IB Total Interview Guide

Investment Banking Total Interview Guide
Investment Banking TOTAL
Interview Guide
A Street of Walls guide to Investment
Banking Interviews.
By: Street of Walls Contributor

Current Investment Banking Analyst
Table of Contents
1 WELCOME LETTER ................................................................................................................................... 5

2 INTRODUCTION FROM AUTHOR ............................................................................................................. 5
3 INVESTMENT BANKING OVERVIEW ....................................................................................................... 5
3.1 BACKGROUND ON INVESTMENT BANKING ........................................................................................... 5
3.2 BACKGROUND ON THE INDUSTRY ....................................................................................................... 6
3.3 CORE INVESTMENT BANKING ACTIVITIES ............................................................................................ 6
3.4 INVESTMENT BANKING GROUPS ......................................................................................................... 6
3.5 INVESTMENT BANKING HIERARCHY .................................................................................................... 7
3.6 TYPICAL DEAL TEAMS ....................................................................................................................... 7
3.7 SALARY, HOW MUCH WILL YOU MAKE? ................................................................................................ 7
4 ROLE OF AN INVESTMENT BANKER ...................................................................................................... 9
5 EXIT OPPORTUNITIES: WHAT TO-DO POST BANKING ...................................................................... 10
6 GENERAL INTERVIEWING QUESTIONS................................................................................................ 11
7 LIST OF INVESTMENT BANKS ............................................................................................................... 13
8 FIGURE OUT THE PROCESS: DEADLINES, DATES, AND REQUIREMENTS .................................... 14
8.1 “CORE” VS. “NON-CORE” INTERVIEWING ........................................................................................... 14
8.2 SUMMER ANALYST (INTERN) SCHEDULE ........................................................................................... 14
8.3 FULL-TIME ANALYST SCHEDULE ...................................................................................................... 14
8.4 TYPICAL IB APPLICATION REQUIREMENTS ........................................................................................ 14
9 NETWORKING & GETTING AN EDGE.................................................................................................... 15
9.1 THANK YOU EMAILS ......................................................................................................................... 15
9.2 INFORMATIONAL INTERVIEWS: GREAT WAY TO NETWORK ................................................................... 15
9.3 INFORMATIONAL INTERVIEWS: QUESTIONS ASKED ............................................................................. 16
9.4 INFORMATIONAL INTERVIEWS: QUESTIONS YOU CAN ASK ................................................................... 16
10 RESUME HELP ......................................................................................................................................... 16
11 CALENDAR OF EVENTS: U.S. RECRUITING......................................................................................... 18
12 OFF-CYCLE: MIDDLE-MARKET & BOUTIQUE...................................................................................... 19
13 WHAT TO WEAR FOR INTERVIEWS ...................................................................................................... 19
14 INVESTMENT BANKING LIFESTYLE ..................................................................................................... 20
15 INTERNATIONAL RECRUITMENT: HONG KONG, LATIN AMERICA, LONDON ................................. 21
15.1 INTERNATIONAL RECRUITING: HONG KONG ................................................................................... 21
15.2 INTERNATIONAL RECRUITING: LATIN AMERICA ............................................................................... 22
15.3 INTERNATIONAL RECRUITING: LONDON ......................................................................................... 23
16 PHONE INTERVIEWS: PHONE CHEAT SHEET & ONE PAGE DCF..................................................... 24
16.1 PHONE INTERVIEW CHEAT SHEET ................................................................................................ 24
16.2 DCF – WALK ME THROUGH A DCF............................................................................................... 25
17 BEHAVIORAL QUESTIONS..................................................................................................................... 26
17.1 INVESTMENT BANKING QUESTIONS ............................................................................................... 26
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17.2 PERSONALITY & EXPERIENCES .................................................................................................... 30

17.3 INDUSTRY QUESTIONS ................................................................................................................. 35
18 QUESTIONS FOR THE INTERVIEWER................................................................................................... 37
19 TECHNICAL INTERVIEW QUESTIONS................................................................................................... 41
20 VALUATION QUESTIONS........................................................................................................................ 41
20.1 HOW WOULD YOU VALUE A COMPANY? WHAT ARE THE WAYS TO VALUE A COMPANY? ..................... 41
21 DISCOUNTED CASH FLOW VALUATION .............................................................................................. 44
21.1 WALKING THROUGH A DCF.......................................................................................................... 45
21.2 DCF: PROS AND CONS ................................................................................................................ 45
21.3 EXTRA THOUGHTS ON DISCOUNTED CASH FLOW .......................................................................... 47
22 COMPARABLE COMPANY ANALYSIS .................................................................................................. 49
22.1 COMPARABLE EXAMPLE ............................................................................................................... 50
23 PRECEDENT TRANSACTION ANALYSIS (AKA COMPARABLE TRANSACTIONS) .......................... 51
23.1 CHARACTERISTICS OF PRECEDENT TRANSACTION (SAME WITH COMPS): ....................................... 51
24 LEVERAGED BUYOUT ANALYSIS (LBO) .............................................................................................. 52
24.1 LBO BASICS ...............................................................................................................................52
24.2 WALK ME THROUGH AN LBO ........................................................................................................ 53
25 MERGER MODEL ANALYSIS.................................................................................................................. 58
25.1 M&A MODEL BASICS ................................................................................................................... 58
26 OTHER VALUATION METHODOLOGIES ............................................................................................... 62
26.1 LEVERAGED RECAP ..................................................................................................................... 62
26.2 RESTRUCTURING ......................................................................................................................... 62
27 VALUATION QUESTIONS........................................................................................................................ 62
27.1 “DEPRECIATION” QUESTION ......................................................................................................... 65
28 ACCOUNTING QUESTIONS .................................................................................................................... 70
29 FURTHER INTERVIEW THOUGHTS ....................................................................................................... 77
30 OTHER FINANCE QUESTIONS ............................................................................................................... 77
31 BRAINTEASERS....................................................................................................................................... 79
32 DISCLAIMER............................................................................................................................................. 81
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Table of Exhibits
Exhibit 3.1: Investment Banking Structure .................................................................................................... 6
Exhibit 3.2: Investment Banking Hierarchy ................................................................................................... 7
Exhibit 3.3: Investment Banking Deal Teams ............................................................................................... 7
Exhibit 3.4: Investment Banking Salaries...................................................................................................... 8
Exhibit 3.5: IB Salaries by Bank.................................................................................................................... 8
Exhibit 4.1: Investment Banking Pitchbook Example.................................................................................. 10
Exhibit 5.1: Investment Banking Career Patch ........................................................................................... 11
Exhibit 8.1: Application Process.................................................................................................................. 15
Exhibit 11.1: Calendar of Events................................................................................................................. 18
Exhibit 17.1: Walk me through your resume question ................................................................................ 31
Exhibit 20.1: Investment Banking Valuation................................................................................................ 41
Exhibit 20.2: Highest to Lowest Valuation Methodologies .......................................................................... 42
Exhibit 20.3: Pitchbook View: Football Field Valuation............................................................................... 43
Exhibit 21.1: DCF Walk-through ................................................................................................................. 44
Exhibit 21.2: Free Cash Flow Walk-through ............................................................................................... 45
Exhibit 21.3: DCF Snapshot........................................................................................................................ 48
Exhibit 22.1: Comparable Company Snapshot ........................................................................................... 50
Exhibit 23.1: Pitchbook View: Precedent Transaction ................................................................................ 51
Exhibit 24.1: LBO Walk-through.................................................................................................................. 52
Exhibit 24.2: LBO Snapshot ........................................................................................................................ 57
Exhibit 25.1: Merger Model Walk-through................................................................................................... 58
Exhibit 25.2: Merger Model Snapshot......................................................................................................... 61
Exhibit 27.1: Capital Structure .................................................................................................................... 65
Exhibit 27.2: Depreciation Question............................................................................................................ 66
Exhibit 28.1: Financial Statement Relationship .......................................................................................... 71
Exhibit 28.2: Income Statement Snapshot.................................................................................................. 72
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1 WELCOME LETTER
This guide is your starting point, it is constantly being updated and improved and should be able to give
you the tools to start a career in Investment Banking.
I’ll give you a little background of myself and also explain what exactly is in this material. I have mastered
the ins-and-outs of investment banking recruiting and I’m here to share with you everything I know. Along
the way I made study material not only for myself but for younger friends who landed top investment
banking jobs on Wall Street – so this material works!
2 INTRODUCTION FROM AUTHOR
I'm an ex-investment banker from one of the best Investment Banks in NYC, currently working as an
analyst at a major hedge fund in New York. While at the bank I worked within the M&A group structuring
countless deals and providing advisory services to our clients. In addition to my duties, I worked closely
with the recruitment team, so over the years I've interviewed hundreds of applicants and reviewed
thousands of resumes. This is why am able to provide such detailed, practical advice to those of you who
are currently on the outside looking in, trying to get your foot in the door. Take a look at my sample
questions. It will be apparent to you that the information contained in it has come from someone who has
walked the walk.
But before I got my start in New York, I was just another Midwestern kid going to a "non-core" college. I
had no connections whatsoever to Wall Street and no idea what to do with my degree.
During my sophomore year, I set getting a job in investment banking as my goal. After a tremendous
amount of trial and error, I got a handle on the interviewing process, and by junior year, I managed to land
a summer internship at an NYC middle-market Investment Bank. Once I graduated, the recession was
looming, and the bank was not hiring, so I quickly had to start applying to others. After almost a year of
interviewing, I landed a full-time job at one of the largest bulge bracket investment banks in Manhattan.
I found that unless you attended a few select colleges, it is very hard to know what is expected in this
industry. I did go to a decent state school, but I was nowhere near prepared enough to make it through
these interviews. I was completely blindsided. When I first began my job search, no one had prepared
me - no professors and certainly not anyone else from school. They simply just don't teach in college
what you need to know to make it through IB interviews.
The hiring process at any bulge bracket bank is extremely regimented and insanely competitive - if you
don't know what to prep for and what to expect, you WILL NOT make it through an interview. You most
definitely need help to know how the process works, what these banks are looking for, and what
questions they will likely ask you. My road to Wall Street was, unbelievably tough, but as my own
experience shows, investment banking recruiting can be learned.
3 INVESTMENT BANKING OVERVIEW
3.1 Background on Investment Banking
An investment bank is a financial institution that assists corporations and governments to raise capital by
underwriting and acting as the agent in the issuance of securities
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4An investment bank also assists companies involved in mergers and acquisitions and derivatives, and
provides ancillary services, such as market making and the trading of derivatives, fixed income
instruments, foreign exchange, commodities, and equity securities
Simply put, investment banks advise and raise money for companies
3.2 Background on the Industry
Unlike traditional banks investment banks cannot take deposits
Glass-Steagall Act maintained a separation between investment banking activities and commercial
banking between 1933 and 1999
In 2007, global investment banking revenues closed at a record $84.3 billion, since then many investment
banking have experienced losses due to the sub-prime housing crisis
3.3 Core Investment Banking Activities
1. Investment Banking or otherwise called corporate finance: This involves helping customers
raise funds in capital markets and giving advice on mergers and acquisitions (M&A)
2. Sales and Trading: large investment banks will buy and sell products on behalf of the bank and
its clients
3. Research: This division reviews companies and writes reports about them with a “buy” or “sell”
rating
Exhibit 3.1: Investment Banking Structure
Investment Bank Structure
Investment Banking Sales and Trading Research
Capital Markets (ECM, DCM)
Product Groups (M&A, LevFin)
Industry Groups (Retail, Healthcare, etc.)
3.4 Investment Banking Groups
Investment banking groups are broken down between Capital Markets, Product, and Industry/Sector
groups
Product groups consist of mergers and acquisitions (M&A), leveraged finance (Lev Fin) and
Restructuring
Industry groups cover specific industries and tend to do a lot more pitching. Industry groups
consist of Healthcare, TMT (Telecom, Media, Technology), FIG (Financial Institutions Group),
Natural Resources, Consumer/Retail, Industrials, Gaming and Lodging, Financial Sponsors, and
Real Estate
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Capital Markets consists of Equity Capital Markets (ECM), Debt Capital Markets (DCM),
Converts
3.5 Investment Banking Hierarchy
The investment banking hierarchy is very strict

From most Junior to Senior: Analyst, Associate, Vice President, Director, Managing Director
Analysts will tend to work almost all of their time with an associate while associates with VP’s,
etc.
Exhibit 3.2: Investment Banking Hierarchy
Most Senior
Managing Director
Director
Vice Presedent
Associate
Analyst
Least Senior
3.6 Typical Deal Teams
Investment banking groups run very lean for the amount of work they product. The question you will keep
asking yourself is: if investment bankers work 100 hours a week why don’t they just hire more people?
Mostly this is just because of the culture, the way it’s been done for a long time, and partly because each
transactions are very specific and would take up too much time re-training employees on the transaction
details.
Exhibit 3.3: Investment Banking Deal Teams
Inves tment Banking D eal Team Struc ture
1 Managing Dir ector 0 or 1 Direc tor 1 Vic e President 1 Associa te 1 Analyst
3.7 Salary, how much will you make?
Let’s face it-- it’s important to know what you’re working for. First year investment bankers typically
receive a $10k signing bonus and $70k base salary. Internships are usually pro-rated first-year salaries
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plus overtime, not too shabby. Associates out of an MBA program will receive a $30k signing bonus and
$95k salary.
Exhibit 3.4: Investment Banking Salaries
Investment Banking Salaries
Summer Intern First-year Analyst First-year Associate

= = =
Signing Bonus: $0 Signing Bonus: $10,000 Signing Bonus: $30,000
+ + +
Salary: Full Time Prorated Salary: $70,000 Salary: $95,000
Exhibit 3.5: IB Salaries by Bank
$85,000 Advisory Firms: 2010 Base Salary

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$90,000 Advisory Firms: '09-'10 Average Bonus

$85,000
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$75,000
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$60,200
$60,000
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2009 Bonus 2010 Bonus
$85,000 Bulge Bracket: '09-'10 Average Bonus

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$70,000
$65,000 $62,818
$60,000
$55,000
$49,556
$50,000
$45,000
$40,000
2009 Bonus 2010 Bonus
4 ROLE OF AN INVESTMENT BANKER
Investment Bankers are responsible for a wide-range of duties including raising capital, providing advisory
on mergers and acquisitions, valuation work, and executing the pitching of the banks expertise to client
companies
Analysts typically are right out of undergrad colleges who join for a two-year program
The bulge bracket banks will send their analysts through 2 months of intense training to prepare
General role of an analyst is to do the bulk of the work preparing presentations and models
Presentations or Pitch Books are simply marketing material for the bankers. These PowerPoint
presentations get printed and are bound for meetings with clients/companies
The analytical work consists of building and running financial models. We will get into this in
further detail later but this would include DCF, Comps, M&A, LBO models
This is 80-110 hour work weeks – expect to have no life outside of the office for the first year on the
job…yes that means no weekends as well. While the hours are strenuous, in my opinion the upside is
worth it.
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Investment banking analysts will also spend a large majority of their time creating “pitchbooks” which are
Company marketing material designed to pitch deals to clients. Below is a slide snapshot of a typical
pitchbook with qualifications a bank might pitch to clients showing banks qualifications.
Exhibit 4.1: Investment Banking Pitchbook Example
5 EXIT OPPORTUNITIES: WHAT TO-DO POST BANKING
Analysts are hired for a two-year program with a select few, at the top of the class, receiving 3rd year
analysts offers and from there potentially associate offers (you are then a career banker). Places like
Goldman now hire analysts for 2 years with a direct bump to associate the next year but they are the only
bank to do this at the moment.
Almost all analysts end up leaving the investment bank sometime between year 1 and year 2 when the
program ends. Analysts treat investment banking as a stair-step, unlocking higher profile jobs in the
investment community. Probably the most popular jump is to the private equity world, investment bankers
are taught to be very structured and transaction based, you are being bred for Private Equity.
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Another popular move is the jump to Hedge Funds – partially funds that do fundamental type of investing
or event driven investing. While a Hedge Fund work is not transaction based like IB or PE, it does require
a great deal of fundamental analysis and valuation work.
StreetofWalls.com has tons of information to help make the jump when the time comes. The entire team
has been through the investment banking process and has landed high profile jobs in Private Equity and
Hedge Funds.
Exhibit 5.1: Investment Banking Career Patch
While not always the case this is the “Typical” path of an Investment Banking Analyst:
Typical Path of an Investment Banking Analyst
Graduate College
2 Year Investment Banking Program
Private Equity Hedge Fund Venture Capital
6 GENERAL INTERVIEWING QUESTIONS
What kinds of questions are asked?
There are two types of questions:
1. Behavioral questions (we will cover these in this packet)

2. Technical questions (visit the website for the Technical Interview packet)
Sometimes you’ll be asked both or just behavioral – really depends on who is interviewing you
Through experience the older the person the less technical it gets – younger people tend to drill
you more on technical questions
Behavioral: these are fit questions, trying to see if you’re the right kind of person for the job
Technical: Rule of thumb is that you CAN’T mess up 1 technical or you’re done
We’ll review behavioral questions in this packet, the technical guide is available online
How long is the typical interview?
Most interviews are about 30-45 minutes

Phone interviews tend to be 20-30 minutes
Live on-campus interviews tend to be 30-45 minutes
Super Day or Final Round interviews are 5-6 hours long
How to get better at interviewing?
First things first: know your stuff inside and out, especially on the technical side
Practice, Practice, Practice: mock interviews are GREAT; it’s just not the same reading the
material vs. speaking to somebody else
Do mock interviews with your friends/parents/school career development
Will brainteasers be asked?
YES, some banks will ask you brainteasers so study up

Generally brainteasers will be asked during the first set of interviews
Brainteasers are discussed at the end of the packet
Other top banks:

Blackstone
7 LIST OF INVESTMENT BANKS
BNP Paribas
.There are hundreds of Investment Banks in the U.S. but only 9 are Centerview
currently part of the bulge bracket (I included Jefferies to make this
10). Cowen Group
Evercore Partners
The term 'bulge bracket' frequently refers to the group of investment
banks considered to be the largest and most profitable in the world, FBR Capital Markets
they are usually the hardest to break into and the most prestigious to Fox-Pitt, Kelton
work at. The 10 banks below + the other top banks listed on the right
make up 43 banks in total. There are hundreds more not listed here – Greenhill & Co.
simply searching for “investment bank” will help compile an even Houlihan Lokey Howard & Zukin
larger list. The list I provided certainly includes the top in the industry.
If you want a more expensive list visit the forums at StreetofWalls.com HSBC
Imperial Capital
Keefe, Bruyette & Woods
Lazard
Miller Buckfire & Co.
Moelis & Company
Morgan Keegan & Company
N M Rothschild & Sons
Needham and Company
Nomura Holdings
Oppenheimer & Co.
Perella Weinberg Partners
Piper Jaffray
Raymond James
Robert W. Baird & Company
Royal Bank of Scotland
Royal Bank of Canada
ROTH Capital Partners
Sandler O'Neill + Partners
Stephens Inc.
Société Générale
Thomas Weisel Partners
William Blair & Company
Wells Fargo
8 FIGURE OUT THE PROCESS: DEADLINES, DATES, AND REQUIREMENTS
8.1 “Core” vs. “Non-core” Interviewing
The investment banking recruiting process is divided up between “core” and “non-core” college recruiting.
Banks have a certain number of core schools they interview on-campus and allocate a certain number of
slots for these schools. Whatever is leftover after core interviewing is made up of the non-core recruiting;
this is usually a few months after core interviewing.
Core schools differ by bank but usually consist of: NYU, Wharton, UNC, IU, Michigan, Harvard,
Northwestern, Columbia and others. Non-core recruiting is chosen from internal referrals and online
applications. A typical bulge bracket bank usually hires 60-80 first-year analysts per year, with a majority
being internship hires and core students. I went through the non-core process; it’s a bit harder but can be
done.
8.2 Summer Analyst (Intern) Schedule
Summer analyst or internship application deadlines usually end in Nov/Dec. The core internship
recruiting generally is a live on-campus interview in Jan/Feb followed up with a Super Day in Feb/Mar.
Non-core internship recruiting is generally done with a phone interview in Feb/Mar followed by a live
Super Day in Mar/Apr. Summer analyst programs generally last 10 weeks starting in June and are
usually followed by a full-time offer.
8.3 Full-Time Analyst Schedule
Application deadlines for full-time usually end in July, so make sure to apply online early. Full-time
interviewing for core schools usually starts in Sept-Oct. This consists of a live on-campus interview
followed by Super Day in Oct/Nov.
Check your school career site for details. Non-core interviewing usually takes place in Oct/Nov. Non-
core consists of a phone interview followed by Super Day in Nov/Dec.
8.4 Typical IB Application Requirements
You must apply online at the banks' career websites before the deadline
Doesn’t matter if you know people at the bank, you still HAVE TO APPLY ONLINE
You must have a 3.5 GPA at the bulge bracket banks; smaller banks are more flexible
You do NOT have to be a finance major – any major will do (History, Arts, Engineers, etc.)
Resumes are key as investment banking resume books are sent around and voted
Exhibit 8.1: Application Process
Are you from a top 20 school?

