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Interview Preparation
Copyright 2011 Investment Banking Institute
www.ibtraining.com
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Table of Contents
I. Investment Banking Overview
II. Ideal Investment Banking Candidates and Recruiting Season
III. Resume Tips
IV. Common Qualitative Interview Questions
V. Common Technical Interview Questions
VI. Interview Preparation and Tips
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Investment Banking Overview
Full-Service Investment Banks (Bulge Bracket Banks) Citigroup, Goldman Sachs, HSBC, Deutsche Bank, UBS, Morgan
Stanley, Credit Suisse (and previously, Merrill Lynch, Lehman,
Bear Stearns) Major IB groups within full-service investment banks
Leveraged Finance provides debt package for LBOs Ideal for moving on to LBO shops and hedge funds
Financial Sponsor dedicated financial sponsor community coverage
Ideal for moving on to LBO shops Industry Groups Telecommunications, Industrial, FinancialInstitutions, Food & Consumer, Retail, Automotive, Technology, etc.
M&A Groups Executes all the M&A assignments, include mergers,sell-side, buy-side, etc. Ideal for moving on to LBO shops and hedge funds
Financial Restructuring some bulge bracket banks are beginning toestablish these groups, although often there are conflicts Good for moving to hedge funds
Capital Markets Debt and equity capital markets (IPOs, secondaryequity offering, High Yield issues, convertible debt issues)
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Investment Banking Overview (contd)
Boutiques
Refers to small investment banks with limited number of services
M&A - Lazard, Greenhill, Centerview, Blackstone, Evercore
Restructuring - Miller Buckfire, Houlihan Lokey, Chanin,Blackstone, Lazard, Rothschild
Industry Focus Focused on one industry
Allen & Company (media), Petrie Parkman (oil and gas)
Middle Market Refers to smaller deals below $500 million in enterprise value
Houlihan Lokey, Chanin, William Blair, Edward Jones, Duff &Phelps, Raymond James, Goldsmith Agio and many more
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Investment Banking Overview (contd)
Typical Hierarchy at Investment Banks Managing Director (MD)
Markets banks services and brings in clients; big picture banker
Director (2 years and up)
Similar to Managing Director and is training to be an MD, but does more actualexecution than MD
Vice President (3 to 4 years) Responsible for execution of all aspects of transactions and pitches Primary contact for clients and other professional intermediaries Oversees junior financial staff (Associates and Analysts) and serves as the
intermediary between the MD / Director and junior financial staff Controls and plans the projects
Associate (3 to 4 years) Entry level position from MBA and there are also direct promotes from analyst
programs Oversees and guides the analysts, checks work product, builds the more
complicated models and financial analysis
Analyst (2 to 3 years) Typical Analyst Program is two years, with some analysts being offered a thirdyear (which often means a promotion to associate is implicit)
Responsible for most of the financial analyses and presentations Administrative responsibilities (i.e. grunt work)
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Table of Contents
I. Investment Banking Overview
II. Ideal Investment Banking Candidates and Recruiting Season
III. Resume Tips
IV. Common Qualitative Interview Questions
V. Common Technical Interview Questions
VI. Interview Preparation and Tips
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The Ideal Investment Banking Analyst
Recent undergraduates will enroll into the investment banksanalyst program Analyst programs are usually for two-years with the top
performers being offered a third year, usually implying apromotion to associate after completing the third year.
Important traits of a good analyst Good attitude
Hard worker / endurance
Energy Attention to detail
Do not necessarily need a finance / accounting undergraduate degree,but good grades and intelligence highly valued during interview
Typical responsibilities will include the following:
Pitch books and presentations Valuations (Trading, Precedent, DCF)
Excel Models (LBO, Merger)
Administrative such as Faxing and Delivery
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The Ideal Investment Banking Associate
Recent MBA graduates and Analyst Promotes will enroll intothe investment banks Associate program After 3 to 4 years, Associates can be promoted to Vice President
Important traits of a good Associate Knowledge of finance and transaction processes
Strong understanding of finance concepts, strong technical / modelingskills, strong writing skills
Good manager (calm under pressure)
Good teacher / patience with analyst Client interaction skills (Presence)
Attention to detail
Good knowledge of excel, powerpoint, word
Typical responsibilities will include the following:
Explain/oversee assignments to analysts Pitch books and Presentations
Complicated financial modeling (merger models, LBO models,valuation models, refinancing, etc.)
