1) What is another term for Investment Banking division?
Investment Banking is also
called Corporate Finance.
2) Why are you interested in Investment Banking?
This question is asked to check the candidate’s interest to know his
understanding of the Investment Banking.
Therefore, you should be aware of the positive key skills and attributes
required for this job. You should also define why you think you are a best
candidate for this position.
3) What is a formula to calculate working capital?
The formula is
Working capital = Current assets – Current liabilities.
4) What is typically higher the cost of debt or the cost of equity?
The cost of equity is always greater than the cost of debt because the cost link
with financing debt is tax confirmable. Moreover, the cost of fair is higher
because unlike lenders, equity investors are not guaranteed to get fixed
payments.
Debt is less costly because its Interest payment is considered an expense.
Debt is also given preference in a firm’s capital structure. So, in the
situation of liquidation or Bankruptcy, the debt holders get paid their fund
first before the equity holders.
5) What does WACC mean?
WACC stands for Weighted Average Cost
of Capital. It is a calculation of a firm capital that is
weighted proportionally. It add every source of capital, and it takes into
account factors like depreciation, tax rates, debt, and equity.
6) What are the essential
qualities to become Investment Bankers?
The skill sets required to become
Investment Bankers are:
- Strong significant/analytical skills
- Superior attention to detail
- Should have good work ethic
- Excellent spoken, verbal and written communication skills
- Able to manage multiple project deadlines
- Positive and never give up attitude
- Drive and determination
- Efficient time management
- Communication ability
- Complete attention to detail
- Ability to learn quickly
- Able to think out of box
7) What are your long-term career
goals as an Investment Banker?
This question is requested to know
whether you are serious about your career and ready to work in this filed. It
is a financial job, so it is vital for the Bank to hire a candidate who are ready to work with the same Bank for a
longer time.
8) Discuss risks that you have taken
if your life?
By nature, I am very traditional and
don’t like to take too much risk. However, that surely does not mean that I
never take my chances. So, when I do take chances, it is always based on the normal
analysis. It allows me to ensure success and also understand the risks involved
before taking the plunge.
As an Investment Banker most of the
time you should take hard decisions. Before taking decision you need to account
political changes and the market trends. Therefore, you need to show your
ability to take estimated risks and demonstrate decent analytical skills.
Here, you also need to focus the
logical guess made by you while taking any risky decision. Investment Banking
is more about “roughly right” instead of “absolutely accurate.”
9) What is the monetary policy?
Financial policy is a method by
which the government, Central Bank, of a country controls the supply of money.
It is the availability of money, and cost of money or rate of activity, to meet a set of objectives oriented
towards the growth and stability of the economy.
10) What is Money laundering?
Money laundering is the process of
creating the appearance that large block of money obtained from criminal
activity, like terrorist activity, drug trafficking begun from a certain
source.
11) As an Investment Banker what you
think an analyst does on a typical day?
As an Investment Banker, I think my
working hours to be long. I need to act financial modeling, making pitch books,
doing due-diligence, and meet with clients as required.
12) What is the difference between
Commercial and Investment Banking?
Here is some major difference
between the two:
Commercial Bank:
- It accepts deposits from customers and gives Commercial loans using this money.
- Most of the loans made by Commercial Banks are held as equity on the Bank’s balance sheet.
Investment Bank:
- It acts as an intermediary between companies and investors.
- It does not accept deposits, but rather sells Investments, advises on M&A, hold loans debt/equity which is originated by the Bank.
13) What is a deferred tax asset?
A negotiated tax asset is created
when any business pays more tax to the IRS than that is reported on their
income statement. It is created from net operating losses and differences
in revenue acceptance.
14) What is a fairness opinion?
A fairness opinion is an seprate
assessment. It is issued by an Investment Bank. It mainly includes price
offered in a tie-up or gain. It provides a fixed fee, typically by an
institution which is not involved in the transaction.
15) What is Beta?
Beta is a measure of the riskiness
of specific stock. It is calculated as the clearance between stock’s return and
the total honesty market return divided by the change of the return given by
market. By default, beta is 1.0.
- Stock with beta > 1 is considered riskier compare to market.
- A stock with beta < 1 is considered less risky.
16) When should need to value a company using a revenue
multiple vs. EBITDA?
A firm with negative profit and
EBITDA will be likely to have meaningless EBITDA multiples. That is because
revenue multiples are more insightful in EBITA.