Examples: NYU, Upenn, UNC, IU, Michigan, Northwestern, Columbia, Wake Forest, Dartmouth
NO YES
You are in the "non-core" recruitment You are in the "core" recruitment
1. First-round will be on the phone 1. First-round will be on-campus

2. Final-found (Superday) will be at the bank 2. Final-found (Superday) will be at the bank
3. Networking & Internal referrals are a MUST 3. Internal referrals will help but not a must
4. You must apply online via bank website 4. You must apply online via bank website
9 NETWORKING & GETTING AN EDGE
You have about as much luck winning the lottery as you do applying online and getting a call back. It is
really helpful is you know someone at the bank who can send an internal referral People in general enjoy
helping others out – it’s a confidence booster, so don’t feel bad asking for help. Employers want eager &
hungry kids, so don’t be afraid to be aggressive (but not too forceful).
Try the tips below to help your chances:

Network with family & friends to see if anyone has Wall Street connections
Use your school alumni network to find mentors (Wall Street is a small place)…school networks
are great – alumni love helping others out
Try contacting the Investment Banking HR team and schedule an “informational interview” to
learn more about the bank & recruiting process
For the smaller boutique banks try “cold calling” and asking for the investment banking recruiter –
try setting up information interviews with them and learn the process
9.1 Thank you Emails
After every interaction with somebody (this includes actual interviews), follow-up with a “Thank You” email
24-48 hours after. This is expected by most interviewers or even alumni’s in your network.
Personalize emails as much as possible.
9.2 Informational Interviews: Great way to network
Informationals are laid-back meetings by banks in an effort to get to know you and for you to become
familiar with the firm and its culture. There is no set deadline for informationals, they are simply one-off
meetings that are setup between you and either the HR manager or an investment banking employee
(could be an analyst, associate, MD, etc.). While they are sometimes marked as meetings, it is crucial to
remember they are evaluative and can definitely switch into interview type questions at any time.
Informationals are less formal than a typical interview because the banks generally provide this time as
an opportunity for you to ask tem questions and better understand the firm. The later in the process you
schedule an informational, the less technical or deal-related questions you will get. However, you should
be prepared to talk about your interests in banking, background, current evens, and anything that follows.
You should also be aware of the structure of the banks recruiting process, if not this is a good time to
learn.
Nearly every bulge bracket investment bank in NYC will have a structured informational process.
Typically if you do not attend the informational you will not advance further in the recruiting process. The
smaller middle-market and boutique banks will not have a structured informational process, so you will
need to reach out to HR or bank employees and express interest in setting one up.
9.3 Informational Interviews: Questions asked
Informational Questions you might get asked:

Tell me about yourself
Walk me through your resume
How do you like school? What’s your favorite subject?
Why are you here?
Why are you interested in this bank?
What groups are you interested in? Who else have you spoke with?
How would you describe the landscape for investment banking?
With this current environment, why are you still interested in investment banking?
What questions do you have for me?
9.4 Informational Interviews: Questions you can ask
Questions you can ask:

How do you like it here? Can you give me a quick background of yourself?
How is the analyst/associate class structured? What makes a great analyst?
What has been your favorite deal?
Spell-check and re-read several times, the last thing you need is a grammar error. Seep it simple
and short
Do not email after 10pm or before 7am
10 RESUME HELP
Most people think they have a good resume, and many do, but investment banking recruiters are looking
for a very particular style, and if you want to know what they want to see, check out my products. Without
the right resume, it doesn’t matter how smart or how hard working you are, you won't get in the door.
Let the Street of Walls team build an Investment Banking resume for you. Simply visit the Guides section
at StreetofWalls.com to learn more about our resume services.
Criteria investment bankers look for:
Quantitative & Analytical Ability: These are both critical for an investment banking resume especially
during the early years. Tips on how to improve your resume, have you:
Filtered through data and assumptions, and identified reasonable responses to complex
problems?
Synthesized large amounts of information and identified issues?
Identified a problem and taken proactive approach to solving it?
Done well in courses with heavy analytical and quantitative content?
Performed experiments that required formulation of a hypothesis and collection of evidence to
prove or disprove it?
Drive for Results: Firms want to know whether you have the initiative, motivation, attention to detail and
energy to deliver strong results. Start tracking and measuring your achievements. When you interview,
you’ll need to discuss your accomplishment quantitatively and qualitatively. Tips on how to improve your
resume, have you:
Brought new customers and revenue into your company?
Prove yourself as a self-starter who goes above and beyond requirements?
Shown the ability to switch priorities and move quickly among different tasks?
Set a challenging goal and achieved it?
Attended to the details while juggling multiple tasks (that is, you didn’t let things fall through the
cracks)?
Taken an innovative and efficient approach to get something done?
Communication Skills: Ability to write and speak well suggests that you’ll be successful working with
clients and colleagues. Tips on how to improve your resume, have you:
Presented in front of classes, teams, and organizations?
Written successful papers, memos, and speeches?
Worked effectively with clients to understand their needs?
Articulated ideas in a clear and thorough manner?
Teamwork Skills: Teaming with clients and peers is a critical assignment. Bankers work in teams. Tips
on how to improve your resume, have you:
Been a member of a sports team, study group, or committee?
Worked effectively with people whose work style differs from yours?
Inspired others to take action in an unstructured situation?
Taken on the role of a team leader or player as needed?
Extra Resume Help: Every year investment banking resume books are sent around to Investment
bankers for reviews. Having seen thousands of resumes 90% are less than ideal just because of the
formatting alone. Investment banking requires close attention to detail so having the right look matters!
Check out the Street-of-Walls resume builder online, we can provide you with the right template or make it
for you:
Street-of-Walls Resume Builder

Investment Banking Resume Template
Most people think they have a good resume, and many do, but
investment banking recruiters are looking for a very particular style,
and if you want to know what they want to see, check out my products.
Without the right resume, it doesn’t matter how smart or how hard
working you are, you won't get in the door.
11 CALENDAR OF EVENTS: U.S. RECRUITING
Full-Time: Generally September kicks off Full-time interviews for both undergraduates and graduate
students
Internships: Generally January kicks off summer internship interviews for undergraduates and graduate
students
Exhibit 11.1: Calendar of Events
January February March

Su M Tu W Th F Sa Su M Tu W Th F Sa Su M Tu W Th F Sa
Internship
Internship: Core Internship: Interviews Internship: Interviews Dec: Submission Deadline
interviews will kick off will be going on will be going on Jan: Interviews Start
Feb: Interviews
Jun: Start Date
Aug: End Date
April May June
Su M Tu W Th F Sa Su M Tu W Th F Sa Su M Tu W Th F Sa Full Time
Jul: Submission Deadline
Internship: program Sept: Interviews
starts, 10-12 weeks long Oct: Interviews
Full-time: APPLY via Nov: Interviews
bank websites Jul: Start Date
July August September

Full-time: Deadline for Full-time: On-Campus Full-time: On-Campus

Online Applications Core school interviewing Core school interviewing
October November December

Full-time: Non-core Internship: APPLY via Internship: Deadline for

school interviewing bank websites Online Applications
12 OFF-CYCLE: MIDDLE-MARKET & BOUTIQUE
Off-Cycle: Middle-Market & Boutique

The smaller the bank usually the less structured the interview process (in terms of set guidelines
& dates)
Boutiques in particular will usually hire on a need basis, so interviewing here can happen all year
around
If you’re having trouble breaking into the big banks, send me an email & I’ll shoot you a list of
boutique banks
Most of the boutiques will interview fulltime in the spring (so about 3-4 months behind the big
banks)
If you find yourself behind the curve I suggest targeting the boutique and middle-market banks
Can’t get a job? If you are caught outside of the typical recruitment cycle without a job visit Street-of-
Walls and get a hold of the middle-market and boutique investment banking list. These firms which will
be more likely to recruit off-cycle opposed to a structured interview process at the bulge bracket firms.
13 WHAT TO WEAR FOR INTERVIEWS
Bottom line: always wear a full suit to an interview. I suggest going out and getting at least one good suit
– you’ll need it. I’ll give you suggestions on what types of suits and where to find them.
Looking good for your interview really does make a difference, so you don’t want to look sloppy. In other
environments it isn’t as important, BUT for investment banking, appearances do matter, so look sharp
Men, Style & Colors:

Suit: I’d suggest getting a solid suit for a starter, either black or dark blue. Get a 2 Button Coat.
Shirts: Get solid shirts as well. I’d go with white or light blue shirts; can't go wrong with
white…NO FRENCH CUFFS
Tie: Wear something conservative
Shoes: Go with a nice pair – black Captoes are the classic banker look
Men, Suggestions on shopping:

Suit: Zegna (expensive but good), Hickey Freeman, Hugo Boss, Bloomingdales/Macy’s
Shirts: Brooks Brothers, Charles Tyrwhitt, Bloomingdales, Macy’s
Tie: Brooks Brothers, Charles Tyrwhitt, Vineyard Vines, Zegna, Hickey Freeman
Belts: Brooks Brothers has good belts
Shoes: Allen Edmond, Cole Haan, Ferragamo
Women, Style & Colors:

Good Conservative suits, Navy or Black
If it’s a skirt suit, not too tight
Button down shirt should be a solid light color; can't go wrong with white
Easy on the make-up and perfume
Women, Suggestions on shopping:

J. Crew
Banana Republic
Try the department stores
No French Cuffs, No Pocket Squares, No cut-back collars!!!!

14 INVESTMENT BANKING LIFESTYLE
Are the hours really that bad?

Bottom Line: YES. At the bulge bracket and top boutiques, analysts are expected to work 90-110 hours
per week or more. A typical day will be somewhere from 10am to 2am; this includes weekends. During
busy times analysts will even pull an “all-nighter” – working throughout the night. The higher you go up
the ladder, the less time at the office – associates usually put in less time than analysts.
Why don’t the banks just hire more analysts then?

This is just the culture of investment banking. You will be spending a lot of time in small teams working
on M&A/LBO’s, etc.; this is very difficult if you have multiple people. Bankers are expected to work a lot
and thus get paid a lot of money for working those long hours.
What’s the upside?

Bottom Line: THE MONEY. Investment bankers are the highest paid out- of- college graduates in the
nation – you will be highly compensated. Second are the exit opportunities; many people treat
investment banking as a stepping stone to other careers (as I did). Most of those include Private Equity,
Venture Capital, and Hedge Funds. Finally, what is learned is invaluable. iBanking teaches you the ins-
and-outs of finance and how to work and survive in a difficult environment. All of these skills will prove
valuable regardless of what you do.
Is the lifestyle worse/better in some groups than others? Bulge Bracket vs. Boutiques?
Yes and Yes. Generally the hours are much longer at the bulge bracket than at smaller boutiques (this is
not always true) just because of deal flow. Larger banks will tend to do much more volume than smaller
banks, hence much more work for you. In terms of groups, this varies by bank, but the product groups
have a reputation for working the most hours (M&A, Leverage Finance).
Lifestyle different in New York vs. other areas?

Generally the life is much tougher for a New York investment banker. The other big finance hubs come in
next: London and Hong Kong. The West Coast (LA area) has a somewhat large concentration of
investment bankers, but the stereotype is a more laid-back atmosphere.
Do investment bankers get free dinner?

Yes, if you work past 7pm (which you will), you are eligible for dinner on the firm. When I was in banking,
it was $25 every night and on the weekends $15/lunch and $25/dinner. The bank will also pay for your
travel home every night and also travel to and from on the weekends.
Books to read? http://bit.ly/n387Wj
Periodicals to read:
1. Street of Walls Daily News
2. Wall Street Journal (Money & Investing section)
3. Financial Times
4. Dealbreaker (online tabloid, this is for fun)
5. Leveraged Sell-Out (online site, currently stopped publishing)
15 INTERNATIONAL RECRUITMENT: HONG KONG, LATIN AMERICA, LONDON
15.1 International Recruiting: Hong Kong
Tips on Hong Kong Recruitment:
The Hong Kong recruitment process is less structured than the New York offices, interviews
typically take place later than NYC deadlines
Need to have a good story of Why Hong Kong vs. NYC or other areas of interest
Candidates that can speak Mandarin will have a huge advantage
Relationships or having spent time in Asia will be a big advantage
Pay close attention to the Asian markets, know current events and any big news
Generalists programs are more common because the analyst classes are much smaller than
NYC offices
Dates and Deadlines:
1st Round Interviews: These are usually over the phone and take place in Dec/Jan
2nd Round Interviews: Second round can be your Super Day which is usually held at the New
York office. This is usually anytime from Jan-Mar, and can include presentations, group
discussions, aptitude tests, and translation tests. If you have a Chinese background the interview
might be conducted in Mandarin or Chinese so be honest of your abilities
Interview Questions:
Why do you want to work in Hong Kong vs. NYC?

Do you speak Chinese? Can you please read this paragraph out of this Chinese book?
Who have you spoken with in our Hong Kong office? How did you get in touch with them?
What do you think the main differences are between working in Hong Kong vs. NYC?
What are the current events in China?
What is your view on the Chinese economy and outlook?
We have met a lot of qualified candidates today, what sets you apart from them?
Which sectors will benefit from the Chinese government’s stimulus plans?
What do you know about this bank’s Asian operations?
15.2 International Recruiting: Latin America
Tips on Latin American Recruitment:
For most of the big banks the LatAm teams are organized as a coverage group within the
Investment Banking Division. The coverage groups act more of a hybrid between a coverage &
product group since it executes most of its corporate finance products (M&A, Lev Fin, etc.) while
managing relationships with the region
LatAm recruiting really stresses cultural fit
Need to have a good story of why LatAm vs. NYC or other areas of interest
Relationships or having spent time in LatAm will be a big advantage…really focus on personal
relationships in LatAm
Big focus on teamwork – these are smaller teams than in NYC
Smaller teams mean more workflow, they are looking for really hard working candidates
Will need to be very up-to-date on the macro and geopolitical environment, read up on current
news
Know the current capital market events in LatAm (Stock exchanges, debt markets, recent
issuances, etc.)
Know, by country, the industry specifics and what the key drivers are
Be sure to understand the influence on currency changes and how a changing US Dollar affects
LatAm companies
Why do you want to work in Latin America vs. NYC?

Do you speak Spanish?
Who have you spoken with in our LatAm office? How did you get in touch with them?
What do you think the main differences are between working in LatAm vs. NYC?
What are the current events in LatAm?
What is your view on the LatAm economy and outlook?
What do you know about this bank’s LatAm operations?
With the U.S. Dollar at this level, what is our outlook on ABC industry?
15.3 International Recruiting: London
Tips on London Recruitment:

London is grouped in EMEA: Europe, Middle East, and Africa
EMEA recruiting is separate from NYC recruitment
NY and London HR (Human Resources) teams work together, but run SEPARATE interview
processes
Since HR runs both processes if you are applying to both NYC/London you need to confirm how
the banks feel about applying to multiple locations…some banks discourage this!
The London interview process has fewer events and less interaction than NYC recruiting
Having geographic knowledge is a plus
Analyst and associate classes are much smaller than NYC (NYC hires +50, London will hire only
5-10)
Majority of analysts go A-to-A (analyst to associate promote), where in NYC most analysts are
required to get a MBA before making the move
Why do you want to work in London vs. NYC?
Who have you spoken with in our London office? How did you get in touch with them?
What do you think the main differences are between working in London vs. NYC?
What are the current events in London? Current events in EMEA?
What is your view on the London economy and outlook?
What do you know about this bank’s EMEA operations?
What are the banks most recent issuances or deals?
How would you value a pizza company? (be prepared for mini-case studies like this)
16 PHONE INTERVIEWS: PHONE CHEAT SHEET & ONE PAGE DCF
16.1 Phone Interview Cheat Sheet
First round phone interviews are generally very predictable, have this sheet available during the call in
case you get tripped up. Phone Interview Cheat Sheet (Have this open during Phone Interviews)
16.2 DCF – Walk me through a DCF
Use this for phone interviews, interviewer will most certainly ask you to walk them through a DCF…follow
the outline below.
Three essential parts to a DCF:

1. Company’s Free Cash Flow
2. Terminal Value of the Company
3. The Weighted Average Cost of Capital (WACC)
1. Free Cash Flow = Operating Cash Flow – Capital Expenditures – Change in Net Working Capital
Operating Cash Flow = Operating Income*(1-tax rate) + Depreciation & Amortization
Capital Expenditures (CapEx) = found on the cash flow statement under investing activities
Net Working Capital = Current Assets (excluding cash) – Current Liabilities (excluding debts)
Project out FCF from projections in research or management
2. Terminal Value of the Company – two methods
A. EBITDA Multiple – take last year’s EBITDA, apply a multiple to it, and discount that value back to
Year 0
B. Perpetuity Growth – Last years FCF * (1+Growth Rate). All that Divided by (WACC – Growth
Rate)
3. WACC – two components
A. Cost of Equity (CAPM) = Risk free rate + Beta * Risk market premium
B. After tax cost of debt = risk free rate + applicable company spread
Use Market Value of Equity and Book value of Debt to figure out the ratios to apply to each component to
find WACC
Final Step: Discount all back to find your Enterprise Value (EV) of the Company
17 BEHAVIORAL QUESTIONS
17.1 Investment Banking Questions
Q: What is investment banking?
The investment bank has primarily two functions, an intermediary and an advisor. As an intermediary it
connects companies that need capital and investors who have capital to spend. It facilitates this through
debt and equity offerings. As an advisor, an I-bank advises companies on mergers, acquisitions, and
restructurings.
Q: What exactly do investment bankers do?
Investment banking describes the business of raising capital for companies and providing
advising services on financing and merger activities. So a company will approach an investment
bank when it needs to raise capital or when it needs advice in negotiating and structuring a
merger
Underwriting: an arrangement whereby investment bankers make outright purchases of a security
from the issuer to be offered to the public; the investment bank makes a profit on the spread
between the purchase price and the public offering price.
Financial Restructuring: renegotiating payment terms on debt obligations, issuing new debt, and
restructuring payables to vendors. Bankers provide guidance by recommending the sale of
assets, the issuing of new special securities, or even working with M&A bankers to sell the
company entirely.
Hierarchy: Analysts Æ Associates Æ VP’s ÆDirectors ÆMD’s
General pitchbook: used to guide introductions and presentations during a sales call. They
contain general information and include a wide variety of selling points, such as an overview of
the I-bank, and details of its specific capabilities in research, corporate finance, and S&T.
Deal-Specific pitchbook: highly customized; includes valuations, comparable company analyses,
and industry analyses, as well as the bank’s reputation/prominence of its analysts, performance
on past/similar work, and information on rankings/expertise.
Q: Why do you want to be an investment banker?
As I have grown and matured, I have had the opportunity to experience various jobs and have been able
to converse with people involved in various professions. Among these fields are law, education,
entrepreneurship, medical, non-profit organizations, banking, investment banking, and sales and trading.
Based on these experiences and contacts, I decided that the most appealing field to me is investment
banking.
In particular, I believe investment banking offers the best environment for growth in the knowledge of
finance, economics, and accounting – all important areas for business – thanks to its steep learning
curve, competitive nature, and the people with whom you work with. I believe it offers the best opportunity
to enhance my skill set and apply it on a real- life and current basis. Furthermore, for personal reasons I
would like to enter investment banking – I enjoy situations that involve analyzing strategies,
environmental conditions, structure, and future opportunities. In particular there is no other industry in
the world that offers a first- year graduate with the amount of responsibility that investment banking offers.
I can’t think of a better way than to hit the ground running right out of school.
Q: Why do you want to be an investment banker? (different response)
The best advice my dad gave me was whatever you do, “Put yourself in a position to succeed." And I
think right out of college, I-banking hands down offers the best experience available. I know the work is
going to be tough and the hours excruciating, but I enjoy the pressure and challenge to execute. Also
contrary to accounting, finance is unpredictable and exciting; I enjoy the fact that there is never a typical
day.
Q: Why do you want to be an investment banker?

