortgage, student loans? Why?
  3. Which will have a higher interest rate, a 2 day loan or a 20 year loan? Why?
  4. If GAAP is $50 and IRS is $30, what do you have? Why?
  5. Explain the concept of P/E.
  6. What return range would you expect from an LBO?
  7. You want to make 2 PowerPoint slides about a company, what do you include?
  8. Company with a leverage of 6x buys a company with 5x leverage. What is the effect?
  9. How would a company recognize synergies? How would a Private Equity (PE) firm?
  10. A company wants to raise $100mm, what do you ask? The 3 questions?
  11. Know where the markets and treasury is at?

Would love any honest, good faith answers. Feel like this could also really benefit a few of us Chimps potentially preparing for interviews/recruiting season.

Also, feel free to throw some poo if you feel the answers aren't correct/good faith. Gotta be some way we can keep some law & order in this jungle.

Answer any that you can. Just make sure you show its respective number right beside it.

Comments (28)

Jul 12, 2016

be honest, you are just too lazy to answer the questions by yourself.

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Best Response
Jul 12, 2016

I'll try to take a crack at these. Even though I am not positive in my response, at least I am not giving you a snarky response and trying to help.

  1. FCF = Operating Income (EBIT*(1-T)) + D&A - Change in WC - CAPEX
  2. Risk
  3. Again, I think this is primarily around risk. Think which is riskiest and that will tend to be a higher rate.
  4. 20 year loan because the term structure of interest usually slopes upward due to arbitrage of short-term interest rates. There also may be a liquidity discount where you have to be compensated more to lock up your money for longer.
  5. Not sure exactly what this is referring to, but despite converging accounting standards and the goal of comparability, there are still some key differences in the two standards. Pick your favorite difference and that may be used to explain the difference.
  6. P/E = Price/Earnings. It is a form of relative valuation where the firm's equity share price is valued per amount of earnings over a year (Last Year's, TTM, Next Quarter, Next Year, etc.). The main jist is that for an equivalent company in terms of risk/growth, the two firm's should have the same P/E. In addition, the P/E can fluctuate based on the market. For example, lower interest rates push the market P/E upwards. Low P/E tend to signal a value buy.
  7. This I am not sure as I do not work in PE. Maybe 20% IRR?
  8. Again, seems specific to industry and not exactly sure. Probably industry and firm overview and financials?
  9. Not sure again. Interested in the answer though.
  10. Synergies = the created value from a deal. Can be from revenue synergies, cost synergies, more efficient management, financial synergies, etc. The acquirer would recognize the synergies through proper valuation and integration. A PE firm is not a strategic acquirer, but can use their management expertise to improve the value of the company.
  11. 1) Current Capital Structure 2) At what cost? 3) What is the use of the capital? (Again, anyone else chime in here?)
  12. This is just a question of staying up with the markets.
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Jul 12, 2016

2) I don't think risk is the answer for this particular question. My take on is this:

a) Why does a 2 day loan have a higher interest rate than a 2 year?
-To get the same yield, you need to charge a higher rate for a shorter time horizon.

b) but why a mortgage had a lower rate than credit cards?
- Mortgages are basically an Asset-backed securities (ABS), if the underlying debt fails, banks can foreclose on the property and that is safer than a simple credit card debt, which banks have little recourse if debtors seek bankruptcy.

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Jul 13, 2016

I thought bonds with longer maturity had higher interest rate due to liquidity premium.

Jul 13, 2016

Thanks a bunch!

Don't break yourself on the way to making yourself

Jul 12, 2016

Are these concepts your friend feels you should be familiar with or the actual questions they plan on asking in the interview?

"There's no reason to be the richest man in the cemetery. You can't do business from there." - Colonel Sanders

Jul 12, 2016

by any chance do you work at DB lol ?

Jul 12, 2016

I don't, but hoping to interview with them this summer.

"There's no reason to be the richest man in the cemetery. You can't do business from there." - Colonel Sanders

Jul 12, 2016

When does DB recruiting start? I thought it was all in the early fall.

Jul 12, 2016

If you don't understand these concepts..

Jul 12, 2016

I presume he's applying as an intern, my man.

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Jul 13, 2016

I'm a rising-junior but I just finished my corporate finance class last semester so hopefully this will help.

1.Start with Income Statement. Look for EBIT.
FCF =EBIT*(1-Tax Rate) + D&A - change in Net Working Capital - CapEX
New Working Capital = Current Asset - Current Liabilities

  1. Not sure. I think the interest rate of a 2 year loan will be higher since longer maturity involves more risk.

Mortgage is asset-backed so it has lower risk, meaning lower interest rate.