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Lateral Analyst and Associate Hires
Lateral Analyst and Associate Hires
Bulge bracket and boutique investment banks will consider hiringanalysts or associates that either have at least one year of
experience as an analyst/associate at another bank, or have someother professional experience where skills are transferable toinvestment banking
Other professional experience with transferable skills could becommercial banking, research (equity, debt, credit), corporate
development at a corporation, experience in the insuranceindustry, accounting, etc.
The important factor here is that the lateral analyst or associatecan demonstrate that he / she has developed the skills necessary
to be a good investment banker
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Recruiting Season at Investment Banks
New Analyst and Associate Hires
All of the bulge bracket banks and many boutique investmentbanks have entire recruiting departments focused on hiring new
analysts and associates The primary recruiting source are universities / undergraduate
programs for analysts and MBA programs for associates
Many investment banks have a target list of schools, whichtypically number about 20, and usually include the ivy-leaguesand other high-ranking universities
The banks work closely with the universities job placementservices to arrange off-campus and on-campus recruiting eventsand interviewing schedules
If your undergraduate institution / MBA program is not on thetarget list, you have to work a little bit harder, but you canstill get interviews
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Recruiting Season at Investment Banks
If your school is not on the target list, you should;
Network, network, network: call everyone you know that works ininvestment banks (analysts, associates, vice presidents, etc.) and
send them your resume and try to get informational interviews Contact the investment banks recruiting department directly
find the name of the person that is in charge of analyst orassociate recruiting
Find the names / email addresses / phone numbers of analysts,associates and vice presidents that work in the bank / groupwhere you want to work (website information); send them anemail with short introduction of yourself and what you want (i.e.a job) and attach your resume; follow up the following week witha phone call
Start early: dont wait until the recruiting season is alreadyunderway
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Recruiting Season at Investment Banks
The investment banking recruiting season for full-time analyst andassociate class starts in September of the year prior to the start datefor the new class The typical start date of the new analyst and associate classes is the
August or September following graduation Therefore, the interview season for this start date is the prior September
(i.e. when analyst candidates start their senior year and associatecandidates start their second year of MBA program)
However, many investment banks fill their full-time analyst and
associate needs through their summer internship programs Many analyst and associate candidates attain summer internships at
investment banks for the summer between their junior and senior year /summer between first and second year of MBA program
Investment banks recruiting season for summer interns starts in January ofthe same year of the summer internships
Often following the summer internships, the summer analysts andassociates receive full-time offers to start the following fall, once theyfinish school
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Lateral Analyst and Associate Hires
Lateral analyst and associate hires occur all year long, and aremore linked to current needs at the group or bank level
Interested lateral analyst and associate candidates can learn of
opportunities by contacting the investment banks recruitinggroup or the investment bankers / group directly
Often, investment banks hire headhunters to find lateralanalyst and associate candidates
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Resume Overview and Tips
Besides having good academic credentials and workexperience, structure and formatting of the resume are veryimportant
Most bankers (interviewers) will glance at the followingimportant sections and will not read the whole resume Previous work experience (internships for undergrads) and any
relevant transactions
School, major, GPA, standardized test scores (GMAT, SAT)
Outside activities Common resume mistakes
Formatting (think of it as an art piece)
Should not be longer than one page
No typos and grammatical mistakes (double check everything!) Make sure you are familiar with your resume and can discuss
every point
Do not embellish your roles on any previous financial transactions
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Resume Example
Review resume sample
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Table of Contents
I. Investment Banking Overview
II. Ideal Investment Banking Candidates and Recruiting Season
III. Resume Tips
IV. Common Qualitative Interview Questions
V. Common Technical Interview Questions
VI. Interview Preparation and Tips
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Common Qualitative Questions?
Please walk me through your resume and tell me a little bit ofyourself Candidates should take this opportunity to go through their
academic and professional history quickly, and emphasize anyacademic or professional experience that make them goodcandidates Academic Example: - I majored in accounting and finance, and earned
A's in all of the accounting and finance classes; my overall GPA was3.9 and my SAT scores were 1500; I was the president of my schools
finance club as well as the editor for the school newspaper Professional Example: During my time at Company XYZ, I spent a lot
of time building pitch books and buyers lists, spreading comparablecompanies and building models such as DCF, Merger and LBO
Outside Activities: show ability to multi-task and still be successful: Eg: While I know that any spare personal time would be limited while
working here, during school, I was captain of the rowing team which tookabout 25 hours a week, at the same time that I maintained a 3.8 GPA
Eg: I worked 30 hours a week to put myself through school, at the same timeas I did a double-major where I maintained a 4.0 in my major courses
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Common Qualitative Questions? (contd)
Why do you want to be an investment banker?
