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Wall Street Playboys Investment Banking Interview Guide

Fit Questions
1. Walk me through your resume
This of course will be tailored to everyone but at the end of the day, youre selling yourself as a
compelling candidate.
Back in high school I decided to attend [School name] university because of its focus on
(finance/business). After that I really became interested in Investment Banking after studying
[specific courses/classes] which led me to pursue finance internships. I started out with a job in
[finance field] which led to an internship at [name of firm] over the summer. Unfortunately, I did
not receive an offer from [name of firm] but I believe I may be a better fit for [name of firm] as I
know the firm focuses on [insert specific firm focuses here].
Talk longer if its not a 30-minute interview, keep it short like the above if it is a quick phone
interview.
2. Why did you choose your university?
The idea here is to make it seem like you made the best possible decision that was handed to
you. You dont necessarily need to choose the most prestigious, maybe you got a scholarship,
etc.
To be honest I was also admitted to [school name(s)], however I decided to attend [school
name] as I was given a (partial/full-ride) due to [insert reason why you got a partial/full ride
here]. Overall, I am happy with my decision as I certainly researched the schools to see what
opportunities were available and realized the change was relatively minimal given the partial
scholarship opportunity.
3. Why did you choose your major?
Hopefully youll avoid this questions but you need to create a mini-story as to how your
decisions led to finance.
The idea here is to show actionable steps on how your views changed and spin it in a way as
having an edge in terms of knowing the space.
4. Why our bank?
This one is less likely to show up in an interview with Goldman or Morgan Stanley but the
overall idea is to make sure you know the deals and what group you want to work for.
The idea here is to how you know the bank well, that you can be a good asset and finally that
you wont be quitting after 6 months.
5. Why should we hire you?

In this question avoid the following phrases ambitious, hard working, dedicated and driven.
Instead you want to be able to give these qualities in the form of real experience.
Use things such as Internship at [name of firm], course experiences in [name of course(s)],
relevant club experience in [different club activities/competitions]
6. Tell me about a failure in your life.
This one is tougher as you want to give an example of a set back that you can recover from but
not something terrible that you would lose trust. As a guideline if you told this to an
acquaintance they should recognize it as a fault but not immediately lose faith in you because
the error was so large.
7. Are you a good multi-tasker?
The truth in the real world is no one really multi-tasks but at this really means are you good at
handling multiple projects.
The idea here is to give them examples of real multi-tasking at your age bracket and then
finishing it off with something that leads them to believe that the interviewer works harder than
you do. Note of course they do.
8. Are you a good presenter?
This is unlikely going to be asked but the idea here is to see if youre willing to stand up and
make a presentation if necessary.
Again show some real examples of presentations youve made. Even better is if you can add to
it example: Case presentation for Jefferies case competition, which led to a 2 nd place finish for
our team.
Technical Questions
1. Can you walk me through the three financial statements?
The income statement shows revenue and profitability metrics over a period of time starting
from revenue to gross and operating profit down to net income and EPS.
The balance sheet shows a snapshot at a point in time, the assets equal liabilities + equity. It is
linked to the income statement because net income flows to retained earnings.
The cash flow statement starts with net income and shows real cash out flows or inflows from
operations, investing and financing activities. The final link to the BS is made as ending cash
matches balance sheet cash.
2. What are the major items on the Income Statement?
Income Statement: Revenue Cost of Goods Sold Selling General & Administrative
Expenses (Depreciation & Amortization baked in above the operating income line) Total