  1. Back up your answers with associated risk of these loans.
  2. 20 year i guess
  3. No idea
  4. Pice over earnings per share. How much people are willing to pay for 1 dollar earnings per share of this company.
  5. Usually PE firms use LBO as valuation and their hurdle rate is 20%. So probably around 20%.
  6. Company basic info: location, size, management team, major investors;
    financial info: market cap, cap structure, revenue, EBITDA
    investment thesis: product highlight, industry highlight
  7. No idea. Guess how does it buy it (using debt, equity, cash) and levered beta might matter.
  8. Synergies are generated from a deal when the two companies can save cost or increase revenues. Not sure how PE Firm is gonna recognize synergies. Probably they will look for companies that fall in the same field of the ones in their portfolio.
  9. What for? existing capital structure? equity or debt?
  10. Not sure what the question is asking.
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Jul 13, 2016

Solid. Greatly Appreciated.

Don't break yourself on the way to making yourself

Jul 13, 2016

I actually had a surprising number of these questions word-for-word at a superday this past fall and I could see the interviewers getting the questions from a packet...Some things to add to the responses above:

  1. If GAAP is $50 and IRS is $30, what do you have? Why?
  • I think they are looking for a deferred-tax liability here. You are recording a need to tax $50, but only paying the IRS $30 (now), so sometime down the line the additional $20 will be paid to the IRS, but for GAAP requirements you're recording it now.
  1. What return range would you expect from an LBO?
  • I've always heard 17%-25%. If you simply answer 20% you aren't really giving a range.
  1. Company with a leverage of 6x buys a company with 5x leverage. What is the effect?
  • I think this one is simpler than it sounds. The new company is simply less levered than it was before on a relative basis, but more levered on a total basis. In other words relative to the total size of the company they are less levered, but numerically they have more total debt/higher interest expense.
  1. How would a company recognize synergies? How would a Private Equity (PE) firm?
  • Others have touched on the first part, but as far as PE firms recognizing synergies the example my interviewer used was essentially a firm with a controlling stake in two companies forcing them to merge and thus reaping the benefits of both companies' realized synergies.
Jul 13, 2016

The tax issue depends on if there is a probability of the difference being reversed in the future. I don't know if that detail matters in an interview.

Jul 13, 2016
  1. How to get FCF from scratch?
    Clarify which FCF required (FCFE/FCFF); equation is covered above and can be constructed from Cash Flow statement or PnL, but a deeper understanding of who gets the cashflow when would make people stand out imo.
  2. Why does a 2 day loan have a higher interest rate than a 2 year, but why a mortgage had a lower rate than credit cards?
    Again I'd just clarify if they mean a higher effective rate (which I'm assuming now). As covered before, there's a credit component and a time value of money component. If a 2 day loan is incredibly risky, and the 2 year loan isn't then that could be a reason. If you bring both the 2 yearly and 2 day rate to 1 year, then the '2 day' ref rate needs to be necessarily higher because it is compounded by 2/360 (assuming american compounding), compared to the 1 year compounding period of 360/360 (assuming one year coupons). As to credit cards and mortgages - as said before, credit cards have more inherent risk than mortgages due to not being asset-backed. Further points may be that credit card's duration profiles are also more volatile than mortgages, thereby creating more uncertainty and requiring a higher yield to compensate.

3.Which will have the highest interest rate, & which the lowest? Car loan, credit card debt, mortgage, student loans? Why?
The lowest rate would correspond with the highest credit support available primarily, and the duration profile secondarily, thirdly may be liquidity (depends on circumstances). So I'd order it as lowest to highest as follows (assuming away any defects in the quality of loan):
Mortgage (it's an Asset backed security, duration issues but minimal, massive market for loans), Car Loan (asset backed, bigger duration issues given smaller size of loan, decent market for loans), Student Loan (unforgivable debt, middle duration compared to mortgage and car loan, decent to large market for loans), Credit Card loan(may be forgiven under bankruptcy, very large uncertainty for duration profile, big market for loans).