I think Investment Banking provides the best opportunity todevelop my financial skills such as financial modeling and
company valuation skills as well as honing my client interactionskills.
I want to be challenged, I know that investment bankers workunder difficult work environments but I want to be challengedmentally and physically
I love the financial markets and follow them closely
I would like to read about transactions that I have worked on inthe Wall Street Journal and other financial magazines
Investment Banks have a positive influence on the economy. For
example, the concept of 1 + 1 = 3 is derived from synergiesextracted from merging two companies
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Common Qualitative Questions? (contd)
What are your strengths?
The following are nice strengths such as: (a) attention to detail
(b) endurance (c) good attitude
(d) excel skills
(e) understanding financial concepts (i.e., valuation, modeling, etc.)
(f) ability to learn quickly
(g) ability to multi-task (i.e., history of holding jobs while in school, beingon sports teams, etc.)
(h) good communication and writing skills
(i) intellectually curious
The strategy to answer this question is to work into the answerthese skills and how the you already have them, by giving quickexamples for each skill
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Common Qualitative Questions? (contd)
What are you weaknesses?
This is a TRICK question. You should not actually tell them yourweaknesses, but spin it. For example:
(a) too anal (b) work too hard
(c) perfectionist
(d) check work product too often
(e) dont sleep enough
You can also take this opportunity to address some obviousweakness in your resume and buff it up. For example:
If you have no academic financial / accounting background, you cansay, Well, from my resume you probably noticed that I didn't majorin accounting or finance, but I do learn quickly as you can see from myhigh GPA and SAT scores. I work very hard to get up to speed, as youcan see from my success at my prior firm
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Common Qualitative Questions? (contd)
Why do you want to work at our bank?
Candidate should fully understand the bank in terms of bankssize, culture, target market, and industry focus. It helps to do
prior research Is it a boutique or a full-size bank?
If it is a boutique, you may say, I know that the junior staff receivesmore responsibilities and there are more opportunities to step-upon transactions
If it is a full-size bank, you may say, This bank has the globalresources to serve the fortune 500 clients and I want to be involved inthe high profile deals that this bank has been involved with recently.(Make sure this statement is true, so you need to do the research)
Another universal line can be I have heard that this bank is based
on meritocracy and you are given more responsibilities as longas you are able to handle it or "this group really values andencourages junior bankers to "step up" on transactions
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Common Qualitative Questions? (contd)
Where do you see yourself in 5 years?
Currently, I definitely want to stay in the financial servicessector, and would love to be an Associate (VP or Director
depending on entry position) in this group You do not want to mention that you are using Investment
Banking as a stepping stone to another job. You want to be aninvestment banker for LIFE! (even if you dont)
What was your favorite class in school? And why?
Math was my favorite class in school. Numbers came very easilyto me and I enjoy solving complex math problems as well aspuzzles.
I love to write so English was my favorite class. I also read a lotin my spare time.
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Table of Contents
I. Investment Banking Overview
II. Ideal Investment Banking Candidates and Recruiting Season
III. Resume Tips
IV. Common Qualitative Interview Questions
V. Common Technical Interview Questions
VI. Interview Preparation and Tips
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Common Technical Questions
What is total enterprise value?
It is the total value of the company which can be attributed to all thefinancial stakeholders (equity, debt and preferred holders)
How do you calculate total enterprise value? Equity Value + Debt + Preferred Equity + Minority Interest Cash
What is the difference between total enterprise value and equityvalue?
TEV represents value of whole enterprise, and is calculated as equity
value + debt + preferred equity + minority interest cash Equity value represents only the equity value of the company, and is
calculated as current share price * shares outstanding, or TEV debt preferred equity minority interest + cash
What is minority interest?
If you own more than 80% but less than 100% of another entity, you arerequired to consolidate 100% of the asset and income in the companysfinancial statements. Minority interest represents the portion that yourcompany does not own it is a liability
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Common Technical Questions
How do you calculate equity value? Stock Price x Shares Outstanding
What is the difference between basic shares outstanding and
fully-diluted shares outstanding Basic shares outstanding represent the current number of shares
that are currently issued and outstanding; you can find thisnumber on the cover of the most recent 10-K or 10-Q, Bloomberg,Yahoo finance, etc.
Fully-diluted shares represent the current number of sharesoutstanding plus the dilutive impact that any in-the-moneyoptions, preferred convertible stock, convertible debt and otherconvertible-to-equity securities that exist
Should you use basic shares outstanding or fully-diluted shares
outstanding to calculate the equity value of a company? What is the treasury stock method?
