Interview question help!
Hi All,
I would like to get some comments on my response to these interview questions
1) DCF, Multiples and Past Transactions, which one normally yield the highest valuation?
not sure what this question is trying to test me, i would go with DCF
2) impact of additional $10 depreciation on B-S(TAX=30%)
I would say, PP&E down by 10, accumulate depreciation up 10, Cash up 3 , Retained Earning down 7, wonder is this correct, should i assume tax is deferred?
3) if you are alone on an island, you can pick 1-2 financial statements(multiple years) to study a firm, which ones would you choose?
I would say , if only 1, then B-S , at lease i can use the B-S accounts YoY changes to infer operating activities
if 2, then B-S and I-S, can calculate CF using these 2.
Any comments on my responses to the above questions?
thanks so much!
Loosen the purse strings, buy one 30 dollar interview guide, These are all super common questions. Or just google them.. but fine
1) Past transactions, will always pay a control premium, DCF is 2nd. 2) I/S Expenses increase by $10, but after taxes Net income only decreases by $7. CF: Starts out $7 lower, but add back $10 since Dep. is non cash so in reality CF is $3 higher. BS Cash increases by $3, but PPE decreases by $10, so Assets are $7 lower. Since Net income is $7 lower than R/E are also $7 lower so everything balances 3) If the questions says you can only have 1 statement, choose CF since it gives you the best picture of a company's true health.
If you can have 2 statements and can have the beginning BS and Ending BS then choose BS and IS since you can build the CF from it as you alluded to.
1) www.ibankingfaq.com/category/interviewing.../valuation/ www.macabacus.com/valuation/precedent-transactions
2) http://www.ibankingfaq.com/interviewing-technical-questions/accounting-…
3) Bad question. But def focus on IS or CF. U need to find the source of value/FCF creation http://www.glassdoor.com/Interview/If-you-can-have-only-one-financial-s…
Go back thru those links, solve the problems urself, then come back and give us ur answers. thx
WSO tech guide walks through the answers to all of these questions... all pretty standard interview questions.
1) Acquisition Comps, DCF and Public comparables. I have them ranked in order from highest valuation to lowest valuation. I believe acquis. comps would be highest due to a control or takeover premium that would be paid; I have DCF next due to the positive subjectivity in projections (FCF, Growth Rates, etc); followed by public comparables (multiples). It's important to note that DCF and public comps/multiples are probably going to be pretty close. However, the Acquisition comps will almost always be the highest do the premium.
2) Dubsfan7 nailed it.
3) If you can only pick one statement go with the statement of cash flows. It gives you a really good image of a company's cash flow and health. If you can pick two you might opt for the Balance Sheet and Income Statement and build the Cash Flow Statement. If you say this, make sure you know how to build a Statement of Cash Flows from scratch. http://www.investopedia.com/articles/04/033104.asp
for 2), it also depends on whether the deal is an asset deal or equity deal and the depreciation step up is different for each case. if it is an asset deal then what Dbusfan said is correct. but if it is equity deal, then there is no actual cash tax benefit.but it still impacts your P&L..you need to create a deferred tax liability initially decrease it over time...
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