I think for me the work is rewarding. Nowhere else out of college will you get a better experience.
The work will always be challenging and you’re going to be working with some of the brightest
people.
I think that’s one of the main reasons I wanted to come to New York. One of the great
advantages out of New York is the network. Chicago will always be my home, but New York is
the center of the financial world and I want to get the best experience possible.
Q: What qualities do you think would make you successful investment banker?
I can be successful in investment banking because I have a “whatever it takes” attitude. In many ways it
can be inconvenient and draining to do so, but it’s been ingrained in my head to have an entrepreneurial
mindset. I had my internship with a paint company my freshman year. During the spring semester,
interns were expected to go home once a week or once every two weeks in order to have enough time to
do marketing and sales work. Obviously for freshmen in college, it can be very taxing because it is their
first year in college. I knew it was going to be tough, but I tried to dedicate as much time to the program
as possible. Some weeks I went home twice a week if I had to get work done.
I can be successful in investment banking because I’m a grinder that will do whatever it takes, whenever
it takes. My parents brought me up with an entrepreneurial mindset that you just have to Work Hard to
Play Hard. Also, I know what I’m getting myself into. I know the hours; I know what is expected of me.
This isn’t something that I’m applying for just because I see the dollar signs. I think this can be an
invaluable experience that will only set me up for success in the future.
Other qualities:
Fast learner
Energetic
Work hard / play hard
Good attitude
Not afraid to ask questions
Not afraid to be wrong
Attention to detail
Q: What do you think an analyst does on a typical day?
I know analysts are expected to go through 2 years of finance boot camp. I expect the hours to be long,
mostly doing financial modeling, making pitch-books, doing due-diligence, and rescheduling plans with
their friends.
Q: Why do you want to work for this Bulge Bracket Bank?
I like the exposure of being in a bulge-bracket, knowing I’m going to get the best learning experience
possible. Also, I like how this bank has a very casual environment and more entrepreneurial than other
banks. I think that also being in Industry groups, I will get more exposure to a multitude of products.
SOW Comments: Make sure you know about the bank you’re interviewing at! There is a lot of ass
kissing for this question – you want to express that you’ll be working for the smartest people who will
challenge you to learn more
Q: Why do you want to work for Middle Market?
# 1 priority is to be in NYC, if I’m going to be working 90-100 hours a week I want to be near my family
and friends in NY. Also, this Middle Market bank offers a unique experience, an opportunity to gain
exposure with higher level executives and also the opportunity if I work in the M&A group to work on both
buy side and sell side deals. That’s definitely something that Bulge Brackets cannot offer. I want to work
on deals that are really important to the people involved because it will give me a pressure to perform to
the best of my ability. And lastly if I’m going to be working 90-100 hours a week, I want to be working for a
firm that I will enjoy. And this bank's being rated one of the “Best Companies to Work For” is definitely a
plus.
Q: Why do you want to work for Goldman Sachs?
I want to work with Goldman Sachs because I want the best experience possible. I want to work with
people that are smarter than I am so that I will be continually challenged to become better. Also, I think
hands down Goldman Sachs will offer the best deal experience. Goldman has revolutionized what
defines an “investment bank” and, only Goldman Sachs can offer an outstanding deal flow across the
board.
And when it comes down to it, the work is rewarding and I enjoy it. I think my internship this summer
definitely affirmed that I want to do I-banking at least for a couple of years. Although I will be making a 2 -
year sacrifice, I enjoy the challenge to execute and I can’t see my see myself working for a better firm
than Goldman Sachs.
SOW Comment: Express there is no other bank you want to work for.
Q: How was your internship experience at Merrill Lynch?
I had a great experience with Merrill Lynch. I worked with the Consumer Retail group in Chicago and it
was a very tight-knit group, a group of 28 including the VP and MD. I enjoyed the experience and I got a
glimpse of a variety of deals, but it did not offer an extensive network of people, which is why I want to
come to New York. I received an offer from the ML Energy group, but I know if I work for Goldman Sachs,
I’m going come out with a network of the best and brightest people on the street.
Q: Tell me about a deal you’ve worked on?
SOW Comment: If you have prior investment banking experience the interviewer will more likely want to
spend a lot of time talking about your experience. The most important thing to takeaway here is: Do NOT
put down any deal experience unless you are very confident you understand everything. If an interviewer
starts asking you questions you don’t know then it could be game over for you. The interviewer will also
want to know if you did any sort of modeling for the deal, if so you’ll need to really understand how the
company functions (economics of the industry, how the company makes money, how investors value the
industry) and how you valued the company (DCF, multiples, etc.). Make sure you know why the company
wanted to sell, raise equity, or be bought.
Q: Tell me about the model you worked on either in your internships or school
Liquidity model: for management to see how much a bidder could lever the company
2 different projection sets – CIM (Confidential Information Memorandum), NPV
4 different financing scenarios – Term Loan, Cash Pay Note, Securitization, and PIK toggle
Know purpose of model, talk intelligently about leverage ratios, drivers of model
SOW Comments: If you took a financial class that walked through financial modeling then great. If you
did NOT, then visit StreetofWalls.com and start going through the financial modeling course and models
on the site. This will help you understand how a model works and be able to talk about this in your
interview.
Q: Why would you be a good investment banker?
I think one of my best attributes is the ability to learn quickly and to be efficient with my time. Currently, I
have a 3.7 cumulative GPA, which isn’t amazing, but taking into account that I have run my own business
during school and am supporting myself through college, I think it’s a good accomplishment. I didn’t
always have enough time to put into my studies, but I knew that if I was productive and efficient, I could
still get by with relatively good grades.
Q: What is one concern you have about investment banking?
Honestly, my biggest concern with investment banking is the politics that come along with the business
world. I definitely had a first-hand experience, since it was not a completely smooth transition moving
locations and on top of that changing groups. I currently have an offer with Bank of America Consumer
Retail, and it’s the offer I wanted since it’s arguably the best group at BofA, but it wasn’t one of my
favorite experiences of the summer.
Another Way to Answer: One concern I have about investment banking is the balance between work life
and family life. Family and friends are an important part of my life because they have shaped the person
that I am today. That is why my #1 priority is to stay in New York. If I’m going to be working 90-100 hours
a week, then I want to be as close to family as possible.
Q: What do you think an analyst does on a typical day?
Analysts do what they’re asked to do. Their responsibilities can vary from running their own financial
model or pitchbook, to the minuscule of duties including making copies and setting up conference calls.
An average day is reflected in whatever makes their Associate / VP / MD’s life easier.
Q: Would you prefer a product or industry group? Why?
I would prefer an industry group because I think I would get more exposure to all types of deals. And I
also enjoyed the TMT space that I was in this summer. But honestly, I’m not too worried about what group
I am in because I know each group will offer relatively the same experience.
Q: Why should I pick you instead of someone from Harvard?
Yes, I am from the [Insert College], but I think I can offer experiences that other students can’t. I chose
this college mainly because of tuition. I’ve definitely learned a lot and have been stretched far beyond just
the confines of academics by having to support myself through college. Being from a non-core school, I
have a bit of a chip on my shoulder. I know I have to prove myself. And also, I think I’m a good analyst. I
think my track record speaks for itself, moving from a regional office to the best group at [insert bank].
SOW Comments: Be careful of how you come off when saying this; be humble but confident. Speak of
your accomplishments, what sets you apart.
Q: What are 4-5 skills that you think are essential for Banking?
Work-Ethic – essential, lifestyle of a banker, Not for everyone, “work-hard, play-hard”

Great Attitude – you are workhorse for 2 years, hard to work w/ a negative person
Attention to detail –everything needs to be right, enjoy the pressure, learned this summer
Learn quickly – steep learning curve, expected to pick things up after the first time
Know the industry – need to know what you’re getting into, NOT for everyone
Not afraid to ask questions – a lot of material, expect to pick things up quickly
Q: Where else are you interviewing? Are you interviewing outside of banking?
I’m interviewing at just investment banks; I am not interested in any other field at the moment. At the
moment I am only interviewing at 2 other investment banks.
SOW Comment: Say you are only interested in investment banking. If you can name the other firms you
are interviewing at then that is good. Just make sure not to make-up any other interviews, Wall Street is
a small place and bankers have friends at almost every other bank.
Q: If you had the opportunity to jump early to a Private Equity or Hedge Fund like some of the
other analysts/associates here would you?
No I am not, I enjoy investing but truthfully do not enjoy the nature of the work where you would rather be
taking action and doing deals opposed to “looking at deals”. After speaking to alumni and other
connections, I am dead set on banking.
Q: If we gave you an offer right now would you accept?
YES. I will sign right now!
Q: What other investment banks do you like the most?
SOW Comment: Suggest one bank that you admire in the industry and state a good quality of theirs.
Then counter that with saying the bank you are interviewing at also has this great quality and they might
even be better. A way to think about this is “Goldman has a well known culture and teamwork but [Insert
Bank] has exactly that but after talking to employees at the bank I’m convinced the level of teamwork and
culture could even be better.”
17.2 Personality & Experiences
Q: Walk me through your resume (i.e. tell me about yourself)
SOW Comments: You should really know this question well, it will 100% be asked. Start at the beginning
by talking about where you grew up and how you chose the college you attended. Make sure to mention
you looked at several colleges and you chose your college because of its strong business/economics
program or a strong academic curriculum.
SOW Comments: Tie to the interview, read the interviewer (Easy-going vs. All Business). A majority of
interviews will start out with the interviewer asking you to “walk me through your resume.” This gives the
interviewer a chance to read over your resume and also get to know you. This is a case where you can
talk about your background and also make your case for why you want to be a banker. Give the
interviewer a story that shows your achievements and how everything fits together for you to be a banker.
Make sure to point out how each job has let you take on more responsibility or required you to learn more
than finance/business knowledge than before.
SOW Comments: I’d start off with where you grew up, but make sure to spend a majority of your time
talking about your most recent job experience and the classes you are taking in college. Do NOT point or
reference to your resume when answering this question. This is your first impression so make sure to
practice this!!! Plan to spend about 3 minutes or so on this.
Exhibit 17.1: Walk me through your resume question
Walk me through your resume?
Chronological Order:
Start with where you grew up
College Search:
You looked at a lot of places but [Insert College] had
a strong academic curriculum, etc.
Your Interest in Business:

How your interests in business has evolved and tie
into why you are interviewing at this iBank
Aim for 3 minutes
Q: Why did you attend [insert] college?
Upon graduating HS, I was accepted to 8 schools, some of which were UNC and IU. Relative to other
schools I visited, the combination of business curriculum, research facilities, specific professors,
atmosphere on campus and person fit allowed me to make this decision and I felt without a doubt [insert
school] was the school I wanted to attend.
I knew going in that I would have to work extremely hard not only to differentiate myself from my
classmates, but also from the candidates I would be facing in the banking interviews. I have pressed
myself to learn as much as possible about the banking industry and while I understand I have an
incredible long journey ahead of me, I believe my personal, professional and academic accomplishments
to date have positioned me for success in the banking world
SOW Comments: Say that you looked at a lot of colleges and you chose this college because of a
strong business/economics program or a strong academic curriculum. If you attended the school for
some sort of scholarship (academic, sports, musical, etc.) make sure to include that as well.
Q: Why did you major in [insert Degree]?
SOW Comment: If you are a business major try to discuss your interests in that field. If you are a non-
business major express you are always interested in a challenge and you chose that major because you
have a real interest in the field at the time you picked it.
Q: What are your 3 greatest strengths?
Hard Worker: I am a really hard worker, I like to shut up and get the job done. I like to lead through
example and even though the hours are going to hurt, I’m definitely not someone that’s going to complain
Attitude: I have a good attitude. With I-banking, I know what I’m getting myself into and know the hours
are going to be tough, but I’m definitely a person that doesn’t complain.
Networking: I try to build my network rolodex every time I have the chance. I'm smart enough to know
there is always something to learn from others.
Q: What are your 3 greatest weaknesses?
1. Public Speaking: I’ve never been a good public speaker. I took initiative last semester and joined a
class focused on helping students prepare for public speaking. This forced me to speak in front of groups
that put me out of my comfort zone.
2. Networking: I think my greatest weakness would have to be networking. Initially, with people I am soft-
spoken. I like to concentrate on my work, so much that it often hinders me from developing relationships.
That’s exactly why I want to go to New York, so that I can build my network.
3. Big Picture: One of my criticisms this summer was that I concentrated too much on getting my work
done quickly without sometimes taking a step back and realizing the rationale behind everything.
SOW Comment: What most candidates fail to do is actually give real strengths and weaknesses. This
might sound counterintuitive but this is a chance for you to be honest and focus on the qualities
interviewers are looking for when answering the question. When listing your weakness make sure to list
real weaknesses but make sure you can explain how you can improve upon this.
Q: Give an example where you encountered a difficult situation while working in a group?
I worked in a bunch of small groups my senior year within Financial Management. Each student had a
really busy schedule and I took initiative to help reprioritize everyone schedule and found areas to
compromise. This helped to balance workload and work quality for the group.
In the same situation there was a person in the group that was not doing their work. I helped to solve the
problem by helping him discover his strengths, let him focus on his strengths while the others helped to fill
the gap.
Q: Give an example of a time you had to work hard
My sophomore and junior year I was juggling school while essentially working fulltime and trying to
balance this with internship recruiting, making phone calls, setting up meetings and interviews. I was able
to successfully balance all of this by keeping very organized priority sheets and setting daily goals for
items to be completed.
Q: What kind of feedback did you receive from your previous internship?
SOW Comment: The best way to answer this is give specific examples of times where you demonstrated
attention to detail, willingness to work harder than everyone else, or a time when you helped add value to
the group. These are all great to mention, simply saying you did well and had great feedback isn’t
enough.
Q: Did you receive an offer from your previous internship?
SOW Comment: Tell the truth here. If you did then great, if not then say you did not receive an offer.
There are tons of reasons why a company might not hire you back: Your group was simply not hiring full-
time, the economy made cut-backs in the hiring program, etc.
Q: Give an example of a time when you were very driven / very committed
First semester freshman year I joined the school ROTC group, it was a grueling program where I was
going to bed at 9pm every night and waking up at 4:30am. I was really thankful I had a very considerate
and patient roommate. At some points I definitely wanted to quit several times, but in the end it was
worth it. There were only 3 out of 10 freshmen that made it through the program and I was one of them.
SOW Comment: Talk about teamwork or something you are really involved with. This is another way to
ask “what are your strengths”
Q: Give an example of when you failed?
During my last internship I had to help out another intern, I taught him incorrectly and made the
assumption he would figure it out. That friend of mine had to quit the program, we were really close and it
was devastating. From that experience, I learned that I had to take being a leader so much more
seriously and that my example was crucial for others to succeed. Also I must give great attention to detail
and not assume all is running well without my input
SOW Comment: Really think this one out, give a truthful answer. Again, this is another “weakness
question”
Q: Where do you see yourself in five years? (Show DEDICATION)
Five years is a long way down the road, but I know that finance will always have a grip on me. I could
see myself in investment banking for the long-term, but that would have to depend on my performance
and my family. I would definitely like to stay in financial services, using the skills I’ve learned and continue
to build solid / meaningful relationships
SOW Comments: You want to demonstrate you are committed to investment banking, but you don’t want
to be disingenuous by stating that banking is the only job you’ll ever want to do. If you’re interviewing for
an analyst role. I don’t think you need to be committed long term; bankers are in a 2 -year program; then
you’re out. I would mention you are really excited about becoming an analyst and that you want to learn
as much as possible, get as much transaction experience as possible, etc.
SOW Comments: If you’re interviewing for an associate position out of MBA school you need to
demonstrate commitment
Q: Are you interviewing for jobs outside of investment banking?
SOW Comment: I would say no to this. You want to get across that you’re interviewing at only investment
banks or at least that banking is by far your main focus
Q: What motivates you?
What drives me the most is competition. I always want to be the best in everything I do, whether it is
academics, sports, or even poker. One example is with golf. My Managing Director took me to the golf
course for the first time this summer, and since then I’ve bought my own Callaway clubs and have gone
to the driving range every other day during school. I’m an all-or-nothing kind of guy. My initial reasoning
for wanting to get into banking was that it was the hardest position to get out of college.
Q: What is your greatest accomplishment?
SOW Comments: This can be a tuition answer for some people, i.e. working hard to pay for school
SOW Comments: Awards? Achievements?
Q: What was your favorite class in college?
While I found all of my business courses interesting, the most interesting class I took was Psychology. I
found the science of human behavior very interesting and all the benefits this had lead to society is
fascinating.
Q: Why should we hire you? (Different way to ask your strengths)
I believe you should hire me because as a diligent, organized, and goal oriented person, I will work hard
in any task presented no matter how difficult or time consuming it might be. I always strive to perform as
best as I can, and will go the extra mile in order to perform my task at hand. For example, regarding
school work, when assigned a task, I organize myself and my materials in order to work efficiently, and
set to work on the task. I perform the necessary research and more in order to ensure no mistakes are
made, and I check my finished work repeatedly to ensure it is good.
Q: Why are you applying to this firm? Why RBC?
RBC is one of Wall St.’s most successful firms with the necessary size to offer the potential for a better
working environment, one that is more personable and offers better opportunities for growth for its
employees. Compared to other bulge bracket firms, RBC seems to have the better culture. Also, over the
past few years, RBC has been one of the few continuously successful firms and appears to have great
potential for continued success and growth. I am looking to learn more about financial services and
would very much like to be a part of this firm’s success.
Q: Give me an example of a time you worked as part of a team.
Most recently, I had to work as part of a team for my Management and Organizational Analysis class. We
organized the teams at the beginning of the semester and were required to create a business idea,
followed by various reports on strategy, structure, and culture, as well as a presentation and final report
encompassing our overall idea. Working in a group can be challenging due to differences in working
styles and personalities. Conflicts can arise and team dynamic are hard to manage. As a team member, I
sometimes would take lead roles of organizing research assignments, meeting times, and the production
of a final product. However, I also worked in helping others and in getting help from others. Each member
contributed in his or her own manner – one would step up when need be and there was always a system
of checks and balances.
Q: What is the biggest risk you have taken in your life?
I am risk-adverse, but that does not mean I do not take my chances. However, when I do take chances, I
base them on a rational analysis so that I can ensure success to a certain degree.
Q: What motivates you to put forth your best effort? What type of work environment brings out
your best effort?
Any challenging situation motivates me to put forth my best effort. I want to succeed and enjoy
accomplishing and overcoming hard tasks. When I face a challenge, I strive to overcome it by working
hard and going the extra mile so that I can do a good job.
Q: What do you see yourself contributing to our organization, both in the short term and in the
long term?
In the short term I see myself contributing my energy, enthusiasm, hard work and willingness to learn long
term, if the opportunity arises, to continue working with Bear Stearns and providing to its growth and
success.
Q: What do you do for fun?
While I don’t do it enough, I enjoy traveling and scuba driving. I find other parts of the world really
interesting and would love to travel much more later on in my life. I also participate in club hockey, I’m
not good I have met some really nice friends through the local program.
Q: What is your favorite book?
I have a family of nutritionists that recommended The Wellness Revolution which is a book that predicts
the sales of vitamins and other health-related items will grow to over $1 trillion annually within the next ten
years. I thought this was very interesting.
SOW Comment: Do not say Liar’s Poker or Harry Potter, give a truthful answer that’s somewhere in the
middle
Q: Tell me something about yourself that is not on your resume?
My club hockey team in college recently won the nationwide club championship that competes with 80
other colleges. This was a big success not only for the team but for myself as I have been successfully
balancing a tremendous amount of schoolwork with interviews and practice.
17.3 Industry Questions
Q: What’s the difference between investment banking and commercial banking?
An investment bank offers advisory services in M&A and restructurings and intermediaries between
investors and companies in need of capital. Commercial banks work more on the retail side where they
take deposits from customers and loan money to individuals.
Q: What is the Glass-Steagall Act?
The Glass-Steagall act was a law that separated commercial & investment banks because of the belief of
conflict interests. Banks were essentially blamed for the Stock Crash of 1929 and the start of the
depression.
Q: What is a fairness opinion?
A fairness opinion is an opinion from the investment bank regarding the price offered in a merger or
takeover. It is provided for a fixed fee, typically by an institution not involved in the transaction
Q: What are the different arms of an investment bank?
Sales and Trading