It is used to calculate the dilutive shares from employee stockoptions and outstanding warrants
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Common Technical Questions (contd)
Please name a few line items from the current assets and current liabilitiessection of the balance sheet? Assets:
Current assets: cash, inventory, accounts receivable, other current assets, prepaid accounts
Gross PP&E, cumulative depreciation, Net PP&E
Other long term assets, intangibles, goodwill
Liabilities and Shareholders Equity Current liabilities: accounts payable, other current liabilities, revolving credit facility
Long Term liabilities: debt, other long term liabilities, pension plan liabilities
Shareholders Equity: retained earnings, other
Total Assets = Total Liabilities + Shareholders Equity
Tell me how the cash flow statement is structured and state how they aredifferent from one another It is separated between cash flow from Operations, Investments and Financing
Operations represents the cash that is generated from the companys operations.Net Income + Depreciation & amortization +/- other non-cash expenses / income + /- changes in working capital + / - changes in other assets / liabilities
Investments related to capital expenditures and business acquisitions and proceedsfrom disposition of assets
Financing related to raising new equity and debt financing as well as paying downdebt
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Common Technical Questions (contd)
How is depreciation expense integrated within the threefinancial statements?
Depreciation expense is expensed in the income statement.
However, it is added back in the cash flow statement because itdoes not represent actual cash that is going out of thecompany.
Depreciation expense is also reflected in the balance sheet sincethe net P,P&E is decreased by the depreciation expense for that
period
What are the typical valuation multiple metrics?
TEV/Revenues, TEV/EBIT/ TEV/EBITDA, P/E
Can you use TEV/Earnings ratio for valuations?
No. TEV represents a value to all the stakeholders (debt andequity) and earnings are only attributed to the equity holders -interest expense is already subtracted from the earnings figure
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Common Technical Questions (contd)
If a company with a high P/E ratio acquires a company with alow P/E ratio in a stock transaction, assuming everything elsestays constant, will the transaction be accretive or dilutive to
the acquiring company? Accretive assuming that the earnings of the combined company
will still trade at the higher P/E ratio
How do you value a company?
There are three main valuation methodologies that you will use: Discounted Cash Flow
Trading Multiples
Precedent Transaction Multiple
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Common Technical Questions (contd)
Briefly describe the three valuation methodologies
DCF projects the cash flow in the future and it discounts it backto calculate Net Present Value (NPV)
Trading Multiples Uses the stock prices of publicly tradedcompanies to calculate valuation metrics such as TEV/EBITDA
Precedent Transactions Uses the actual offer price from anacquisition to calculate valuation metrics such as TEV / EBITDA
What is the main valuation principle difference betweentrading and precedent multiples?
Precedent multiple should be higher because it includes a controlpremium
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Common Technical Questions (contd)
Please describe the DCF model in laymans terms DCF projects the free cash flows generated by the company and
discounts these cash flows using a WACC, which considers the riskof the projected cash flows (Net Present Value of Free CashFlows)
DCF then calculates the terminal value of the company usingeither the EBITDA terminal method or the Perpetuity TerminalMethod
The DCF value of the Company is the NPV of free cash flows +terminal value
How do you calculate free cash flow? FCF = EBIT
less: Taxes
Increase/decrease in working capital (WC)Capital expenditures (CapEx)
plus: Depreciation and Amortization
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Common Technical Questions (contd)
How do you calculate the terminal value from using theperpetuity growth method / Gordon Growth method?
Terminal Value = FCF(5) x (1+g)
(d g)g = Terminal Annual Growth Rate d = WACC Rate
How do you calculate the terminal value from using theterminal multiple approach?
EBITDA multiple * terminal EBITDA / (1+d)^n
How do you determine the discount rate to be used in the DCF?
WACC
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Common Technical Questions (contd)
What is WACC and how do you calculate it? WACC represents the discount rate that you will use in the DCF to
calculate NPV
WACC = [Ke x (E/(E+D)] + [(Kd x (D/(E+D)) x (1-T)] Ke = cost of equity Kd = cost of debt
E = MVE of subject company
D = FMV of debt (same as face value unless distressed) of subjectcompany
T = tax rate
How do you calculate cost of equity? Use the Capital Asset Pricing Model (CAPM)
CAPM = Rf + Beta x (RM Rf)
Rf = risk-free rate RM = market rate
RM Rf = market premium
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Common Technical Questions (contd)
Please explain the concept of beta in laymans terms Beta measures the sensitivity of the stock relative to the market
as a whole (systematic risk risk that can by diversified away)
For example, if the company has a beta of 2, that means that ifthe market moves up by 2%, then the companys stock moves upby 4%
Which one is more expensive, equity or debt? Equity is more expensive because it has the lowest seniority in the
capital structure, thus higher risk and higher required return There are no obligations for dividends to be paid, and equity is
the last group to be paid out in a liquidation scenario
Which of the following will have the lowest interest rate:secured bank debt, subordinated debt, preferred equity and
equity? Bank debt. It sits on top of the capital structure and the debt is
collateralized with the assets of the company. It gets paid first ina liquidation scenario
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Common Technical Questions (contd)
What does it mean when a note has a PIK structure?
