Interview questions

1) Tell me about yourself? ALWAYS FIND A LINK BETWEEN THE

STEPS

I went to a French High School in Lebanon and chose to focus on Math

and Science while still entertaining my passion for philosophy.
My goal at the time was to break into Civil Engineering in my country.
And thats why I interned at two construction (elaborate) companies.
----- My experiences made me realize that it wasnt so much the
structures and concretes that passionate me but more the strategical
reasoning, planning and strategy that make a project work.
He made me realize that even as an engineer, a lack of financial
knowledge would hurt me on the long run. Engineering costs money
and finance provides it, organizes it, and make profits out of it.
Philosophy
I interest for Finance grew.
I didnt know much about it and decided to Treasurer
I networked heavily during my Freshman year. And realized that every
conversation I had would end up with the person asking me: In what
field of Finance do you want to work, there is no such thing as working
in Finance.
The networking finally opened up some opportunities and I decided to
work for Piolet Capital, an event driven investment firm and then
with Credit Agricole.
I enjoyed both experiences
I am interviewing here today at this bank/group section because

2) What are your strengths and weaknesses?

3) Give me an example or a situation in which
-a situation in which you faced a conflict or difficulty at work or in school;
-a situation in which you may have had difficulty with a supervisor, coworker, or peer;
-a leadership opportunity or a project you were most proud of.
To answer such questions, use a variation of the STAR technique: answer
the question by retelling the situation and stating the task at hand that was
involved in the situation. Then describe how you acted(the action). End by
revealing the results of your actions and how you resolved the situation.

4) Lets go over your resume (and whats not on it).

5) What are your career goals (a.k.a. where do you see yourself
in ___ years)?

6) How do you value a company?

This question, or variations of it, should be answered by talking about 2
primary valuation methodologies: Intrinsic value (discounted cash flow
valuation), and Relative valuation (comparables/multiples valuation).
Intrinsic value (DCF): This approach is the more academically respected
approach. The DCF says that the value of a productive asset equals the
present value of its cash flows. The answer should run along the line of
project free cash flows for 5-20 years, depending on the availability and
reliability of information, and then calculate a terminal value. Discount both
the free cash flow projections and terminal value by an appropriate cost of
capital (weighted average cost of capital for unlevered DCF and cost of
equity for levered DCF). In an unlevered DCF (the more common approach)
this will yield the companys enterprise value (aka firm and transaction
value), from which we need to subtract net debt to arrive at equity value.
Divide equity value by diluted shares outstanding to arrive at equity value
per share.
Relative valuation (Multiples): The second approach involves
determining a comparable peer group companies that are in the same
industry with similar operational, growth, risk, and return on capital
characteristics. Truly identical companies of course do not exist, but you
should attempt to find as close to comparable companies as possible.
Calculate appropriate industry multiples. Apply the median of these multiples
on the relevant operating metric of the target company to arrive at a
valuation. Common multiples are EV/Rev, EV/EBITDA, P/E, P/Book, although
some industries place more emphasis on some multiples vs. others, while
other industries use different valuation multiples altogether. It is not a bad
idea to research an industry or two (the easiest way is to read an industry
report by a sell-side analyst) before the interview to anticipate a follow-up
question like tell me about a particular industry you are interested in and
the valuation multiples commonly used.
7) What is the appropriate discount rate to use in an unlevered
DCF analysis?
Since the free cash flows in an unlevered DCF analysis are pre-debt (i.e. a
helpful way to think about this is to think of unlevered cash flows as the
companys cash flows as if it had no debt so no interest expense, and no
tax benefit from that interest expense), the cost of the cash flows relate to
both the lenders and the equity providers of capital. Thus, the discount rate
is the weighted average cost of capital to all providers of capital (both debt

and equity).
The cost of debt is readily observable in the market as the yield on debt with
equivalent risk, while the cost of equity is more difficult to estimate.
Cost of equity is typically estimated using the capital asset pricing model
(CAPM), which links the expected return of equity to its sensitivity to the
overall market (see WSPs DCF module for a detailed analysis of calculating
the cost of equity).
8) What is typically higher the cost of debt or the cost of
equity?
The cost of equity is higher than the cost of debt because the cost associated
with borrowing debt (interest expense) is tax deductible, creating a tax
shield. Additionally, the cost of equity is typically higher because unlike
lenders, equity investors are not guaranteed fixed payments, and are last in
line at liquidation.

9) How do you calculate the cost of equity?

There are several competing models for estimating the cost of equity,
however, the capital asset pricing model (CAPM) is predominantly used on
the street. The CAPM links the expected return of a security to its sensitivity
the overall market basket (often proxied using the S&P 500). The formula
is: Cost of equity (re) = Risk free rate (rf) + x Market risk premium (rm-rf )
Risk free rate: The risk free rate should theoretically reflect yield to
maturity of a default-free government bonds of equivalent maturity to the
duration of each cash flows being discounted. In practice, lack of liquidity in
long term bonds have made the current yield on 10-year U.S. Treasury bonds
as the preferred proxy for the risk-free rate for US companies.
Market risk premium: The market risk premium (rm-rf) represents the
excess returns of investing in stocks over the risk free rate. Practitioners
often use the historical excess returns method, and compare historical
spreads between S&P 500 returns and the yield on 10 year treasury bonds.
Beta (): Beta provides a method to estimate the degree of an assets
systematic (non-diversifiable) risk. Beta equals the covariance between
expected returns on the asset and on the stock market, divided by the
variance of expected returns on the stock market. A company whose equity
has a beta of 1.0 is as risky as the overall stock market and should
therefore be expected to provide returns to investors that rise and fall as fast
as the stock market. A company with an equity beta of 2.0 should see
returns on its equity rise twice as fast or drop twice as fast as the overall
market.
10)
How would you calculate beta for a company?
Calculating raw betas from historical returns and even projected betas is an
imprecise measurement of future beta because of estimation errors (i.e.
standard errors create a large potential range for beta). As a result, it is
recommended that we use an industry beta. Of course, since the betas of