Corporate Finance (same as Investment Banking)
Research
Q: Sample Interview Questions asked at a MBA Class
Investment Banking interviews have been described as "quick and painful,” The banks are the first firms
to interview on campus (early in the 2nd quarter), and the process is usually over within a week or two.
Because the interviews last between thirty minutes to one hour, the interviewers like to get straight to the
point. Besides knowing your resume thoroughly, prepare concise answers to standard Investment Bank
interview questions. Listed below are questions that are frequently asked in the interviews.
Top 10 questions:
1. Walk me through the highlights of your resume. I'm interested in the decisions you have
made.
2. Why investment banking? Why our bank?
3. How do you value a company?
4. Why did you choose Kellogg?
5. What other firms are you interviewing with and why? Are you interviewing with consulting
firms also? What career opportunities are you exploring other than I-Banking?
6. What were your grades in college? What were your grades for the first semester at
Kellogg? What was your GMAT score? Be ready to explain any weak-points.
7. What qualities would you consider most important for a career in I-Banking? What are
your greatest strengths? What are your weaknesses?
8. What do you understand the responsibilities of an associate/summer associate to be?
9. Describe a current event in the market (i.e., LTCM at the end of 1998)?
10. What questions do you have for me? Always have at least two questions prepared per
bank.
18 QUESTIONS FOR THE INTERVIEWER
SOW Comment: These questions are important because it shows the banker your interest not only in the
firm but in the 1-on-1 conversation. Try asking about 4-5 questions max, you don’t want to be over-eager.
Q: Basic Questions to ask the Interviewer

How long have you been with the bank and how has your experience been?
What do you like best about working here. Worst?
How do you compare working here with other banks at which you have worked?
What kind of responsibility does the typical Analyst/Associate receive?
What differentiates a good analyst for a great analyst?
What’s your favorite deal you’ve worked on since you’ve been here?
Can you tell me about your training program?
How do Analysts/Associates get staffed?
On what types of deals are you currently working?
How is the deal flow?
Q: More Targeted Questions to Ask the Interviewer

What's the difference between a good investment banker and a great one? What kind of qualities
do you look for when inviting analysts to stay on board for a third year? What makes them stick
out?
What's your favorite part of the job? What's your least favorite part?
What qualities do you have that helped you succeed in i-banking?
What are Citigroup's goals? Are they looking to overtake Goldman & Morgan Stanley, or are they
content with just doing business the way they have?
How do you distinguish yourself from other bulge bracket firms?
Where do YOU want to be 5 years from now?
Why did you choose this career path?
On a typical day in this position, what do you do? With whom do you interact?
How do you manage work, family, and community involvement?
Describe your typical first-year assignments.
What is the most effective way to find employment in this field?
Has the work changed recently due to technology, the marketplace, or competition, etc.?
How did you find your job?
How do you see this job changing in the future?
Where does your work fit into the organization's objective and structure?
Is there a “career path” that most in this field follow?
What is the demand for people in this occupation?
What are the basic prerequisites for a job in this field?
What do you like most/least about your job?
In your opinion, what would assist me in preparing for this career? (clubs, classes, experiences)
What is your level of freedom to solve problems and take action on issues?
What are the opportunities for advancement?
What personal qualities or abilities are important to be successful in this job?
What part of this job do you find most satisfying? Most challenging?
Are there other sources of information you might suggest to students interested in this field?
What advice do you have for students who are considering this career path?
What effects does the economy have on your career?
What is the most valuable lesson you have learned since coming out of school?
What industry/product group do you work in? Which are offered in your office?
What are the current drivers in this industry for M&A? How is it different from the past?
What announced deals are you working on? What are some of the key considerations in this
deal?
Who are the MDs in your office, and what groups do they work in? (managing directors bring
have relationships with companies and bring in business, so this is important)
What drew you to banking?
What are some of the exit opportunities from banking? (ask analysts, they very aware of this one)
How much responsibility will I take on?
Q: Resume-and personality questions:
[Be ready to explain any line on your resume].

What made you choose your undergraduate institution? Why did you pursue a major in finance
(or anything else)?
Are you a leader or a follower? Give me an example where you were successful in both roles.-
What other business school did you apply to? Which ones accepted you? Why did you choose
Kellogg?
What was your favorite class at Kellogg so far? Why?
What classes are you currently taking to get ready for the summer?
What are your 5-10 year long -term career plans?
What are your proudest accomplishments? What is your most challenging professional
experience?
Are you a leader or a follower? Give me an example where you were successful in both roles?
What do you do to relax?
Tell me a joke.
Who has influenced you the most, besides family members?
Say you are at a meeting with a client and your MD is giving a presentation. You suddenly notice
a mistake in some of the calculations, which you have prepared. Do you mention it? When? What
do you say?
Why should I take you instead of someone from Wharton?
What is one skill that you think is most relevant to Banking?
You seem to like marketing. Why are you interested in finance?
What is one word that describes you best?
Your weaknesses? Your strengths?
How would your classmates describe you? How would you characterize yourself in the group
dynamic?
Highlight your quantitative accomplishments.
Describe an ethical decision you had to make?
If you were a vegetable - what would you be?
What do you read? What's your favorite book?
As an associate, what tasks would you like to spend most of your time doing? What percent of
each day do you see yourself spending on those tasks?
What is in a pitch book?
What’s been your greatest challenge since beginning Kellogg? Greatest accomplishment?
What accomplishment are you most proud of?
Describe a time you failed, why did you fail, what did you learn?
Q: Questions on Investment Banks:
Why I-Banking vs. Consulting? Sales & Trading? Research? Finance in Industry?
How does your past career qualify you for a position in investment banking? Why are you not
going back to prior career?
What do you hope to accomplish over the summer?
What department do you want to work for inside I-banking and why?
Who is in the bulge bracket?
Rank firms on Wall Street and where do we fit? Who is our competition (in the major categories)?
What differentiates our firm? What are our firm's strengths? Weaknesses?
If you were the CEO of our firm, what major changes would you implement?
Describe a typical day of an investment banking associate?
Do you understand the lifestyle issues associated with this profesion? Why don't you have a
problem with these issues?
What is your greatest concern about investment banking?
Q: Miscellaneous:
Who influenced you the most besides family members?

What is one word that describes you best?
What is your personal Beta?
How would you spend $1,000,000 besides investing it?
Q: Other Questions:
Which of your college achievements are you most proud of?

What [major (i.e. finance, economics, etc.)] classes have you taken so far? What did you get out
of each of those classes/ what did you learn?
What has been your favorite class at U of I?
On a scale of 1-10 (1=hardworking, 10=naturally smart) where do you fall?
What is your greatest weakness?
How do you feel about the long hours?
When did you discover that you wanted to be an investment banker?
Do you understand the commitment?
Give me an example where you had a lot of responsibility. Can I trust you with a critical project?
Can you think of a time when you came up with a creative solution?
What are your interests outside the classroom?
Why should we hire you?
What is your favorite class that you took?
What other interviews do/did you have?
Why not Sales & Trading?
What do you expect as a summer analyst?
What would friends say about you?
Tell me a time when you were working with someone and who wasn’t pulling his/her weight.
Tell me about your biggest failure.
How do you deal with adversity?
Discuss a difficult ethical decision you recently faced.
What is one skill that you think will be the most important in doing banking?
What do you read? What’s your favorite book?
experience?
What is your relationship like with Junior-people?
What is the one thing you wish you knew before banking?
Give an example that demonstrates your analytical skills
Give an example where you came up with a creative solution
Which of your college achievements are you most proud of?
What [major (i.e. finance, economics, etc.)] classes have you taken so far? What did you get out
of each of those classes/ what did you learn?
What is your greatest weakness?

How do you feel about the long hours?
When did you discover that you wanted to be an investment banker?
Do you understand the commitment?
What are your interests outside the classroom?
Why should we hire you?
What is your favorite class that you took?
What other interviews do/did you have?
Why not Sales & Trading?
What do you expect as a summer analyst?
What would friends say about you?
Tell me a time when you were working with someone and they weren’t pulling their weight.
Tell me about your biggest failure.
How do you deal with adversity?
Discuss a difficult ethical decision you recently faced.
What is one skill that you think will be the most important in doing banking?
What do you read? What’s your favorite book?
experience?
Q: Random Questions (that were actually asked!):
Tell me something about you that is not on your resume?

What is your personal Beta?
Suppose I were going to evaluate you and thirty of your Kellogg compatriots on one quality with
the winner receiving something very desirable, such as one million dollars, and you are allowed to
determine that quality, what would it be?
What did you eat for lunch? How do you like Chicago? What do you do when you're bored?
What is the riskiest thing you've ever done?
Think of the team you worked with the most and give me a word that describes each team
member.
Are you more risk averse or risk seeking?
Let’s imagine you died and are giving a speech at your funeral. What would you say?
How would you spend $1,000,000 besides investing it?
While interviewing for a Chicago office, the interviewer tells you that he/she is getting the
impression that you are more interested in the New York office. You are. However, why do you
say?
Tips: (Don’t give too much background info. Jump straight into questions being asked. Be direct, concise.
Answer the questions precisely. Be confident with answers. Don’t use ums. Be sure to answer the
question. Most people are going to have the same answers. That doesn’t mean I need extraordinary
stories; I just need to make my answer memorable. E.g. When talking about pulling all-nighter, a lot of
people have done this. I need to make things stick out… like friends were all going to sleep, and I felt so
much pressure to do the same, but I persevered. Stories need to be precise, need an introduction, need
to be easy to follow.)
19 TECHNICAL INTERVIEW QUESTIONS
There are almost an unlimited number of Technical Questions that could be asked in an interview; we will
go over 95% of anything that could possibly be covered. While behavioral questions can be very opened
ended, there is almost ways a right or wrong answer to technical questions.
Rule of thumb for investment banking interviews is if you miss 1 technical question, you are usually out of
the race. Make sure you review this material several times. If you are looking for a more in-depth review
of financial modeling, check out the Street of Walls Financial Models online at StreetofWalls.com.
20 VALUATION QUESTIONS
20.1 How would you value a company? What are the ways to value a company?
Exhibit 20.1: Investment Banking Valuation
Investment Banking Valuation
Discounted Cash Flow Comparable Transaction Comparable Company
Solving for Enterprise Value and Equity Value
Equity Value = Stock Price x number of shares outstanding
Enterprise value =
Equity Value (Stock Price x number of shares outstanding)
+ debt at market value
+ minority interest at market value, if any
– associate company at market value, if any
+ preferred equity at market value
– cash and cash equivalents
Cash is subtracted out of enterprise value because cash is considered a non-operating asset and can be
used to pay down the company’s debt, which reduces the enterprise value of the Company
What is the difference between Enterprise Value and Equity Value?
Equity value presents the market capitalization of a firm. Enterprise value is the total value of the firm and
includes the equity value plus the value of net debt (Total debt minus cash)
Enterprise value should be used for ratios that measure the total return to all capital holders (Revenue,
EBIT, EBITDA), whereas Equity value should be used for ratios that measure the total return to
shareholders (Earnings)
Which valuation methodology gives you the highest expected value?
While it is not always the case, Precedent Transaction Valuation Methodology will generally give you the
highest possible valuation. This is the case because Precedent Transaction takes into account a control
premium paid by the acquiror because of realizable merger synergies. Discounted Cash Flow (DCF)
valuation will also lead to a high expected value because the model has many projections which can
easily be overstated.
Exhibit 20.2: Highest to Lowest Valuation Methodologies
Here’s a quick chart of the valuation methodologies listed from highest expected value to lowest:
Highest Valuation
Precedent Transaction
Control premium will be paid because of merger synergies
Discounted Cash Flow (DCF)

Model has many projections which can be overestimated
Comparable Company Analysis

Based on similar companies, does not inlcude premium or synergies
Market Valuation
This is just equity value, no premiums or synergies
Lowest Valuation
When is it best not to use DCF?
Investment bankers will typically not use a DCF analysis when a Company has unstable or hard to predict
cash flows. This makes estimating future cash flows extremely hard and gives a lot of room for error in
the valuation. Good examples of this are life science and technology companies.
Would you do an LBO analysis even if you are not looking at a Leverage Buyout situation?
While this is seldom done, investment bankers will look to a LBO analysis even if a private equity sponsor
isn’t looking to buyout the firm. This valuation places a floor on possibly Company valuations (i.e. M&A
would generally lead to higher valuations than LBO’s because of synergies)
What are other Valuation methodologies?
Liquidation Valuation Method: Valuing the remaining equity assuming all the firms assets are sold off
Replacement Valuation Method: Valuing the company based on the cost of replacing the asset
LBO Analysis: Determining now much a private equity sponsor would pay for the Company
Sum of the Parts: Valuing each division of the company separately
How do bankers present multiple valuation methodologies?
Investment Bankers will put together a “football field” chart which shows each separate valuation, i.e.
DCF implied the Company is worth $7,500-$8,000, Comparable Company implies $7,000-$7,500, and
Precedent Transaction implies $8,000-$8,500
Here’s a “football field” example you will do as an investment banker:
Exhibit 20.3: Pitchbook View: Football Field Valuation
21 DISCOUNTED CASH FLOW VALUATION
What is a DCF?
A DCF values a company based on the Present Value of its future cash flows. A DCF model simply
discounts back future cash flows to the present to figure out how much something is worth (solves for
Enterprise Value)
Why do you use 5 or 10 year Free Cash Flow projections and not 20?
5 to 10 years is about as far as you can reasonably predict the future; nobody knows what could happen
in 20 years. Anything less than 5 is too short to be useful, so typically modeling is done over 5 or 10 year
projections.
Exhibit 21.1: DCF Walk-through
Visual Aid, walking through a DCF:
Discounted Cash Flow
Project Out Free Cash Flows

Typically 5 or 10 years
Terminal Value beyond last year

Two Methods: Terminal Growth Multiple or Perpetuity Method
Applying a discount rate

Use the W eighted Average Cost of Capital (W ACC)
Discount Cash Flow Back to Year 0

This gets to Enterprise Value of the company
Enterprise Value (EV)
Exhibit 21.2: Free Cash Flow Walk-through
Visual Aid, solving for Free Cash Flow and which statement the figures are from:
Net Income (Income Statement)

+
Depreciation & Amortization (Cash Flow Statement)
-
Net Change in Working Capital (Balance Sheet)
-
Capital Expenditures (Cash Flow Statement)
=
Free Cash Flow
21.1 Walking through a DCF
1. First you need to project free cash flow (FCF) out – this is usually done 5 or 10 years
2. FCF = after tax EBIT + D&A – capital expenditures – net change in working capital
Note: this FCF does not include interest, so it is unlevered
3. After projecting out your FCF, you will then need to predict the terminal value (the value of the
company for the years beyond your projections)
4. There are two methods of calculating terminal value: Perpetuity Growth or Terminal Multiple
method
5. Perpetuity growth: choose a long-term growth rate (usually GDP growth). You then multiply the
last year’s FCF (year 5 if we projected FCF out 5 years) by 1 plus the chosen growth rate, and
then divided by the discount rate minus the growth rate
6. If you purchased the Financial Model, check out row 18 on the DCF tab
7. The second method, terminal multiple, is used the most often in banking. Here you take a
multiple (I used EBITDA in the DCF snapshot below) and multiply that times your year 5 FCF
8. If you purchased the Financial Model, check out row 30 on the DCF tab
9. Now that you have your projections of FCF plus Terminal Value, you then need to “present value”
these at an appropriate discount rate, aka Weighted Average Cost of Capital (WACC). WACC is
simply the discount rate used in the DCF to present value the projected FCF’s and terminal value.
10. Formula for WACC: Cost of Equity (Ke) times % of Equity (E/E+D+P) + Cost of Debt (Kd) times
% of Debt (D/E+D+P) times (1-tax rate) + Cost of Preferred (Kp) times % of Preferred
(P/E+D+P)...hint: (debt (”D”), equity (”E”) and preferred stock (”P”)
11. To estimate the cost of equity, you will be using the Capital Asset Pricing Model (CAPM). CAPM
states the cost of equity equals the risk free rate plus the multiplication of Beta times the equity
risk premium.
CAPM and WACC are discussed in more detail below
21.2 DCF: Pros and Cons
Pros: Theoretically the soundest method if one is very confident in the projections and assumptions
Pros: Not influenced by temporary market conditions or non-economic factors
Cons: Valuation obtained is very sensitive to assumptions
Cons: Valuations obtained can vary over a wide range and are very sensitive
Cons: Involves forecasting future performance, which is very subjective
What is the CAPM?
The CAPM is the Capital Asset Pricing Model. The CAPM calculates the expected return a company
should receive using the risk-free rate and a risk-premium that takes into account a company’s risk
compared to the market.
Describe CAPM?
CAPM (Capital Asset Pricing Model) is used to calculate the expected return on an investment. It is a
linear model with one independent variable Beta. Beta for a company is a measure of the relative volatility
of the given investment with respect to the market (“the market” refers to a well diversified index such as
the S&P 500). A beta of 1 implies that the returns will vary identically with market returns. A beta less than
one means the investment is less volatile than the market. A beta greater than one means the investment
is more volatile.
How do you calculate the Cost of Equity?
Use the Capital Asset Pricing Model (CAPM) = Risk Free Rate + Beta x Equity Risk Premium
Risk Free Rate: How much a 10 or 20 year U.S. Treasury should be yielding
Beta: represents the investment’s volatility to the overall market
Equity Risk Premium: the percentage stocks are expected to outperform “risk-less” assets
What is Beta and where would you find a firm's Beta? How and why would you un-lever a Beta?
Beta is the value that represents an investment’s volatility with respect to overall market. You would
measure a company’s beta by measuring the slope between the returns of the investment and the
market.
Un-levered beta is the beta of a company assuming that it has no debt. Un-levering the beta removes any
beneficial effects gained by adding debt to the firm's capital structure. Comparing companies’ un-levered
betas gives an investor a better idea of how much risk they will be taking on when purchasing a firms'
stock.
What are the formulas for unlevered and levered Beta?
Unlevered Beta = Levered Beta / (1 + ((1 – Tax Rate) x (Debt/Equity)))