PIK stands for Pay In Kind. The borrower does not pay cashinterest to the lenders, rather the interest is added on top of the
note balance and the next periods interest expense is accruedfrom the new balance
Period 0 - $1,000 Balance and 10% Interest Rate per Annum
Period 1 - $100 Interest Payment but is added to the old balance of$1,000 which results in a new balance of $1,100
Period 2 - $110 Interest Payment is added to the old balance of $1,100which results in a new balance of $1,121
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Common Technical Questions (contd)
Explain how a company purchasing raw material from a vendorworks its way through the income statement and balance sheet
Company purchases $100 of raw material from vendor
Inventory balance on b/s increases by $100 Accounts payable balance on b/s increases by $100
Company converts the raw material into a final product for sale
Inventory balance on b/s increases by the value-added of $50 of theconversion to the final product: labor, other inputs, etc.
Company sells the final product to customer for $200
Sales of $200 recorded in income statement
COGS of $150 recorded in income statement
Reduction of inventory by $150
Reduction of accounts payable by $100 (company pays vendor) Increase of retained earnings by $50 (profit on the finished good)
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Table of Contents
I. Investment Banking Overview
II. Ideal Investment Banking Candidates and Recruiting Season
III. Resume Tips
IV. Common Qualitative Interview Questions
V. Common Technical Interview Questions
VI. Interview Preparation and Tips
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Interview Preparation
It is very important to prepare for all of your interviews in thefollowing areas:
Financial Markets Stay abreast of financial news and be able to
talk about the major events (WSJ, Bloomberg, Reuters, YahooFinance, etc.)
Company and Industry Specific Information - www.vault.comand www.wetfeet.com are great sources for industry andcompany specific information
Common Financial Technical Questions This course will help.www.vault.com also sells an interview preparation book
Common Qualitative Questions e.g., Why do you want to be anInvestment Banker?
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Interview Tips
You have a very limited amount of time to make a goodimpression with the interviewers. Please be mindful of themain things below:
Composure You want to be in control of your voice, emotionsand body. Dont show that you are nervous and speak in a calmtone with a steady rhythm. Do not shake your legs or any part ofyour body
Confidence You want to exude confidence but do not be
arrogant. Dont ever tell the interviewer that you are the best orthat they are wrong
Dress Invest in a decent suit, shirt, tie and shoes. Make surethat there are no wrinkles and that you look neat. The styleshould be conservative
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Questions to Ask During Interviews
How many transactions are you on at one time?
What % of your time is dedicated to live transactionscompared to marketing activities?
How many active engaged deals are there currently within thegroup?
How many people are on the transaction teams and how arethey staffed?
How big are your target clients? Why did you join this firm from all the other wall street firms?
How would you describe the culture at this firm?
What are the main responsibilities of an analyst / associate on
your deal team?
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Following Up with Your Interviews
It may not have a bearing on you getting a job with the firm,but thank you e-mails are nice to get
If you choose to send a Thank You email make sure you
double-check / triple-check spelling (firm, name of person,etc.) and that it is the right firm / position
Thank You e-mails also show your interest in the firm andthe position
It is better to somewhat customize each letter since that
shows more effort and the interviewers may compare letters intheir down time
Your goal is to get an offer from the firm even if you are notinterested in working there it is nice to have the option
If you have not heard back from the firm in a while, it isrecommended that you call the contact to just inquire thetiming and drop your interest (use these calls wisely sinceovercalling can be annoying)
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Important Considerations
Even within the same firm, group dynamics can be verydifferent
FIT - When considering which group/firm to work at, it is
important that you feel that the people at the firm share thesame moral values
Hours Certain groups work more than other groups withinthe same firm. It is widely known that leverage finance
groups, M&A groups and financial restructuring groups workvery hard
Reputation Even within the same firm, certain groups willhave better reputation on the street than the other groups
# of Deals It is always nice to have live, engagedtransactions on your resume when you are interviewing again.Marketing pitches are not very marketable, unfortunately