  1. Which will have a higher interest rate, a 2 day loan or a 20 year loan? Why?
    Again clarify if they mean effective or nominal rate. If it is effective, depending on assumptions the 2 day loan would generally win out due to compounding periods if there was the same nominal rate (2/(360*20) vs 360/360. However if one talks about a 2 day ASSET vs a 20 year ASSET then 20 year interest rate needs to include a credit risk component, a liquidity risk component, and a 'marketability' component (i.e. who would buy a 20 year loan/bond issue - is there a lot of demand?).
  2. If GAAP is $50 and IRS is $30, what do you have? Why?
    I'm assuming this is earnings; If GAAP is higher, look for discrepencies in inventory management (i.e. GAAP allows LIFO vs IRS not allowin LIFO), look for treatment of capitalised leases, look for treatment of depreciation, and look for treatment of inter-company transactions. Note that GAAP is more 'rule-based' and therefore may be gamed in the short-term. IRS can also be gamed, but aims at a more realistic economic portrait of the company.

If IRS means tax office though, means you have 20 bucks worth of a tax asset.

  1. Explain the concept of P/E.
    Price to earnings is a ratio used to equate how much the market is paying (effectivley) per dollar of earnings. It can be decomposed using the DuPont formulas to understand different aspects of the company, it can also be used to evaluate the relative cheapness or expensiveness as a stock compared to its peers. This type of analysis is limited to assumptions as to where the stock sits comparative to the stocks in its peer group, the peer group itself (being a proper representation), and whether one uses 'forward' or 'lagging' data.
  2. What return range would you expect from an LBO?
    20%+
  3. You want to make 2 PowerPoint slides about a company, what do you include?
    Slide 1: current state of play (description of company (size, earnings, assets, industry etc etc), description of competition, and rankings, current pressures)
    Slide 2: future state of play (options for growth, upcoming regulatory issues, upcoming market issues, etc etc)
  4. Company with a leverage of 6x buys a company with 5x leverage. What is the effect?
    Depends on size of companies, if same size, would average down leverage (depends if leverage is financial, operational or both). In long-term however, if 6x is desired leverage, then will reborrow/releverage and return to 6x.
  5. How would a company recognize synergies? How would a Private Equity (PE) firm?
    Company recognises synergies to do with cost efficiencies through economies of scope and scale, as well as vertical and horizontal integration providing greater market penetration and presumably higher revenue growth. PE firms don't recognise synergies per se, they recognise efficiencies that can be achieved through a focus on improving management performance, or through financial/corporate restructuring.
  6. A company wants to raise $100mm, what do you ask? The 3 questions?
    1) What do you need the money for? (Is this growth/maintenance CAPEX, OPEX, repay debt etc),
    2) What do your cashflows look like? (past and future, figure out stability of cashflows to determine best type of financing need)
    3) What's your time profile? (Tenor)
  7. Know where the markets and treasury is at?
    Depends what market you want - bloomberg look it up.
Jul 16, 2016

Appreciate the help. Also how would you all suggest answering:

  1. Where do you find a company's competitors?

Don't break yourself on the way to making yourself

Jul 16, 2016
  • They sometimes mention their competitors themselves in their 10 K or press releases
  • you can try looking for comps in FactSet or another
  • Broker notes or industry research
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Jul 16, 2016

she is a girl! i kinda used he/him in couple of places!! lets make fun of it sometime later!

"A man travels the world over in search of what he needs and returns home to find it." ~George Moore

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Jul 16, 2016

oh crap! i really am drunk today!!! its not DB...its Deloitte consulting! any tips..guys...

"A man travels the world over in search of what he needs and returns home to find it." ~George Moore

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Jul 16, 2016
neil joseph:

oh crap! i really am drunk today!!! its not DB...its Deloitte consulting! any tips..guys...

You make me want to beat you like a dead baby seal or a redheaded stepchild.

First please address:
1. Find spell check. Follow its suggestions.
2. If you ask for advice, know the company. Deloitte is a shitty firm, so you should kill yourself for having a friend that would even want to work there. Congratulations for cementing your low status in society.
3. Capitalize sentences.
4. Punctuation doesn't require 3!!! exclamations. "Plz" is spelled "please" and "plz plz plz" is pathetic begging. You sound like a 12yr old girl at a taylor swift concert. You should not be wasting all of our valuable time with your senseless drivel.

5. Finally, use google. Ask follow up questions here. Intelligent ones. Starting point -> http://bit.ly/ZV2aUv

Jul 16, 2016

DB's restructuring plan.

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Jul 16, 2016

One of the big topics these days pertains to how Big Data will affect our ability to more effectively use information to make decisions. So something like how has (or how will) the introduction of Big Data and the general reliance upon technology affected (affect) Deloitte's ability to advise clients and add value to the relationship. That should help you get laid.

Jul 16, 2016

wow this is just pathetic

Jul 16, 2016
gammaovertheta:

wow this is just pathetic

Jul 16, 2016
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Jul 16, 2016
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