Levered Beta = Unlevered Beta x (1 + ((1 – Tax Rate) x (Debt/Equity)))
What would you use WACC for?
WACC is the weighted average cost of capital. The WACC value measures the expected return that the
firm expects from its debt and equity. It is based on the capital structure of a company since different
companies use different proportions of debt and equity.
How do you calculate WACC?
Formula: Cost of Equity x (% Equity) + Cost of Debt x (% Debt) x (1 – Tax Rate) + Cost of Preferred x (%
Preferred)
Who has a higher cost of equity, smaller or larger companies?
The cost of equity for smaller companies will be higher as they are less liquid and have a higher risk of
default
21.3 Extra Thoughts on Discounted Cash Flow
A good check on the terminal value calc is to look at EBITDA multiples at the implied future value
– if its way out of whack to the current industry average, then not good
CAPM – Take the riskless rate plus the market risk premium which is multiplied by the beta (i.e.
the non-diversifiable risk of the stock)
Cash Flows to Equity Investors = NI + Depreciation – Capex – Net Inc. in WC + Increase in Debt
(which is a source of cash for equity-holders)
Cash Flows to Debt Investors = After-tax interest – Increase in net debt
Note that any asset or liability that has no cash-flow consequences registered in the projections
will be missed by the DCF valuation (e.g. – unutilized land – may want to establish a disposal
value that is added to the EV
Typical equity risk premium is between 3-5%
Mid-year discounting can be done by multiplying year-end cash flows by (1+WACC)^1/2
Volatility and Interest Rates change the Equity Risk Premium
The cost of debt is computed on an after-tax basis in order to capture the tax shield resulting from
the tax deductibility of interest expense (which is not included in the FCF calculation)
Cash and marketable securities are not valued by DCF because interest income is not part of
EBITDA and FCF (cash and marketable securities are used as an offset to outstanding debt)
You take a longer T-bond as the risk free rate because in a shorter term one you need to
differentiate between the term premium and the pure risk premium (as most equity investments
are longer-term in nature)
The YTM of corporate bonds provides a close estimate of cost of debt, as it includes a risk
component plus a negligible default risk premium
The cost of leases is included in the cost of debt as leases displace debt capacity
Problems with DCF – Projecting into the future is always tough, using an adequate discount rate
Debt is less expensive than equity for two reasons: 1. interest on debt is tax deductible and 2.
debt is senior to equity in a firm’s capital structure (meaning equity holders get wiped out first)
A DCF value should be adjusted for non-operating items
Exhibit 21.3: DCF Snapshot
Check out the DCF Model online at SteetofWalls.com

Showing a 5 year projected FCF, 2015 is my Terminal Value
Using both the Perpetuity Growth & EBITDA Multiple Approach to Terminal Value
Discounted Cash Flow Valuation Projected

Calendar Years ending December 31, 2010E 2011E 2012E 2013E 2014E 2015E
($ in thousands)
EBITDA $8,954 $9,898 $10,941 $12,093 $13,367 $13,367
Less D&A 1,112 1,222 1,343 1,476 1,623 1,623
EBIT 7,842 8,676 9,598 10,617 11,745 11,745
Less: Cash Taxes (35%) (2,745) (3,037) (3,359) (3,716) (4,111) (4,111)
Tax-adjusted EBIT 5,097 5,639 6,239 6,901 7,634 7,634
Plus: D&A 1,112 1,222 1,343 1,476 1,623 1,623
Less: Capital Expenditures (1,750) (1,750) (1,750) (1,750) (1,750) (1,750)
Less: Change in Net Working Investment (318) (350) (384) (423) (465) (465)
Unlevered Free Cash Flow $4,141 $4,762 $5,447 $6,205 $7,042 $7,042
Perpetuity Growth Rate Approach

Discount Rate 11.0% 12.0%
Perpetuity Growth 1.0% 2.0% 3.0% 1.0% 2.0% 3.0%
2015 Unlevered FCF $7,042 $7,042 $7,042 $7,042 $7,042 $7,042
Terminal Value $71,124 $79,809 $90,665 $64,658 $71,828 $80,591
PV of Terminal Value $42,209 $47,363 $53,805 $36,689 $40,757 $45,730

PV of Free Cash Flows ('10 - '14) $23,610 $23,610 $23,610 $22,877 $22,877 $22,877
Implied Enterprise Value $65,818 $70,972 $77,415 $59,566 $63,635 $68,607
Less: Net Debt $10,750 $10,750 $10,750 $10,750 $10,750 $10,750
Implied Value of Equity $76,568 $81,722 $88,165 $70,316 $74,385 $79,357
EBITDA Multiple Approach

Discount Rate 11.0% 12.0%
Terminal EBITDA Multiple 6.0x 7.0x 8.0x 6.0x 7.0x 8.0x
2015 EBITDA $13,367 $13,367 $13,367 $13,367 $13,367 $13,367
Terminal Value $80,203 $93,571 $106,938 $80,203 $93,571 $106,938
PV of Terminal Value $47,597 $55,530 $63,462 $45,510 $53,094 $60,679

PV of Free Cash Flows ('10 - '14) $23,610 $23,610 $23,610 $22,877 $22,877 $22,877
Implied Enterprise Value $71,207 $79,139 $87,072 $68,387 $75,972 $83,557
Less: Net Debt $10,750 $10,750 $10,750 $10,750 $10,750 $10,750
Implied Value of Equity $81,957 $89,889 $97,822 $79,137 $86,722 $94,307
Source: Company Website, Management, and financial projections.
22 COMPARABLE COMPANY ANALYSIS
What is Comparable Company Analysis (aka multiple analysis)?
Using other competitors’ valuation metrics and comparing that to your company
Calculating the most common multiples:
Price to Earnings Multiple (P/E): Stock Price divided by Company EPS

o Company EPS: Usually current year annual EPS or next year estimated EPS
o Example of P/E Comps are in the below image
EBITDA Multiple (EV/EBITDA): Enterprise Value divided by Company EBITDA
o Company EBITDA: Usually current year annual EBITDA or next year estimated EBITDA
o Example of EBITDA Comps are in the below image
Revenue Multiple (EV/Rev): Enterprise Value divided by Company Revenue
o Company Revenue: Usually current year annual Revenue or next year estimated
Revenue
Comparable Company Pros vs. Cons:
Pros: Market efficiency ensures that trading values reflect industry trends, business risk, market growth,
etc.
Pros: Values obtained are a reliable indicator of the value of the Company for a minority investment
Cons: Always comparing apples to oranges, never find a true comparable
Cons: Illiquid stocks that are thinly traded might not reflect fundamental value
Comparable Company Characteristics:
Sector: Refer to the industry or markets in which a company operates

Products and Services: Companies that produce similar products or provide similar services
Customer: Companies with a similar customer base tend to share similar opportunities and risk
Distribution Channel: Refers to avenues through which a company sells its products and services
Geography: Companies that are based in different regions of the world often differ substantially in terms
of fundamental business drivers and characteristics
Why can’t you use EV/Earnings or Price/EBITDA as valuation metrics?
EV (enterprise value) is the value of the operations of the Company that is attributable to all providers of
capital. If we use EV in the numerator of our multiple, to be consistent (apples to apples) we must use an
operating or unlevered metric in the denominator, such as Sales, EBIT, or EBITDA.
Operating metrics such as earnings do include interest and are thus considered levered. Therefore
EV/Earnings is an apples to oranges comparison, similar to Price/EBITDA because Price is dependent on
capital structure (Levered) while EBITDA is unlevered.
Price/Earnings is fine because they are both levered
You have a set of Comparables; do you take the Mean of the Multiples?
Generally you would want to use the Mean or Median of the Comps set. If you are trying to take into
account a Company’s competitive advantage in a valuation, you can look at the top percentile or higher
for the multiple rather than the Mean.
Exhibit 22.1: Comparable Company Snapshot
Comparable Company Summary P/E EV/EBITDA

Price Shares Mkt Cap EV 2011 2012 2013 2011 2012 2013
Company Comps
Company A $16.95 60.2 $1,032 $1,805 13.6x 11.7x 10.9x 4.4x 3.8x 3.7x
Company B $5.26 1,730.2 $9,257 $19,074 15.8x 15.2x 14.5x 4.4x 4.6x 4.7x
Company C $7.57 352.7 $2,635 $5,190 18.5x 13.8x 11.1x 5.2x 4.5x 4.2x
Company D $11.07 456.6 $5,014 $10,033 12.8x 12.6x 13.5x 5.7x 5.8x 6.1x
Company E $17.88 77.5 $1,398 $3,611 14.0x 13.2x 12.1x 5.9x 4.9x 4.3x
Company F $15.03 30.2 $422 $417 10.4x 10.0x 8.6x 6.0x 5.4x 4.9x
Company G $3.28 201.1 $640 $2,777 7.7x 7.5x 6.9x 6.0x 6.1x 6.1x
Company H $1.49 63.1 $95 $78 17.5x 12.4x 9.9x 8.9x 8.0x 6.2x
Company I $1.60 200.0 $318 $470 10.7x 8.9x 7.3x 7.9x 6.9x 6.5x
Median 13.6x 12.4x 10.9x 5.9x 5.4x 4.9x

Mean 13.4x 11.7x 10.5x 6.1x 5.6x 5.2x
Min 7.7x 7.5x 6.9x 4.4x 3.8x 3.7x
Max 18.5x 15.2x 14.5x 8.9x 8.0x 6.5x
Source: Company Filings, Bloomberg Consensus Estimates
22.1 Comparable Example
Assumptions for Company F:

Company F Shares of 400
Total Debt of $5,000
Cash of $2,000
Company F has an estimated EPS of $1.35 in 2011. How much is it worth using comps above?
Calculation:
Comp Set above is trading at 14.4x 2011 Earnings Per Share
Company F has a 2011 estimated EPS of $1.35
14.4 * $1.35 = $19.44 (P/E multiples gives us Market value per share so we are done)
Company F has an estimated EBITDA of $350 in 2011. How much is it worth using comps above?
Calculation:
Comp Set above is trading at 13.1x 2011 EBITDA
Company F has a 2011 estimated EBITDA of $800
13.1 * $350 = $10,480 (this is the Enterprise Value, need to back out Net Debt to get to Market
Value)
$4,585 - $5,000 + $2,000 = $7,480 (This is Market Value, need to divided by shares to get price)
$7,480 % 400 = $18.70
Conclusion: Based on comparable company analysis Comp F is worth between $18.70-$19.44 based on
2011 P/E and EBITDA multiples of public competitors
23 PRECEDENT TRANSACTION ANALYSIS (AKA COMPARABLE TRANSACTIONS)
Precedent Transaction Analysis or Comparable Transactions looks at historical M&A of similar companies
to get a range of valuation multiples. You will be screening for Precedents the same way you screen for
Comparable Company. For precedent transaction you will be looking for the price the buyer paid for the
target. Example, if you are looking at a pizza company, you would do a precedent transaction looking at
pizza companies that were acquired over the past 10 years – this would give you an idea of how much
your pizza company is worth today. This valuation is setup to give you a range of multiples like
Comparable Company, i.e. the last 10 years 25 pizza companies have been acquired at 18x current year
EPS.
23.1 Characteristics of Precedent Transaction (Same with Comps):
Sector: Refer to the industry or markets in which a company operates

Products and Services: Companies that produce similar products or provide similar services
Customer: Companies with a similar customer base tend to share similar opportunities and risk
Distribution Channel: Refers to avenues through which a company sells its products and services
Geography: Companies that are based in different regions of the world often differ substantially in terms
of fundamental business drivers and characteristics
Exhibit 23.1: Pitchbook View: Precedent Transaction
Here’s how a typical Precedent Transaction Analysis would look in a banker Pitchbook:
24 LEVERAGED BUYOUT ANALYSIS (LBO)
A leveraged buyout (or LBO) happens when a financial sponsor acquires a controlling interest in a
Company’s equity with a significant portion of the purchase price financed with debt. Industries and
companies of all sizes have been targets of leveraged buyout transaction. Through 2004 and 2005 major
buyouts were becoming more common with large scale LBO’s of Toys “R” Us, led by Bain and KKR, and
Hertz Corporation.
Exhibit 24.1: LBO Walk-through
Walking through an LBO Model:
LBO Steps
Purchase Price Assumptions

First step is making assumptions on the Purchase Price, Debt Interest Rate, etc.
Create Sources and Uses

Sources tells how you are financing the transaction and Uses shows the capital uses
Balance Sheet Adjustments

Adjust the Balance Sheet for the new Debt and Equity
Financial Projections
Project out the 3 Financial Statemtns and determine how much debt is paid down each year
Exit
Last step is making assumptions on the exit Multiple usually after a 5 year horizon
Calculating Internal Rate of Return (IRR) on your Investment
24.1 LBO Basics
An LBO occurs when an investor, typically financial sponsor, acquires a controlling interest in a
company's equity and where a significant percentage of the purchase price is financed through
leverage (borrowing)
Typically, leveraged buyout uses a combination of various debt instruments from bank and debt
capital markets. The bonds or other paper issued for leveraged buyouts are commonly
considered not to be investment grade because of the significant risks involved.
In an LBO, an acquisition is financed mainly by borrowing against the target’s future cash flows
24.2 Walk me through an LBO
First, you need to make some transaction assumptions: what is the purchase price and how will
the deal be financed? This information will create the Sources and Uses table.
Second, you will change the existing balance sheet of the company to reflect the transaction and
the new capital structure. This is known as a pro forma balance sheet.
3 Main Drivers
o Debt capacity – the amount that the company can effectively borrow against its future
cash flow while still amortizing senior debt and paying interest on both its senior and
subordinated notes
o Future EBITDA projections – helps determine exit valuation
o FCF estimates are important as well – help determine effective debt paydown over the
course of the LBO
Subordinated notes have the same risk and compensation of equity, but are classified as debt as
higher debt increases the tax shield of interest payments and debt commitments force
management to assume a credible risk of their own
What is Debt Capacity?
Debt capacity is an estimate of how much the company can borrow against its expected cash flow and
still be able to amortize senior debt and pay interest to both its senior and subordinated lenders
Private vs. Public investments, which have higher returns?
Private company investments have higher returns due to the higher risk – the sponsor is essentially
making a highly illiquid long-term investment
How do you obtain the enterprise value of a private company?
Obtaining the enterprise value of a public firm with the same projected leverage as the LBO and
reducing it by 15-20%
Discounting exit equity at a rate in the mid-20% and adding the debt capacity of the LBO
What happens to LBOs when the high yield market is illiquid?
When HY financing is not available, the gap is filled by mezzanine financing

These investors demand a higher compensation (i.e. through warrants)
Thus, sponsors have to put in more equity and IRR’s fall
Therefore, bid prices and the number of LBO transactions fall
What is an ideal LBO candidate?
A firm with predictable revenues and cash generating capabilities

Competent management that realizes the demands imposed by the LBO structure
Possibility of reducing working capital and selling some non-core assets for cash proceeds
Stable and predictable cash flows
Low capital expenditures
Potential for expense reductions

High free cash flow business
LBO Pros vs. Cons:
Pros: Will determine realizable financial bidder value that a strategic bidder will have to exceed
Pros: LBO value is realistic, does not require synergies to achieve
Cons: Ignoring synergies could result in an underestimated valuation
Cons: Valuation obtained is very sensitive to financing costs, projections, and operating assumptions
Why is leverage important in an LBO model?
Bottom Line: to increase your returns. The more debt an investor can assume at purchase, the smaller
the equity invested becomes. At the end of the investment, the rate of return is calculated based on
beginning and ending equity value. Therefore, the lower the initial equity investment (from more
leverage), the more potential return there is for an investor
What are the most sensitive inputs to an LBO model?
The most sensitive inputs in the LBO model will be the purchase and exit multiples
LBO Model: Going over the big items
LBO is a strategy involving the acquisition of a company using borrowed money. The acquirer uses the
company’s own assets as collateral for the debt, assuming that the future cash flows will cover the
interest payments
Start with the Sources & Uses:

Sources (how are you financing the LBO):
o Cash will be total cash less minimum balance
o Bank revolver is the plug
o Bank term loan and subordinated notes are as a % of total
o Sponsor equity is also as a % of total
Uses (What you are buying):
o Refinance debt (all of it)
o Financing fees (on Bank revolver, Term Loan and Sub. Notes from Sources)
o Transaction Expenses (whatever)
o Purchase of existing equity (shares outstanding x price incl. Premium)
Goodwill Calculation: Purchase price (from Uses) + Existing Goodwill (from BS) + Transaction
Expenses (from Uses) – Book Value of Equity (from starting BS, includes option proceeds)
LBO: Opening Balance Sheet Adjustments
Assets:
Cash: reduce by the amount in Sources

Goodwill: reduce by existing amount and add in net figure from Goodwill calc
Add Financing Fees from Uses
Liabilities:
Add in new Bank Revolver and Term Loan and delete existing balance (‘cause they get
refinanced)
Do the same for the subordinated notes and debentures
Reduce shareholders’ equity by current amount and increase by sponsor equity from Sources
Pro Forma Income Statement:
Driven by certain income statement drivers such as % margin and % of revenues

PF Interest Expense Calc: Interest Income (from Cash on PF BS) + Interest on Revolver / Term
Loan / Sub. Notes & Debentures (1st Year is Rate x Balance on PF BS, after that it’s the average
of the balances) + Amortization of Financing Fees (Fees from Uses amortized over their entire
term)
LBO: Pro Forma Balance Sheet:
Assets:
Cash stays constant at minimum balance

Net Working Capital – as a % of revenues from IS Drivers
PP&E – Previous Years Balance – Depreciation + Capex
Goodwill is unchanged assuming no amortization
Deferred Financing Fees drop every year by amortized amount
Liabilities:
Debt falls by amount repaid (as per Cash Flow Statement)