Operating Expenses Operating Income Other Income or Expense Pre-tax income Net
Income Shares EPS
3. What is the Balance Sheet equation and what are the major line items?
Assets = Liabilities + Equity
Balance Sheet: Current Assets: (Cash & Marketable Securities, Accounts Receivable,
Inventory, Deferred/Prepaid Current Assets and Other Assets); Long-term assets: (Property,
Plant & Equipment, Long-term investments, Goodwill, Intangible Assets & Other Long-term
Assets); Current Liabilities: (Accounts Payable, Current Accrued Liabilities, Current Debt and
other liabilities); Long-term Liabilities: (Long-term debt, Deferred long-term liabilities and other
long-term liabilities); Shareholders Equity.
4. What are the major items on the Cash Flow Statement?
Cash Flow Statement: Beginning Cash; Cash Flow from Operations: (Net Income,
Depreciation and Amortization, Change in Working Capital, Other Non-cash charges such as
Stock based compensation); Cash Flow from Investing: (Capital expenditure, Purchase or sale
of marketable securities, purchases for acquisitions); Cash Flow Financing (Equity or Debt
Raises, Dividend payments, repurchase of common stock [also called a buyback program]);
Ending Cash.
5. How would depreciation on a truck impact the three statements after a year?
If we give a $10K truck a 10-year span of life and use $1K as a reasonable assumption.
Income Statement: Operating income decreases by $1K, assuming 30% tax net income
declines by $700.
Cash Flow: Net Income goes down by $700 but D&A is non-cash so $1K is added back so
cash increases by $300.
Balance Sheet: On the asset side PP&E goes down by $1K, cash increases by $300, so assets
are down $700. This is offset by the decrease of $700. This is offset by the decrease of $700
from net income swimming to retained earnings.
6. How do you calculate enterprise value and what does it mean?
Enterprise value is calculated as follows: Market cap + Debt + Preferred stock + Minority
Interest Cash
It is a valuation that is available to both bond and equity holders. Unlike equity value, which is
below the operating income line or Below the line, enterprise value can have sales and
EBITDA metrics applied to them as well. It is used as a takeout valuation as this is a better
proxy for how much the buyer must pay for the business.
7. Why do we add debt and subtract cash?

The reason why we add debt and subtract cash is because when a company purchases a firm it
is now liable for the debt on the balance sheet and now also has the cash on the balance sheet.
8. Can enterprise value be negative?
Yes. If the companys market cap were below its net cash balance (cash debt) then the
company would have a negative enterprise value.
9. How do you value a company?
There are many methods to valuing a company however some of the major ones would include
the following:
1. Comparable companies analysis, using multiples of like companies to justify valuation
2. DCF; using future free cash flows to value the firm
3. LBO; using cost savings & revenue synergies to value cash flows of a take-out
compared to increases in payments from required debt
4. Precedent transactions, using similar transactions in a space to justify a take-out
valuation
5. Premium Paid, looking at public take-outs and seeing a percentage above current stock
price in which the company was taken out.
Italics are the most common and where you will likely receive the most questions.
10. Which of the valuation methods yield higher valuations?
It depends. Both precedent transactions and premium paid should yield higher valuations that
comparable companies analysis as these valuations are done on take-out transactions. In
addition, the DCF analysis could yield a high valuation if the terminal value produces a
significantly higher valuation for the firm (could also be quite low if discount rates are high and
terminal value is low). Finally, the highest valued comparable could yield a significantly inflated
multiple while the LBO is likely yielding a lower valuation as this would be a financial rather than
strategic transaction.
11. Walk me through a DCF analysis & tell me the flaws of such valuation
Using a 5-year or 10-year convention calculate cash flow by taking Net Income + D&A + Noncash charges CAPEX +/- Changes in Working Capital. (Note change in Working Capital is a
+/-)
DCF = CF1/(1+r)+(CF2/(1+r)^2.+(CF5/(1+r)^5+FCFN(1+g)/(R-g) (discount back to 5 or 10
years).
(Alternatively use an exit multiple to EBITDA/FCF/EBIT for the terminal value, discount back)
CF = Cash flow, R = Discount Rate, G = Long-term growth (appropriate would be a roughly
GDP of ~2-5%)
A DCF is a poor metric for valuing cash flow negative companies or companies with hyper
growth as the terminal value can make up for north of 70% of the total valuation.

12. Why do we use 5-10 years for a DCF?


This is a general convention as it is difficult to predict 10+ years of free cash flow for a firm.
Depending on the industry you can choose the most reasonable time frame to value the firm
and attach a terminal value at the end to come up with a valuation.
13. What do you do if the growth rate exceeds your discount rate? (Advanced question)
If the growth rate exceeds the discount rate then your terminal value calculation becomes
negative. Assuming the numerator is positive the best course of action is to derive a lower longterm growth number or adjust your discount rate on the terminal value calculation.
Note: This is likely the last question you are going to be asked on DCFs and will be more
conversational in nature.
14. What are some problems with using comparable companies analysis?
While comparables are a great way to get an idea for the valuation of a company, no two
companies are exactly the same. A company may have higher growth rates, better margins or
lower risk (balance sheet, size, better customers). This creates problems in justifying an exact
multiple to be applied to each company.
15. I have retail comps trading at X valuations, how would I apply these numbers to value
Facebook?
Trick question. This is an are you thinking question. The answer is you should not apply oil/gas
comps to Facebook.
To be honest unless there is a reason why we would compare retail companies to Facebook, it
would likely not make sense to compare retail companies to a technology growth company such
as Facebook. Technology comparables would be more appropriate.