17) Why would two companies
merge?
Some Important reasons behind the
merger of two companies are:
- Increasing capabilities
- Gain a competitive advantage over larger market share
- Diversifying products or services
- Significant cost cutting of merged entity.
18) What is CAPM?
CAPM is the Capital Asset Pricing
Model. It is designed to find the expected return on Investment. It allows
estimating discount rate for a company’s cash flows.
19) How to calculate beta for a
specific company?
Calculating betas for historical returns
is a calculation of future beta because of estimation errors. The betas of
comparable companies are inaccurate because of different rates of leverage.
For that you lever the betas of
these comparable companies as such:
β Unlevered = β(Levered) / [1+
(Debt/Equity) (1-T)]
Then, you need to average unlevered
beta is calculated, deliverd this beta at the target firm’s capital structure:
β Levered = β(Unlevered) x [1+(Debt/Equity) (1-T)]
20) What makes a good financial
model?
Building a financial require lots of
practices. The finest financial model is one that identifies all the important
drivers of the business. It is always carefull and precise. The model should
able to handle dynamic scenarios of built-in analysis and error checking.
21) What is the main difference between cash-based and accomadation
accounting?
Cash-based is known as revenue and
expenses when cash is received or paid out. On the other end, Build Up
accounting recognizes revenue when collection is reasonably certain and
recognizes expenses when they are incurred instead of when they are paid out in
cash
22) What is the formula to calculate
Enterprise Value?
The formula to calculate Enterprise
value is:
Market value of equity + debt +
preferred stock + minority interest cash.
23) What is the difference between
enterprise value and equity value?
Enterprise Value:
It is the value of the operations of
a company attributable to all providers of capital. It is also important to
think of Enterprise value as the incorporation value. The main need for
enterprise value is to create valuation ratios/metrics.
Equity Value: a component of enterprise value which represents only the
proportion of value attributable to shareholders.
24) What is the meaning of goodwill?
How is it calculated?
It is the type of intangible asset.
It is created in an gain and reflects the value of a company which is not accepted
from its other belonging and other bond. Goodwill is calculated by subtracting
the book value from the equity purchase price paid for the share of the
company.
However, the rules of accounting
clearly state that that goodwill should be compensated in each period. Goodwill
also depends on company’s balance sheet.
25) When should a company issue
equity, rather than debt, to fund its operations?
In following situations company
issue equity instead of Debt.
- If the company feels that stock price is bloated, It may raise a large amount of capital relative to the percent of ownership sold.
- If the company plan on investing in new projects it may not produce immediate or dependable cash flows to make interest payments.
- In the situation, when a company wants to adjust its capital structure or pay down debt.
- In the case, where company’s owners want to sell off a portion of their ownership.
26) What is ‘Mergers and
Acquisitions?
Mergers and acquisitions is a term
that refers to the merger of companies or assets. It includes a number of
different transactions, such as mergers, acquisitions, unification, tender
offers, purchase of assets and management acquisitions.
27) What is a swap?
Swap is a difference in interest
rates on loans between two currencies. It is deposited or charged to the
account when client rollovers a deal position for the next day. Swap can be
both positive as well as negative.
28) Why do you need to subtract cash
from the enterprise value formula?
Cash gets subtracted when
calculating the value of the firm as it is considered a non-operating asset.
Further, cash is always included in equity value.
29) What is DCF?
A discounted cash flow is short
known as DCF. It is a valuation method used to estimate genius of an
Investment opportunity. It can be performed by using free cash flow projections
and discounts them to get present value. It is also used to evaluate the
potential for the specific Investment. If the value arrived using DCF analysis.
Generally, it is higher than the current cost of the Investment.
30) What is a leveraged buyout?
Leverage buyout is a term, which
refers to the use of borrowed money to buy or invest in another firm. In some
cases, the ratio of debt to equity can be as high as 90-10.
31) Explain a fixed interest
Investment
Fixed interest Investments is a
long-term debt security. It promises a return of all Investments at their ability
date.
32) What are things that affect the
health of a stock portfolio?
The health of a stock portfolio
always depends on its constituents and the parallel between them. For example,
investors can search for stock that is negatively tie-in to protect their
market portfolio.
33) What are main valuation
methodologies?
There are three widely used
valuation methods.
- Comparable company analysis
- Precedent transaction analysis and
- Discounted cash flow analysis.