Equity increases by Net Income amount (assuming all Retained Earnings)
Pro Forma Cash Flow Statement:
Net Income (from IS) + Depreciation (from IS) + Amortization of Financing Fees (from IS)
o Increase in Working Cap (from BS) – Capex (from IS and Drivers) = Free Cash Flow
Free Cash Flow for Revolver Paydown = FCF – Term Loan Amortization (Term Loan / Term)
Pay down debt accordingly (Revolver first)
Calculating Returns
EBITDA Exit Multiple: EBITDA x Multiple = Enterprise Value – Net Debt = PF Equity Value
(Calculate IRR based on original Sponsor Equity)
IPO Exit: Net Income x Multiple = PF Equity Value (Calculate IRR based on original Sponsor
Equity)
CAGR (Compounded Annual Growth Rate) = (New / Old)^(1/Years)-1
IRR (Internal Rate of Return) = annualized effective compounded return rate
What is a strip-financing arrangement in LBOs?
Under strip-financing, each investor receives a percent participation in both the debt and equity
portions of the LBO
Thus, a debt lender who tries to enforce a covenant may bring the company to bankruptcy and
dilute his or her equity stake
Also consistent with the need to provide an equity kicker to the lender in order to supplement the
low coupon on debt affordable by the LBO
Why no longer popular? High Yield market allows firms to attract many investors with varying
interests and portfolio needs. Also, coordination in the event of default would be too costly
A bond plus warrant structure can effectively mimic the incentive properties of a strip structure
How do banks temper the lending of LBO firms?
Require that not only is interest paid but also that the principal amount is amortized over a
number of years
The high amortization amount ensures some degree of self-restraint on the part of the borrower
Repayment of principal also allows the lenders to recoup their investment tax-free
Exhibit 24.2: LBO Snapshot
LBO models available at StreetofWalls.com
In this scenario we are using a mix of cash and debt to purchase the target company’s equity and
refinance their existing debt thus giving us a higher deal multiple than the public market is currently giving
LBO Summary
($ i n mi llio ns) .
ILLUSTRATIVE SOURC ES OF FU ND S IL LUSTRATIVE MARK ET AND DEAL STATISTICS
Assumes transaction closes on 12/31/2008 Assume s 30.0% premium to the cu rrent st ock price
Indicative Indicative 2008 Ma rket Deal
(a)
Spread Interest Rat e Amount % of To ta l L everage Stock Price $30.40 $39. 52
Cash 3. 00% $66 2.6% Price Premium - 3 0. 0%
Revolver ($100M) L + 450 bps 7. 50% 0 0.0% 0.00x Share s Outstandin g 45.634 46.017
Term Lo an A L + 450 bps 7. 50% 1,100 42.2% 3.03 Equity Value $1,387. 3 $1,818 .6
Sub ordinated Notes 1 3. 50% 400 15.4% 1.10 Plus: Deb t 666. 6 666 .6
Total Debt $1,500 57.6% 4.13x Plus: Minorit y Interest 0. 0 0 .0
Spo nsor's Equity 1,037 39.8% Less: Excess Cash (66. 5) (66 .5)
Existing Shareho lders' Equity 0 0.0% Enterprise Valu e $1,987. 4 $2,418 .7
Parent's Equity 0 0.0% Enterprise Value / 2008 EBITDA 5. 5x 6.7x
To tal Sources of Fu nds $2,604 100.0% Enterprise Value / 2009 EBITDA 5. 0 6.1
Enterprise Value / 2010 EBITDA 4. 6 5.6
ILLUSTRATIVE USES OF FUN DS IL LUSTRATIVE 4 YEAR IRR

Amo unt % o f Tota l
Refinan cing Existing D ebt $667 25.6% Stock Price 2008 Exit Mu ltiple
Purch ase of Equ ity 1,819 69.9% Premi um (%) Multiple 6.2 x 6.4x 6.7x 6.9x 7. 1x
Retained Equity 0 0.0% 20 .0% 6 .2 x 16 .5 % 17.5% 18 .5% 19.5% 20.5%
Minimum Cash on Bala nce Sheet 50 1.9% 25 .0% 6 .4 15 .2 % 16.2% 17 .2% 18.2% 19.1%
Estimated Tra nsaction Costs (b ) 68 2.6% 30 .0% 6 .7 13 .9 % 14.9% 15 .9% 16.9% 17.8%
To tal Uses of Fun ds $2,604 100.0% 35 .0% 6 .9 12 .7 % 13.7% 14 .7% 15.7% 16.6%
40 .0% 7 .1 11 .5 % 12.6% 13 .5% 14.5% 15.4%
Leveraged Buyout Analysis

2012
($ in mill i on s, e xce pt p er sha re a mo un ts)
Illustrative EBITDA Exit Multiple 9.0x 10.5x 12.0x

2012 Projected EBITDA $515.7 $515.7 $515.7
Implied 2012 Enterprise Value $4,641.4 $5,415.0 $6,188.6

Less: (Net Debt) / Cash in 2012 (685.1) (685.1) (685.1)
Implied 2012 Equity Value to Sponsor $3,956.3 $3,956.3 $3,956. 3 $4,729.9 $4,729.9 $4,729.9 $5,503.5 $5,503.5 $5,503.5
Illustrative Required Return 15.0% 17.5% 20.0% 15.0% 17.5% 20.0% 15.0% 17.5% 20.0%
Implied Maximum Equity Contribution $2,262.1 $2,075.6 $1,908. 0 $2,704.3 $2,481.4 $2,281.0 $3,146.6 $2,887.3 $2,654.1
Plus: Maximum Transaction Debt 1,500.0 1,500.0 1,500. 0 1,500.0 1,500.0 1,500.0 1,500.0 1,500.0 1,500.0
Less: Minimum Cash (50.0) (50.0) (50. 0) (50.0) (50.0) (50.0) (50.0) (50.0) (50.0)
Plus: Rollover Equity 0.0 0.0 0. 0 0.0 0.0 0.0 0.0 0.0 0.0
Less: Financing & Transaction Fees (68.4) (68.4) (68. 4) (68.4) (68.4) (68.4) (68.4) (68.4) (68.4)
Implied Transaction Value $3,643.7 $3,457.2 $3,289. 6 $4,086.0 $3,863.1 $3,662.7 $4,528.3 $4,268.9 $4,035.7
Less: Existing Debt (666.6) (666.6) (666. 6) (666.6) (666.6) (666.6) (666.6) (666.6) (666.6)
Plus: Cash on Hand 66.5 66.5 66. 5 66.5 66.5 66.5 66.5 66.5 66.5
Implied Equity Value $3,043.6 $2,857.1 $2,689. 5 $3,485.8 $3,262.9 $3,062.5 $3,928.1 $3,668.8 $3,435.6
25 MERGER MODEL ANALYSIS
Investment bankers put together merger models to analyze the financial profile of two combined
companies. Bottom line, you are trying to figure out whether the buyer’s earnings per share (EPS) will
increase or decrease as a result of the merger.
Exhibit 25.1: Merger Model Walk-through
Steps of a Merger Model:
Merger Model Steps
Making Acquisition Assumptions

Assumptions on financing the Merger: Cash, Stock, Debt or a combination
Making Projections
Next you will project out the Income Statements of each Company and determine valuation
Combining the two Companies

Last step is combining the Income Statements by adding together Revenue and Operating Expenses
and adjusting for cash/debt used to finance the merger
Deal Accretion/Dilution
Combining Net Incomes and dividing by the new shares outstanding will give you the pro forma EPS of
the combined merger. Deal is Accretive if EPS > before acquision and Dilutive if <
Pro Forma Company
25.1 M&A Model Basics
Investment Banking M&A model online at StreetofWalls.com

Purpose of an accretion/dilution analysis is to project the impact of an acquisition to the acquirer’s
EPS and how the new EPS compares with the old EPS
If the new EPS is higher, then the transaction is “accretive” while the inverse is called “dilutive”
At some point an M&A transaction needs to be “accretive” to create value
“Synergies” are very important in M&A: look at both revenue and cost synergies
Walking through an M&A Model:
1. Add the two Net Incomes together

2. Figure out the amount of debt / stock to be raised to buy the target
Usually stock is used if the valuation multiple is higher for the acquirer while cash is used if the
multiple is lower. Transaction will generally be dilutive if the target is trading at a higher valuation
then the buyer.
3. Calculate pro forma shares and capital structure (how much equity do you need to raise, etc.)
4. PF Net Income = Combined Net Income’s - After-Tax Interest Expense of Debt Raised / Cash Used /
Dividends
5. Calculate EPS and Accretion/ Dilution
6. Pre-tax synergies to breakeven is calculated as: ((Old EPS – New EPS)*PF Shares))/(1-Tax Rate)
7. PF Net Debt / Interest Expense are Target + Acquiror + Transaction Adjustments
8. In a merger, the surviving company assumes all the assets and liabilities of the merged company,
while in an acquisition, the buyer purchases some or all of the assets/stock of the target
9. Stock Purchase – Avoids taxes at the corporate level, you can use the NOLs of the target,
shareholders are taxed on their capital gains, and the acquirer cannot write-up the target’s assets for
tax purposes
10. Cash Purchase – Subject to corporate taxes, can write-up assets and amortize goodwill, but cannot
use the NOLs of the target
What is the difference between pooling vs. purchase accounting?
Under purchase accounting, goodwill is not amortized but is tested for impairment
Under pooling, the targets assets were accounted at book value
What can lead to EPS dilution in an M&A acquisition?
The target company has negative net income

The targets P/E multiple is greater than the acquirers
The M&A creates a lot of intangible assets
Increased interest expense due to debt used to finance the M&A
Low or negative synergies
Are synergies important to M&A transactions?
Yes, “Synergies” are very important in M&A: defined as two or more agents working together to produce a
result not obtainable by any of the agents independently…pretty much saying that 1 + 1 = 3…the acquirer
has capabilities to create more value than the original company. A lot of the “value” is found by cutting
overhead costs.
If a company with a low P/E acquires a company with a high P/E in an all stock deal, is
this accretive or dilutive?
The deal will likely be dilutive to EPS. This is because the acquirer will be paying more for each dollar of
earnings than the market currently values its own earnings
Why might a company do M&A?
The buyer feels that the target is undervalued

The buyer’s growth has stalled and needs to grow in other ways to satisfy investors
The buyer expects significant synergies
What does Accretion or Dilution to EPS mean?
After combining the two companies, you will get a new EPS number of the merged companies. This new
EPS number represents the Buyers Net Income + Sellers Net Income divided by the new share count to
determine the combined EPS. If this combined EPS is greater than the buyer’s original EPS, then the
deal will be accretive to earnings, meaning it makes sense to do the M&A deal because it will add value
to shareholders. If the new combined EPS is lower than the buyer’s original EPS, then it is considered
Dilutive to EPS. It is important to note not all M&A deals are accretive year 1; some deals are done on a
dilutive basis year 1 and are accretive at some point in the near future.
What factors should a company consider when analyzing an acquisition target?
Type of business the target operates

Geographic presence of the target, will the acquisition expand the acquirers reach into new
markets
Strength of target’s business
Strengths of target’s management
How expensive is the target (look at P/E relative to acquirer and to the industry average)
If you are using cash, does the acquirer have capacity for additional debt
If you are using stock, how much in synergies will need to be unlocked in order to make the
transaction accretive to shareholders
Would this transaction be accretive in a 100% stock-financed acquisition? (Assume zero

premium)
Acquiror: $3.25 EPS, P/E 11.0x, Shares 1,000

Target: $3.75 EPS, P/E 13.0x, Shares 300
Bottom Line: Transaction will be Dilutive

Calculative Acquiror Info: Total Earnings $3,250, Total Price: $35,750, Price/share $35.75
Calculative Target Info: Total Earnings $1,125, Total Price: $14,625, Price/share $48.75
Thus Acquirer will have to issue 409 new shares to acquire the Target at market price
($14,625/$35.75)
Pro Forma for transaction the acquiror will have shares of 1,409 (1,000 + 409)
New combined earnings of $4,375 ($3,250 + $1,125), this assumes zero synergies
New EPS of $3.10 ($4,375/1,409)
New EPS of $3.10 is less than pre-transaction EPS of $3.25
Thus transaction is Dilutive to the acquirer’s EPS
How do you calculate a breakeven offer price in a 100% transaction?
Acquirer’s P/E ratio (x) Target EPS

In the above example, breakeven for the target would be at $40/share (10.0 x $4.00) vs. current
$48
Other Mergers & Acquisitions Questions:
What is M & A? What is the process for an IPO, an M & A transaction?

Why would two companies merge? What major factors drive mergers and acquisitions?
What are some common anti-takeover tactics?
What do accretion / dilution mean in an acquisition context?

If you are a public company, what should you think about in terms of what currency (stock or
debt) to use to acquire the target?
Company A trades at a P/E of 20. Company B trades at a P/E of 10. Both are considering
acquiring Company C, which trades at a P/E of 15. For which of the two acquiring companies
would the deal be dilutive. For which would it be accretive? Explain why for each.
Exhibit 25.2: Merger Model Snapshot
In this scenario the M&A transaction is accretive in all years - $0.10 in 2010 and $0.23 in 2011
Snapshot from Merger Model online: www.StreetofWalls.com/ guides-menu
Accretion / (Dilution) Analysis

2010E 2011P 2012P
Company A
Projected Company A Standalone EPS $2.57 $2.98 $3.42
Projected Company A Standalone Net Income $3,711.8 $4,158.2 $4,685.0
Company B
Projected Company B EPS $2.57 $2.82 $3.06
Projected Company B Standalone Net Income $303.6 $335.8 $365.1
Pre-Tax Acquisition Adjustments

New Incremental Intangibles $0.0 $0.0 $0.0
Synergies 0.0 0.0 0.0
New Interest Expense @ 10.0% (25.1) (25.1) (25.1)
Total Pre-Tax Acquisition Adjustments ($25.1) ($25.1) ($25.1)
After-Tax Acquisition Adjustments

New Incremental Intangibles $0.0 $0.0 $0.0
Synergies 0.0 0.0 0.0
New Interest Expense @ (15.1) (15.1) (15.1)
Total After-Tax Acquisition Adjustments ($15.1) ($15.1) ($15.1)
Pro Forma EPS Calculation - 6 Months First Year Impact

Projected Company A Standalone Net Income $3,711.8 $4,158.2 $4,685.0
Projected Company B Standalone Net Income 151.8 335.8 365.1
- After-Tax Acquisition Adjustments (7.5) (15.1) (15.1)
Pro Forma Combined Net Income $3,856.1 $4,478.9 $5,035.0
Pro Forma Combined Shares Outstanding 1,444.298 1,395.366 1,369.879

Pro Forma EPS $2.67 $3.21 $3.68
Projected Company A Standalone EPS $2.57 $2.98 $3.42
$ Accretion / (Dilution) $0.10 $0.23 $0.26

% Accretion / (Dilution) 3.9% 7.7% 7.5%
Break-Even Pre-Tax Synergies Required ($240.4) ($534.5) ($583.4)
26 OTHER VALUATION METHODOLOGIES
26.1 Leveraged Recap
A strategy where a company takes on significant additional debt with the purpose of either paying a large
dividend or repurchasing shares. The result is a far more financially leveraged company.
26.2 Restructuring
The purpose of a restructuring/recapitalization is to reduce the burden of debt on the cash flow of the
company to make it consistent with its debt capacity and to maximize the cash recovery of the different
claimants.
In an out-of-court workout, debtors/creditors negotiate extensions and reductions on the amount to be

repaid – as a result of the extensions, creditors assume that they will receive more than from the
immediate enforcement of their liquidation rights.
When assets are transferred to a creditor in total or partial payment of debt, a restructuring gain equal to
the difference between the carrying value of the debt and the fair value of the assets transferred (net of
taxes) is recorded.
The write-down of assets which are no longer worth their carrying amounts is recorded as asset
impairment.
27 VALUATION QUESTIONS
Methods include the Discounted Cash Flow (DCF), Comparable Companies, and Precedent
Transactions Method
The Discounted Cash Flow values a company by projecting its future cash flows and then using the NPV
method to value the firm.
Comparable Companies values a company through multiples used from similar publicly traded companies
(EV/EBITDA, P/E ratios). This information is readily available because companies are valued everyday.
This approach is used to evaluate if a company is overvalued or undervalued compared to its peers.
Precedence method uses similar companies’ transactions that have occurred in the past to estimate how
much a company would be purchased for now. It uses multiples from those transactions to give a range
of the value of the company in question
What is the most relevant valuation?
The most relevant valuation would probably be the Past Transactions valuation method. This is because
the precedence method is based off actual data or deals that have happened in the past, which accounts
for market intangibles and also a control premium. A control premium is the excess amount over a
company’s tangible assets that a company will pay for in order to take control of the company. The DCF
would be the least relevant valuation because many of the values used to calculate the DCF are based
on assumptions and is very subjective (growth rate, interest rate, projected cash flows, etc.)
Your company is private and earning $2.50/share for EPS. Your closest competitors are trading at
10.0x P/E. What is the comparable valuation of your private company based on the comps?
$25.00 share. Simply 10.0 multiplied by $2.50 = $25/share

There will be a premium to your private company based on liquidity and control premium
Which method will give the highest valuation?
The Discounted Cash Flow method will give the highest valuation because this type of valuation is very
subjective. Assumptions that have to be made are the forecasted growth rate of cash flows, discount rate
(WACC), and exit multiples (TV), etc. This coupled with management’s tendency to provide optimistic
assumptions would create the likeliest highest valuation.
Precedent transactions would also carry a relatively higher valuation compared to Comparables
because precedent transactions take into account market intangibles, control premiums, and synergies
that are assumed through the purchase of a company. In addition, hostile-takeovers would assume a
higher valuation (i.e. multiples) for the same reason.
Walk me through a DCF (Discounted Cash Flow)
The Discounted Cash Flow approach tries to estimate the value of a company through its projected future
cash flows. A company’s cash flows can depend on factors including the health of the economy, the
health of the industry, management skill, etc.
The first step to a DCF is to project the “Free Cash Flows” for the next ten years. Because you can’t
project a company’s cash flows accurately for a long period of time, companies use a terminal value,
which acts a perpetuity which a constant growth rate that will project a company’s cash flow to infinity.
After projecting a firm’s cash flow, we then have to calculate a firm’s discount rate using WACC, which is
the measurement of a firm’s riskiness. We then discount the cash flows using the WACC value in order to
come up with the present value for the dollar amount of the firm.
When using Comparables, how do you determine who the right peers are to use?
You can determine your comparable peers by comparing different operating and financial characteristics
of your firm and other public firms. Operational characteristics include industry, types of products,
distribution channels, geography, customers, and cyclicality. Financial characteristics include size
(Revenue, EBITDA, market cap), growth potential, profitability / margins, capital structure (debt/equity)
and ownership entities.
When you find the right peers, what are you comparing?
Although you can never find the “perfect” peer, you are trying to compare the relative value the market
puts on your firm compared to others based on different financial metrics. Relative financial metrics that
can be used are various equity and enterprise multiples.
What is a control premium?
The control premium is the premium above the market value of a firm that is paid in order to gain
ownership of the company and be able to make independent business decisions.
What is the difference between an EBITDA and P/E multiple - when would you use each?
EBITDA and PE multiples compare different pieces of a firm. An EBITDA multiple takes a holistic view on
a firm, by not taking into account the capital structure of a firm while a PE multiple takes into account the
capital structure of a firm by only accounting for profit after its debt holders have been paid off. EBITDA
multiples can be used to measure overall profitability of firms in a specific space, while PE multiples can
be used to compare how the market values peers depending on their different capital structures.
What is a LBO? Why leverage up a firm? How would a buyer choose how much equity to invest?
(Make sure to review an actual LBO financial model)
In an LBO, a financial buyer acquires a firm with a substantial amount of debt in order to
maximize their equity return on their investment. Financial buyers, usually P/E firms or hedge
funds look to exit from their investment after a term of 4-6 years. When looking for a potential
target, buyers look for a firm with high growth potential, high margins, steady and consistent
cash flow, strong asset base, and a strong management team.
A buyer would estimate how much equity to invest based on a number of factors. These factors include
the sponsor’s return expectations (“hurdle-rate”), expectations of the firm’s financial performance,
investment horizon, the forecasted exit value, and the company’s ability to maintain leverage. This
analysis is referred to as the “ability-to-pay” analysis.
How much would a financial buyer lever up a firm in current markets?
In the current markets, with the credit crunch it will be more difficult for P/E firms to find cheap, affordable
debt. Before the credit crunch, buyers would put maybe 30-40% equity of the purchase price but now will
have to put maybe 45-55% equity because they will have a more difficult time finding cheap debt.
What is capital structure? And why would a company choose to finance equity vs. debt?
Capital structure is the mixture of debt and equity that is used to finance a company’s activities. Capital
structure will give an idea of how leveraged a firm is and is an item that can be used to compare a
company to its peers and industry.
A company would choose to finance activities through equity since the more debt a company has, the
riskier a company will be because of all of the interest payments it has to make on a regular basis. The
more equity a company has, the less likely a company is to default on its payments.
A company would choose to finance activities through debt for tax purposes because interest payments
are tax deductible. In addition, the cost of debt is usually lower than the cost of equity. A company might
not want to raise more equity because this will also dilute the value of equity for its shareholders and will
essentially generate a lower return for its shareholders.
Exhibit 27.1: Capital Structure
Most Senior on Capital Structure (Least Risky)
Senior Secured Debt (borrower pledges collateral)
Mezzanine or Subordinated Debt
Preferred Stock
Common Stock
Least Senior on Capital Structure (Most Risky)
One company has a P/E of 10x and one has a P/E of 20x. Compare the two companies.
If both the companies are comparable by being the same industries or producing similar products or
services, the market values one firm’s growth potential more than another. This can illustrate maybe the
different stages each company might be in, with a start-up company valued as a growth-stock and
another company valued as a value-stock with a lower P/E ratio. It also depends on what the average
P/E ratio is for the industry or its peers. The P/E ratio simply illustrates how much investors are willing to
pay per dollar of earnings.
How do you know if a stock is undervalued or overvalued?
You can tell if a stock is undervalued or overvalued by using comparable analysis of firms with
similar financial and operating characteristics. Through the use of multiples, investors can figure
out how the market values a firm compared to its peers.
27.1 “Depreciation” Question
Depreciation Question (everyone asks this question, important to know!)

Depreciation goes up by $100. How does this affect the 3 financial statements?
Assume a 40% Tax Rate…approach this one statement as a time
o Income Statement: Depreciation is an expense on the Income Statement, so operating
income (EBIT) declines by $100…You’ll pay $40 of taxes so net income declines by $60
o Cash Flow Statement: Net income declines by $60 and deprecation increases by $100,
so cash flow from operations increases to $40
o Balance Sheet:: Net PP&E decreases by $100 (b/c subtracting $100 of depreciating
asset out of PP&E), on the cash flow statement the cash increased $40, and there’s a
$60 reduction in net income that causes retained earnings (equity) to decrease by $60
o Now we’re balanced: assets decreased $60 (PP&E -$100 and Cash +$40) and
shareholder’s equity decreased $60
o This question can also be asked by “what if you purchased $100mn of property” or “what
if you purchased property and took a loan out to do so.” It’s practically the same question
because property has to be depreciated; hence all 3 statements are affected. If you are
still confused, go to my website and follow-up with me via email.
Exhibit 27.2: Depreciation Question
Here’s a step -by -step graph of the previous Depreciation Question:
Depreciation goes up by $100, what happens to all 3 statements?
Income Statement
$100 Depreciation Expense, assuming 40% tax rate then reduction in Net Income by $60
$100 x (1-40%) = $60
Cash Flow Statement

Net Income reduced by $60, Depreciation increases by $100
Thus net increase in cash from operations of $40 (-$60 +$100), Ending cash increase of $40
Balance Sheet
Cash increases by $40, PP&E declines by $100. Decline in assets of $60 ($40 - $100)
Now you balance: Assets -$60 and Equity -$60 from Net Income Drop
All 3 Statements are now balanced
Company owned 100% by you – has $20mm in EBITDA infinitely – how can you improve returns?
By putting on more debt – allows you to leverage existing shareholder returns

Assuming you can put on 5x EBITDA - $100MM of debt – interest rate of 6%
Remember you already own 100% of the company so you also gain $100mm of the debt balance
Total Returns = $100mm of New Debt + Value of Company after paying interest
Merger Model: When a Company with a higher P/E acquirers a lower P/E Company
When a company with a higher PE buys one with lower PE, its accretive
Earnings increase proportionally more than the increase in the number of shares
Because while you get full credit for the Net Income of the target (numerator) your share count
increases by less than 100% given you higher existing PE ratio
Low multiples correspond to low earnings growth – the acquirer ends up with higher earnings in
the short run but lower future growth
What is Enterprise Value?
Total Debt + Total Preferred (has many of the same characteristics and at the time of acquisition
will have to be bought out) + Minority Interest (these investments will also have to be bought out)
– Unconsolidated investments (could be sold quickly, so a proxy for cash) – cash and short term
investments
When we acquire a company, we don’t just acquire the market value of the shares but also have
to incur the company’s debt obligations and gain its cash reserves
Minority Interest is a significant, but non-controlling, outside ownership interest in a company that
is consolidated with the parent for financial reporting purposes
What is a PEG Ratio?
PEG is the ratio of a company's P/E to its earnings growth rate.

Helps show if a company’s high P/E is justified by its growth rate
A company with a high P/E can be an attractive buy if its growth rate is also higher than that of a
comparable company with a lower P/E and slower growth
A PEG ratio below 1 means that the share is attractively priced and a PEG above 1 means
indicates that it's expensive
PIK (Payment in Kind) Bond Question

Assumptions: 10% Cash Interest, 10% PIK Interest – Principal go up by $100 million
Net Income falls by $12 (40% tax rate on Cash Interest)

On the Cash Flow Statement, Net Income falls by $12, but Cash Flow from Operations go up by
$10 (PIK Amount – Non-Cash Interest) – Net effect is $2 fall in cash
On the Balance Sheet, Assets fall by $2 (Cash), Debt increases by $10, but NI falls by $12
Two similar firms, one at 1.0x leverage the other at 2.0x leverage, which one would you invest in?
This depends on your risk appetite; the 2.0x leverage Company will generate higher returns on
equity since its equity base is smaller because of more debt.
Question to ask: Does one have a higher cost of capital?
If one company has a higher Debt-to-Equity ratio, its discount rate is lower given the cheaper cost
of capital
What’s the different between operating and capital leases?
When a company wants to purchase assets, they sometimes choose to lease these assets instead of
buying them. The two types of leases a Company can choose are operating and capital leases. Both of
these leases will affect the treatment of financial accounting differently.
Capital leases give ownership rights and are used for longer-term assets. Capital leases are counted as
debt on the balance sheet and the Company is able to depreciate the asset and incur interest payments.
Operating leases are not given ownership rights and are generally used for shorter-term assets. Unlike
Capital leases, operating leases are not considered a debt obligation and show up on the Income
Statement as an expense.
Why convert operating leases to capital leases?
Operating leases are classified as rent expense so they affect your EBITDA
Capital leases, on the other hand, are as interest expense so allows you to increase leverage
How do you diligence a company?
Predictable revenues and cash generation capabilities

Competent management
Look at the historical company / industry pricing structure to determine viability of projections
Understand where costs can be cut and where they have to be added – advertising, accruing
enough on workers comp, customer acquisition costs that will drive future growth etc.
Why would a firm consider raising equity over debt?
The firm is already highly levered and cannot take on additional debt
Debt ties up cash whereas dividends (an equity distribution) are distributed at the discretion of the
firm
Debt has covenants which restrict activities and limit amount of additional debt
Why would a firm consider raising debt over equity? (Inverse from above)
The Company has capacity to take on additional leverage

Increased leverage improves ROE (return on equity)
Interest payments are tax deductible where dividends are not
Equity is more expensive than debt
Issuing equity shares will dilute current shareholders where raising debt will not
Conceptually, how does a firm create value?
By generating return on invested capital (ROIC)

Revenue Growth
Margin Growth
Positive cash flow
What are adjustments that need to be made to ensure consistency of financial information?
Gaines or losses on sales of assets

Restructuring charges
Write-down of assets
Legal settlements
Discontinued operations
Tax adjustments relating to prior years
How do you calculate fully diluted shares outstanding (FDSO)?
FDSO = Basic Shares Outstanding (Found on Cover of 10-Q) + In the Money Options – (Options
proceeds / Share Price)
Problems with Comparable Company Analysis
True comparables are almost never available

Firms in the same industry may be in a different growth cycle and have different leverage
Useful check on DCF though
Advantages / Disadvantages of looking at EBITDA multiples
Decent proxy for cash flow

Excludes Capital Expenditures and interest payments
Advantages / Disadvantages of looking at Revenue multiples
Good for valuing companies for fast-growing companies that are sacrificing profits to build up
market share
Also useful for companies with no reliable cost information especially if the acquirer is confident of
being able to impose its own cost structure
But doesn’t factor in earnings – only a top-line multiple
Advantages / Disadvantages of looking at P/E multiples
Goes all the way down to Net Income

But D&A charges depend on previous write-ups of assets which may differ among company
Differences in the amount of net debt also lead to differences in interest expense and earnings
Why are EBITDA and Revenue multiples to Enterprise Value and not Equity Value?
They both exclude interest payments; therefore they have to be pegged to EV. That includes the
Net Debt component of capitalization
Why would one company have a higher multiple than another?
Growth Characteristics
Risk Profile
Why can fast-growing smaller firms borrow less debt than larger established firms?
Smaller fast-growing companies inherently have more risk

Smaller, fast-growing firms have a higher proportion of intangible assets
Values of future growth and intangible assets are more easily dissipated under financial distress
How does an increase in leverage affect a company’s valuation?
Value increases by the additional value of the interest tax shield

This is partially offset by an increase in the cost of equity as leverage magnifies risk
What is delta hedging?
An options strategy designed to reduce the risk associated with price movements in the
underlying security, achieved through offsetting long and short option positions
How do companies manipulate earnings?
Booking revenues before they’ve been realized

Accelerated or straight-line depreciation – LIFO/FIFO
Capitalizing expenses (e.g. – customer acquisition, marketing costs)
What is Yield to Maturity and Yield to Worst?
YTM is the rate of return anticipated on a bond if it is held until the maturity date
YTW is when you calculate the yield at different call dates and figure out which one's the worst
28 ACCOUNTING QUESTIONS
Walk me through the 3 Financial Statements
1. Income Statement: this is a report that shows how much revenue a company has earned over a
specific time period. An income statement also slows the costs and expenses associated with earning
that revenue. You will find earnings per share (EPS) on the income statement.
2. Balance Sheet: this sheet provides detailed information about a company’s assets, liabilities, and
shareholder’s equity. Formula for balance sheet: ASSETS = LIABILITIES + SHAREHOLDERS’ EQUITY.
A company’s assets have to equal the sum of its liabilities and shareholders’ equity.
3. Cash Flow: this sheet shows a company’s inflows and outflows of cash. This is important because a
company must have enough cash on hand to pay its expenses and purchase assets. Each part of the
cash flow statement reviews the cash flow from one of three activities: 1. Operating Activities, 2. Investing
activities, 3. financing activities
How do the 3 Financial Statements Flow Together?
Net Income:
Everything comes from your IS Drivers

Net Interest Expense comes from your Debt Schedule ( say only if you build one)
Balance Sheet:
Cash is from opening balance, AR is as Days * (Revenues/365)

Net PP&E is Opening Balance + Capex – D&A – Capitalized Interest
AP is as Days * ((Opex + Capex)/365)
Long-Term Debt is from the Debt Schedule
Shareholders’ Equity is Previous Balance + Net Income
Cash Flow Statement:
Net Income + D&A (from IS)

Operating Activities (IS Adjustments):
o Subtract Cash Interest (from Debt Maturity Schedule)
o AR & Inventories – Difference between current and last year – an increase is a negative
o Same for other Assets (Deferred Income Taxes, Prepaid Expenses, Other Assets)
o Opposite for Liabilities such as Accounts Payable, Accrued Expenses etc.
o Why? Income in Account Receivable means you haven’t really gotten the cash yet, AP
increase means you haven’t paid the cash out yet
Investing Activities (Asset Adjustments):
o Capex (negative number from Net PP&E calc) – also include Purchase of Intangibles
Financing Activities (Liabilities Adjustments):
o Reduction / Increase in Long term Debt, Paydown of Preferred Stock, equity raise etc.
Exhibit 28.1: Financial Statement Relationship
How the 3 Financial Statements Flow Together:
Income Statement Balance Sheet Cash Flow
Revenue Current Assets Beginning Cash

- Cost of Goods Long-Term Assets
Gross Profit Total Assets Net Income
- Operating Expenses Non-Cash Items
- Depreciation Current Liabilities Depreciation
- Amortization Long-Term Liabilities Amortization
Operating Income (EBIT) Total Liabilities Change in Working Capital
- Interest Expense Cash Flow from Operations
Pre-Tax Income Common Stock
- Taxes Retained Earnigns Capital Expenditures
Net Income Shareholder's Equity Other Investments
Cash Flow from Investing
Dividends
Raised Debt/Equity
Cash Flow from Financing
Ending Cash
Want to practice building a 3 statement standalone model?

Visit: StreetofWalls.com
Exhibit 28.2: Income Statement Snapshot
Model Snapshot of Income Statement from Street-of-Walls financial models available online:
Income Statement 2009 2010 2011 2012 2013 2014

Revenues $20,000 $22,000 $22,000 $22,000 $22,000 $22,000
COGS (ex. depreciation) 9,000 9,856 9,812 9,768 9,724 9,680
Gross Profit $11,000 $12,144 $12,188 $12,232 $12,276 $12,320
G&A 1,800 1,980 1,980 1,980 1,980 1,980

Sales & Marketing 1,100 1,210 1,210 1,210 1,210 1,210
EBITDA $8,100 $8,954 $8,998 $9,042 $9,086 $9,130
Depreciation 1,000 1,100 1,100 1,100 1,100 1,100
Amortization 12 12 12 12 12 12
EBIT $7,088 $7,842 $7,886 $7,930 $7,974 $8,018
Interest Expense 947 800 800 800 800

Interest Income 27 125 304 487 676
EBT $8,816 $8,811 $9,034 $9,261 $9,494
Taxes 40.0% 3,526 3,524 3,613 3,704 3,797
Net Income $5,290 $5,287 $5,420 $5,557 $5,696
What is the difference between the income statement and the statements of cash flows?
The income statement represents the results of operations of a business over a specified period of time
(1-yr, 1 qtr). It provides investors and creditors with information needed to determine the enterprise’s
profitability and creditworthiness. It is composed of:
Revenue: source of income that arises from the sale of goods/services and is recorded when
earned.
Expenses: costs incurred by a business over a specified period of time to generate the revenues
earned during that time period.
Net Income: Revenue – Expenses (positive = profit, negative = loss)
In comparison, the statement of cash flows presents information about the actual source and use of cash
generated during operations. It provides a detailed summary of all cash inflows and outflows during a
period. Flow of cash is divided into three activities:
Cash flows from operating activities: cash effects of transaction involved in calculating net income
Cash flows from investing activities: involves items classified as assets and includes purchase
and sale of equipment/investments.
Cash flows from financing activities: involves items classified as liabilities/equity in the Balance
Sheet; includes payment of dividends and issuing payment of debt/equity.
Net income from the income statement is presented on the statement of cash flows under
operating activities.
What is the link between the balance sheet and the income statement?
The balance sheet presents the financial situation of a company at a given point in time. It is
comprised of:
o Assets – the economic resources of a company used to operate its business (cash,
inventory, and equipment)
o Liabilities – presents the debt of a company/claims creditors have on the company’s
resources (accounts payable)
o Equity – presents the net worth of a company = Assets – Liabilities/claims investors have
on the company’s resources (common stock, retained earnings)
In comparison, the income statement represents the results of operations of a business over a
specified period of time (1-yr, 1 qtr., 1 mo.). It provides investors and creditors with information
needed to determine the enterprise’s profitability and creditworthiness. It is composed of:
Revenue: source of income that arises from the sale of goods/services and is recorded when
earned.
Expenses: costs incurred by a business over a specified period of time to generate the revenues
earned during that time period.
Net Income: Revenue – Expenses (positive = profit, negative = loss)
The link between the two statements is that profits generated in the income statement are added
to shareholder’s equity on the Balance Sheet under the title “retained earnings.” Also, the debt on
the balance sheet is used to calculate interest expense.
What is the link between the Balance Sheet and the Statement of Cash Flows?
The statement of cash flows starts with the beginning cash balance, which is taken from the
balance sheet under assets. Also, to figure out cash from operations, you need to use the
changes in the balance sheet accounts (i.e. accounts payable, accounts receivables, etc).
How can a Company have positive earnings and negative cash flow?
Operating activity: earnings are recorded based on accrual method; therefore cash changes may not
occur at the time of transaction
Investing activity: if the company is growing, it might be investing in a lot of PP&E (Plant, Property, &
Equipment); therefore, since investments are not an expense, earnings could be positive while Cash Flow
negative
Financing activity: the Company could be paying off debt, resulting in negative cash flow
What is a Differed Tax Asset (DTA) and Deferred Tax Liability (DTL)?
Both of these arise when there is a difference between what a Company can deduct for cash tax
purposes vs. what a Company can deduct for book tax purposes.
Deferred Tax Asset is held on the Company’s balance sheet and is used to reduce any future income
taxes. DTA’s arise due to net operating loss and are carried forward for future income tax expenses. A
good example of large DTA’s is seen in the home building industry (Pulte, Lennar, etc.) where these
Companies recorded huge operating losses in the Credit Crisis of 2007-2009. These operating losses
were recorded as tax assets on the balance sheet; once these Companies return to profitability they will
be able to use these DTA to shield from tax expenses.
A Deferred Tax Liability (DTL) represents a temporary difference between GAAP and cash tax liabilities.
This often happens when a company depreciates an asset faster for tax purposes than it does for
financial reporting purposes. Bottom Line, DTL is the difference between a Company’s actual taxable
income and its reported GAAP income before taxes
What is the difference between cash and accrual accounting?
Cash-based accounting recognizes revenue and expenses when cash is actually received
Accrual-based accounting recognizes revenue when collection is reasonably certain and recognizes
expenses when they are incurred rather than when they are paid out in cash
FIFO vs. LIFO
FIFO (first-in first-out) assumes that the first unit making its way into inventory is the first sold
LIFO assumes that the last unit making its way into inventory is sold first
What are some common leverage ratios?
Debt to Equity Ratio: Market value of debt / market capitalization

Leverage Ratio: Net Debt / Trailing 12M EBITDA
EBITDA interest coverage: EBITDA / Interest Expense
When you write down an asset, what is the impact on the three financial statements?
The value of the asset is reduced on the balance sheet by the amount of the impairment loss
That loss is recognized as a charge on the income statement
EBIT will also decline by the amount of the impairment loss since asset write-downs are
recognized as a charge to operating income
Net income will decline by the amount of the impairment loss net of taxes
An impairment charge is a non-cash charge, so it will not impact the cash flow statement
Which financial statement is most useful in valuing a company?
The Statement of Cash Flow is the most useful financial statement because most of the multiples used to
value a company are all within the cash flow statement. Also, in the end a company’s health can be
based upon its ability to generate cash since it is used to finance a lot of their activities. The cash flow
statement is also very important because accounting is based on the accrual system, so a company can
be generating revenues but is not necessarily able to pay its interest payments to stay in business
because it has no cash available.
How do the balance sheet, income statement, and statement of cash flow relate to each other?
The Balance Sheet is a company’s financial position at a specific time. The Income Statement and
Statement of Cash flows are financial statements that are used to consolidate certain accounts in the
Balance Sheet.
The Income Statement is used to measure how a company has performed for a certain period. Its
“bottom-line” is Net Income, which when subtracted by Dividends equals Retained Earnings. The Change
in Retained Earnings is then added to the beginning balance of Retained Earnings on the balance sheet.
Also, short-term and long-term debt on the balance sheet is used to calculate interest expense on the
income statement.
The Statement of Cash Flow shows a company’s cash flows for a specific period and then is consolidated
back into the cash account on the balance sheet. The SOCF uses relevant balance sheet accounts in its
statement as well.
Walk me through the major lines of a cash flow statement?
There are three main lines of a cash flow statement: Operating Activities, Investing Activities, and
Financing Activities. Operating Activities include balance sheet accounts: Net Income, Depreciation, A/R,
A/P, etc. Investing Activities include activities where cash is used to purchase capital. Balance sheet
accounts include Inventory, Equipment, Property, Plant, etc. Financing activities include the activities
used to generate more capital like the issuance of common stock and the issuance of debt.
What is the difference between equity value and enterprise value (or firm value)?
Equity value is the value the market values the firm. Enterprise value is the value of the entire firm
including the stake to debt holders. For example, when Firm A acquires Firm B, Firm A takes on Firm B’s
current debt and cash account balances, which should be taken into account when acquiring a company.
What is EBITDA?
EBITDA is Earnings before Interest, Taxes, Depreciation and Amortization

EBITDA is essentially earnings before “all the bad stuff.” EBITDA is a value that will give a
general idea of how profitable a company is but not a good evaluation of cash flow.
EBITDA = EBIT (Operating Cash Flow) + Non-Cash Expenses (D&A, stock-based comp., etc.)
What is Free Cash Flow (FCF)? (un-levered)
Free Cash flow measures the financial performance of a firm calculating operating cash flows
subtracted by capital expenditures. FCF is a company’s cash flow assuming that it has no debt
(paid off its cap-ex).
FCF (un-levered) = EBIT – Taxes + D&A – Increase in WC – CapEx
FCF (levered) = EBIT – Interest Expense - Taxes + D&A – Increase in WC – CapEx
What could a company do with excess cash on the balance sheet?
A company can do all sorts of things with excess cash. They can use excess cash to repurchase stock,
give out dividends, make other investments (positive NPV), purchase capital expenditures, raise debt
levels, or acquire another company.
A company would repurchase stock if it felt that its company was currently undervalued by the market. A
company could increase dividends to signal to the market that it foresees profit growth in the future and
also to make its stock a more attractive investment. A company could raise debt levels or purchase
capital expenditures it expects the company to continue to grow in the future. The company could also
take advantage of current cheap debt levels because it has excess cash available to pay off the
additional interest expense.
Suppose you are buying a new fixed asset - part cash and part debt. Take through how
it affects all the financial statements. Example: $10M
Balance Sheet:
Assets: PPE increase 10M, Cash decrease 5M
Liabilities: Debt increase 5M
Cash Flow Statement:
Net Cash from Financing Activities – decrease 5M
What is goodwill? How does it affect net income?
Goodwill is an intangible asset that usually arises through an acquisition of a company. Goodwill
is usually the amount paid over the book value of a firm. It can represent a company’s strong
brand name, outstanding patents, technology, or other intangibles (good relations with the
union, employees, strong management team, etc.) Goodwill affects Net Income because it
must be amortized, as any asset will decrease in value over time, thus decreasing NI.
Other Accounting questions:
What is EBITDA?
Walk me through the major line items of a Cash Flow Statement.
Say you knew a company's net income. How would you figure out its cash flows?
What is the difference between the balance sheet and the income statement?
What is goodwill? How does it affect net income?
A firm is using LIFO, the COGS start decreasing. What are effects on I/S, BS and CFS?
What is the difference between Purchase and Pooling accounting? Under what circumstances
would you use one or the other?
What are deferred taxes? How do they arise?
What is working capital? How would you calculate it?
Other Random Points:
FCF is different from regular cash flow as it accounts for cash reinvestment in the business and
thus, denotes the actual amount of cash available for distribution
Deferred Taxes are generated when companies elect to choose a depreciation method different
from the one specified in the US tax code (which permits accelerated depreciation) – the
difference between the reported computed tax and the actual tax liability is booked as Deff. Taxes
– you reduce this amount in the future when book dep. exceeds tax dep.
Enterprise Value = PV of the FCF to all security holders computed at the WACC of the firm
Net Investment = Capex + Increase in WC – Depreciation
Acid Test Ratio = (Cash + AR + Short-Term Investments) / Current Liabilities
o A stringent test that indicates if a firm has enough short-term assets to cover its
immediate liabilities without selling inventory
Interest Coverage Ratio = EBITDA / Interest Expense (unified valuation analysis, in terms of
EBITDA)
o A ratio used to determine how easily a company can pay interest on outstanding debt
o Bring yourself down after an LBO by doing an equity offering, divesting assets etc.
Why convert operating leases to capital leases?
o Your EBITDA increases as op. leases are taken off the IS, while your Net Debt/EBITDA
decreases, thereby allowing you to pile on more debt
Economic Value Added (EVA) = NOPAT – (Capital * Cost of Capital)
Discount Rate = The interest rate used to calculate the PV of the expected future cash flows
Less liquid stocks provide higher returns than liquid stocks as investors price securities net of
trading costs and thus, require higher returns given the higher trading costs of a less liquid stock
A liquid asset is one that can be traded at a desired quantity without reducing the price
Liquidity = Daily Dollar Return / Daily Dollar Volume
P/E of Peers * EPS of Company = Estimated Share Price of Company
Price-to-Book ratios (Stock Price / Book Equity per share) are useful in determining the
replacement value of the assets in place
Multiples are affected by changes in debt (change the tax shield) and growth (changes the FCF)
Management is typically reluctant to issue new equity because of the volatility of stock prices, the
high cost of floating a new issue and dilution of ownership
A convertible bond has a low coupon rate because of its conversion feature, which is essentially a
warrant on the firm’s equity
29 FURTHER INTERVIEW THOUGHTS
Know your resume in detail; be prepared to talk about anything on your resume, from job experience to
your hobbies. You TA’d for Finance 2 semesters, so talk about that when they ask about your leadership
skills. They may also ask questions about team experience, about a time when you had problems with
your co-workers and how you solved the conflict, etc.
Know how the financial statements are related to each other:
Balance Sheet: Assets = Liabilities + Shareholders Equity To break the formula, we can rewrite
that:
o Cash + Non-cash Assets =Liabilities + Shareholders Equity (Contributed Capital +
Accumulated Other Comprehensive Income + Retained Earnings)
Retained Earnings is the Net Income from Income Statement (that's how income statement is
related to balance sheet. Also, Net income is the first item on cash flow statement). Don't forget
about the tax shield on the income statement
Learn as much as you can about the company you are interviewing with. Be prepared to give a good
answer why you want to work with them.
30 OTHER FINANCE QUESTIONS
Why would two companies merge? What major factors drive mergers and acquisitions
What are some common anti-takeover tactics?
What is an LBO? Why lever up a firm?
Why might a company choose to issue debt vs. equity?
What could a company do with excess cash on the balance sheet?
How would you calculate a firm's WACC? What would you use it for?
What is the Beta and where would you find a firm's Beta? How and why would you unlever a
Beta?
How do you calculate the firm value for the following firm?
What would greater impact a firms valuation, a 10% reduction in revenues or 1% reduction in
discount rate?
What major factors affect the yield on a corporate bond?
How would you evaluate the creditworthiness of manufacturer with three factories in different
locations throughout the US?
Company A trades at a P/E of 20. Company B trades at a P/E of 10. Both are considering
acquiring Company C, which trades at a P/E of 15. For which of the two acquiring companies
would the deal be dilutive. For which would it be accretive? Explain why for each.
Suppose you are buying a new fixed asset - part cash and part debt. Take through how it affects
all the financial statements.
Financial market questions:
o What did our firm's stock close at yesterday?
o What is the DJIA at today? NASDAQ? S&P500? Long Bond? Fed funds rate?
o Where is the market going? Bond, equity and foreign exchange? Where do you think?
o Interest rates will be in the next 12 months?
o What happened in the markets in the past three months?
o Do you read the Wall Street Journal everyday? What's on the front page today?
o Do you follow an industry, a stock?
o What do you personally invest in?
o What industry do you follow and what numbers do you look at to determine if a firm is
doing well in the industry.
What is prime rate? Federal funds rate? Federal Discount Rate?
What was a recent article you read?
Tell me about a stock you think is a good buy and why?
What’s your opinion on the market? On the economy?
What are some of the most significant factors affecting the market today?
What has been a deal that you have followed?
What’s a Secondary Offering?
What signs would indicate management’s manipulation of earnings?
When earnings are above the industry benchmark

When there is a sudden change in accounting policies
Sudden change of auditors, lawyers, executives or directors
When the firm is engaged in significant related-party transactions
Significant difference between percentage changes in Net Income vs. EPS
Multiples
Revenue multiples – usually technology and early tech startups, don’t use P/E and EBITDA
because there are usually no earnings
EBITDA – good proxy for Cash flows, not influenced by any other expenses
P/E – a lot can influence the NI like depreciation expense and other ways management makes up
the statements
Pick undervalued stock – look at what comps are traded at, if it’s trading under then it’s
something interesting to look at, also look at FCF yield (inverse of the P/E ratio)
Earnings Yield
The earnings per share for the most recent 12-month period divided by the current market price per
share. The earnings yield (which is the inverse of the P/E ratio) shows the percentage of each dollar
invested in the stock that was earned by the company
Why would a company be overvalued?
Some legal overhang

Terrible management
Slow growth
Miss earnings
Precedent vs. Public Multiples, which is higher?
Precedent because they bought the whole company; “have to pay premium for controlling ownership”
Bonds / NPV Questions:
If you are paid a dollar a year for the rest of your life, how much is that worth today?
How much is a dollar in 20 years worth today?
What is the relationship between the yield and the price of the bond?
How does the future value of money relates to the present value (i.e. FV=PV(1+r)^t)?
What major factors affect the yield on a corporate bond?
What is the Black-Scholes model?

What does the yield curve look like?
31 BRAINTEASERS
The best way to prepare for brainteasers is to run through some practice questions. Bottom line,
investment bankers are looking for your thought process when they ask brainteasers. They want you to
work through the problem, starting with the basics and being able to explain your math.
If you look at a clock and the time is 12:15, what is the angle between the hour and the minute
hand?
Answer: We know that at 12:15 the angle is slightly less than 1/4, so a bit less than 90
Start off with the basic – a clock, which is a circle, is 360 degrees
Each hour on the clock represents 30 degrees (360 degree clock divided by 12 hours)
Now, the minute hand has only moved ¼ of the way through the hour (minute hand is at 15 which
is ¼ of the way around)
So the hour hand has moved 7.5 Degrees (30 degrees per hour times ¼ move in the minute
hand)
Now we know the hour hand moved 7.5 Degrees…so the answer is 82.5 Degrees (90-7.5)
Banks want to be able to see your math – they want analytical minds that can think through hard
problems like this. Don’t worry if this is tough – the more practice the better you’ll get!
Another way to ask this: What is the angle at 3:15?
A car travels a distance of 60 miles at an average speed of 30 mph. How fast would the car have to
travel the same 60 mile distance home to average 60 mph over the entire trip?
Answer: This is a trick question, it’s impossible

The first trip took 2 hours (60 miles / 30 mph)
In order for you to average 60 mph over the entire trip you would have to travel for 2 hours (120
miles / 60 mph)
Since you already were driving for 2 hours it is impossible for you to average 60mph for the entire
trip
How many Hershey's chocolate bars were sold in the US last year?
Answer: For this type of question, you would start by saying the US population is approximately
330 million; Chocolate bars are mostly consumed at age group of x to x; each of these people
may consume approximately 3 to 5 chocolate bars a year; you do the math (330 people x (# that
consume / 330) x # of chocolate bars each person consumes).
You have a five-gallon jug and a three-gallon jug. You must obtain exactly four gallons of water.
How will you do it?
Answer: Fill the 5 gallon jug and then pour it into the 3 gallon jug. The 5 gallon jug has 2 gallons
left. Now throw the 3 gallon water away. Pour the 2 gallons from the 5 gallon jug to the 3 gallon
jug. So now the 3 gallon jug has just 2 gallons of water. Fill the 5 gallon jug again, and pour 1
gallon to the 3 gallon jug. You are then left with 4 gallons of water in the 5 gallon jug.
You are faced with two doors. One door leads to your job offer (that's the one you want!), and the
other leads to the exit. In front of each door is a guard. One guard always tells the truth. The other
always lies. You can ask one question to decide which door is the correct one. What will you ask?
Answer: Ask a guard: "If I were to ask you if this door were the correct one, what would you say?"
The truthful consultant would answer yes (if it's the correct one), or no (if it's not). Now take the
lying consultant. If you asked the liar if the correct door is the right way, he would answer no. But
if you ask him: "If I were to ask you if this door were the correct one, what would you say," he
would be forced to lie about how he would answer, and say yes.
I’m drinking beer and you’re drinking light beer. Your light beer is 1/3 less filling than my regular
beer. I drink 3 beers. How many do you have to drink to be equally full?
Answer: 1 beer = 4/3 of a light beer, so if you drink 3 beers (3 x 4/3), you would need to drink 4
light beers.
You are playing a game against one opponent. The game starts of 21 cards on a table. You and
your opponent alternate turns, and during each turn, a player may pick up 1, 2 or 3 cards. The
winner is the person that picks up the last card. You go first. What is your first move, and what is
the optimal strategy to win this game?
Answer: You pick 1 card first (leaving 20)… then you want to respond to all opponent picks by
picking a number that totals 4 combined with their last pick. So, you pick 1…then, if they pick 3,
you pick 1…if they pick 2, you pick 2…if they pick 1, you pick 3. This ensures that you’re always
leaving them with a multiple of 4 (first 20, then 16, 12, 8, 4), right until the end, when you leave
them with exactly 4. When they’re stuck with 4, they are out of luck…because regardless if they
pick 1, 2 or 3, you will be able to win in the next turn.
You are given 9 marbles that look the same, but 1 of them weighs slightly less than the other 8.
You are also given a balance scale. What is the LEAST amount of times you could use the
balance to determine which of the marbles is the lighter one? (and explain the different balance
weightings you would perform).
Answer: First weigh, you would weigh 3 marbles on each side, leaving three off. If one side of
scale is lighter, you are left with 3 marbles. Then you would place one marble on each side of
scale, and leave one off. Least amount of time you can use the balance is two times.
Four people are on one side of a bridge at night and would like to cross it. Only 2 can cross at a
time. In order to cross, a flashlight must be used. There is only one flashlight. The four people
each take different amounts of time to cross the bridge (see below), so if two people cross
together, they will cross at the speed of the slower person (since they need to be together and use
the flashlight). Describe how all four people can reach the other side of the bridge in 17 minutes
(Time to cross bridge: Person A: 1 minute; Person B: 2 minutes; Person C: 5 minutes; Person D:
10 minutes).
Answer: A & B across (2 minutes), A comes back (1 minute), C & D across (10 minutes), B
comes back (B was left there from the first move) (2 minutes), A & B across (2 minutes).
What is the sum of the numbers from 1 to 50?

Answer: Pair up the numbers into groups of 51 (1+50=51; 2+49=51; etc.)Twenty-five pairs of 51 =
1,275.
A company has ten machines that produce gold coins. One of the machines is producing coins
that are a gram light. How do you tell which machine is making the defective coins with only one
weighing?
Answer: The hour hand, remember, moves as well. The hour hand moves a quarter of the way
between three and four, so it moves a quarter of a twelfth (1/48) of 360 degrees. So the answer is
seven and a half degrees, to be exact.
You have 18 blue socks and 14 black ones in a drawer. It is very dark. How many do you have to
pull out before you have matching pair?
Answer: You need to pick 3 socks. No color was specified so after choosing three socks, two
should be same color.
Tips: if you don’t know an answer, it’s OK; just say “I don’t know.” Technical questions are not posed just
to see if you know things but also see how you handle stress. You will generally do much better with the
interviewer if you are calm and under control.
32 DISCLAIMER
The information, opinions, material, and any other content provided by www.streetofwalls.com, or
provided by Street of Walls, LLC (“SOW”), is for informational purposes only and is not to be used or
considered an offer or solicitation to buy or sell securities, investment products, financial instruments, or
to participate in any particular investment strategy. The information, opinions, material, and any other
content provided on www.streetofwalls.com, or provided by Street of Walls, LLC, does not constitute as a
recommendation or as advice to buy or sell securities, investment products, financial instruments, or to
participate in any particular investment strategy. The ideas and comments on the site are solely the
opinions of the author(s) and do not represent the opinions of companies associated with the author(s).
The opinions and information on the site are constructed without thought to any individual person,
corporate entity, or any particular group who may view the information. Before making any investment
decisions relating to any securities referenced by SOW, you agree to consult your investment adviser or
independently evaluate the investment. You understand that any investment in any security contains
many risk factors, and the discussions of any security on the site will not have a list or description of the
risk factors.
THE END: What Now?

Street-of-Walls Resume Builder: Most people think they have a good resume, and many do, but
investment banking recruiters are looking for a very particular style, and if you want to know what they
want to see, check out my resume online. Without the right resume, it doesn’t matter how smart or how
hard working you are, you won't get in the door.
Street-of-Walls Financial Models: Go through real 3 statement Standalone, DCF, Comps, M&A, and
LBO models available online. Reading about modeling is one thing but actually going through the
numbers will give you a real edge over your competition.
Stay Connected with Street of Walls:
http://www.facebook.com/StreetofWalls

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Investment Banking Total Interview Guide

By: Street of Walls Contributor

1 WELCOME LETTER ................................................................................................................................... 5

17.2 PERSONALITY & EXPERIENCES .................................................................................................... 30

2 INTRODUCTION FROM AUTHOR

3 INVESTMENT BANKING OVERVIEW

3.1 Background on Investment Banking

3.2 Background on the Industry

Unlike traditional banks investment banks cannot take deposits

3.3 Core Investment Banking Activities

Exhibit 3.1: Investment Banking Structure

Investment Bank Structure

Investment Banking Sales and Trading Research

Capital Markets (ECM, DCM)

Product Groups (M&A, LevFin)

Industry Groups (Retail, Healthcare, etc.)

3.4 Investment Banking Groups

3.5 Investment Banking Hierarchy

 The investment banking hierarchy is very strict

Exhibit 3.2: Investment Banking Hierarchy

3.6 Typical Deal Teams

Exhibit 3.3: Investment Banking Deal Teams

Inves tment Banking D eal Team Struc ture

1 Managing Dir ector 0 or 1 Direc tor 1 Vic e President 1 Associa te 1 Analyst

3.7 Salary, how much will you make?

Exhibit 3.4: Investment Banking Salaries

Investment Banking Salaries

Summer Intern First-year Analyst First-year Associate

Exhibit 3.5: IB Salaries by Bank

$85,000 Advisory Firms: 2010 Base Salary

1st year investment bank ing analyst

Bulge Bracket: 2010 Base Salary

$90,000 Advisory Firms: '09-'10 Average Bonus

2009 Bonus 2010 Bonus

$85,000 Bulge Bracket: '09-'10 Average Bonus

2009 Bonus 2010 Bonus

4 ROLE OF AN INVESTMENT BANKER

Exhibit 4.1: Investment Banking Pitchbook Example

5 EXIT OPPORTUNITIES: WHAT TO-DO POST BANKING

Exhibit 5.1: Investment Banking Career Patch

Typical Path of an Investment Banking Analyst

2 Year Investment Banking Program

Private Equity Hedge Fund Venture Capital

6 GENERAL INTERVIEWING QUESTIONS

What kinds of questions are asked?

 There are two types of questions:

1. Behavioral questions (we will cover these in this packet)

How long is the typical interview?

 Most interviews are about 30-45 minutes

How to get better at interviewing?

Will brainteasers be asked?

 YES, some banks will ask you brainteasers so study up

Other top banks:

8 FIGURE OUT THE PROCESS: DEADLINES, DATES, AND REQUIREMENTS

8.1 “Core” vs. “Non-core” Interviewing

8.2 Summer Analyst (Intern) Schedule

8.3 Full-Time Analyst Schedule

8.4 Typical IB Application Requirements

Exhibit 8.1: Application Process

Are you from a top 20 school?

The investment banking hierarchy is very strict

There are two types of questions:

Most interviews are about 30-45 minutes

YES, some banks will ask you brainteasers so study up

Why do you want to work in Hong Kong vs. NYC?

Why do you want to work in Latin America vs. NYC?

Work-Ethic – essential, lifestyle of a banker, Not for everyone, “work-hard, play-hard”