comparable companies are distorted because of different rates of leverage,

we should unlever the betas of these comparable companies as such:
Unlevered = (Levered) / [1+ (Debt/Equity) (1-T)]
Then, once an average unlevered beta is calculated, relever this beta at the
target companys capital structure:
Levered = (Unlevered) x [1+(Debt/Equity) (1-T)]
11)
How do you calculate unlevered free cash flows for DCF
analysis?
Free cash flows = Operating profit (EBIT) * (1 tax rate) + depreciation &
amortization changes in net working capital capital expenditures
12)
What is the appropriate numerator for a revenue
multiple?
The answer is enterprise value. The question tests whether you understand
the difference between equity value and enterprise value and their relevance
to multiples. Equity value = Enterprise value Net Debt (where net debt =
gross debt and debt equivalents excess cash). For more on this equation
see WSPs article at www.wallstreetprep.com/blog/.
EBIT, EBITDA, unlevered cash flow, and revenue multiples all have enterprise
value as the numerator because the denominator is an unlevered (pre-debt)
measure of profitability. Conversely, EPS, after-tax cash flows, and book
value of equity all have equity value as the numerator because the
denominator is levered or post-debt.
8. How would you value a company with negative historical cash
flow?
Given that negative profitability will make most multiples analyses
meaningless, a DCF valuation approach is appropriate here.
9. When should you value a company using a revenue multiple vs.
EBITDA?
Companies with negative profits and EBITDA will have meaningless EBITDA
multiples. As a result, Revenue multiples are more insightful.
10. Two companies are identical in earnings, growth prospects,
leverage, returns on capital, and risk. Company A is trading at a 15
P/E multiple, while the other trades at 10 P/E. which would you
prefer as an investment?
10 P/E: A rational investor would rather pay less per unit of ownership.
Basic trading algorithm

A very basic algorithm might work like this: If volume in a

particular stock hits a certain minimum threshold and the
50-day moving average of the stocks price crosses above
the 200-day moving average, buy $100 worth of shares. If

volumes hit the threshold and the 50-day moving average

crosses below the 200-day moving average, sell $100 of
shares.

Sample Investment Banking

Interview Guide Questions
Sample Technical Interview Questions

If you could use only one financial statement to

evaluate the financial state of a company, which
would you choose?
Sample Answer: "I would want to see the Cash Flow Statement
so I could see the actual liquidity position of the business and
how much cash it is using and generating. The Income
Statement can be misleading due to any number of non-cash
expenses that may not truly be affecting the overall business.
And the Balance Sheet alone just shows a snapshot of the
Company at one point in time, without showing how
operations are actually performing. But whether a company
has a healthy cash balance and generates significant cash flow
indicates whether it is probably financially stable, and this is
what the CF Statement would show."

How do you value a private company?

Sample Answer: "You can value a private company with the
same techniques you would use for a public company but with

a few differences that make it more difficult. Financial

information will likely be harder to find and potentially less
complete and less reliable. Second, you can't use a straight
market valuation for a company that isn't publicly traded. In
addition, a DCF can be problematic because a private
company won't have an equity beta to use in the WACC
calculation. Finally, if you're doing a comps analysis using
publicly traded companies, a 10-15% discount may be
required as a 10-15% premium is paid for the public
company's relative liquidity."

When should a company issue equity rather than

debt to fund its operations?
Sample Answer: "There are several reasons for issuing stock
rather than debt. First, if a company believes its stock price is
inflated, issuing stock can raise a lot of capital relative to the
ownership sold. Second, if the projects to be funded may not
generate predictable cash flows in the immediate future, the
company would want to avoid the obligation of consistent
coupon payments required by the issuance of debt. Issuing
stock is also an effective way to adjust the debt/equity ratio of
a company's capital structure or to monetize the owners'
investment. "

... and hundreds more, along with

company-specific trends
Sample Fit Interview Questions

What are you looking for in this job?

Sample Answer: "I am going into this as an unparalleled
learning experience. Everyone I have spoken with in the

industry tells me you learn everything on the job. While my

undergraduate studies prepared me for business, I know that
most of the skills I need will be acquired on the job. I
understand the hours and the workload, and I want to work
incredibly hard to gain real world experience that isn't
available in any other profession at this stage in my career. I
know these skills will prepare me for anything I want to do
later in my career."

What makes you think you can put up with the

stress, pressure, and long hours of a career in
finance?
Sample Answer: "I feel I am as prepared as anyone else
coming out of college to handle the long hours. In fact, when
you add up all the time I spent doing all my different activities,
school hours were almost as long. Every day I was up at 7:30
for classes that ran from 8:15 until 1:00. After class, I would
grab lunch and then go to golf practice, which didn't get me
back until 5:00. Then I would grab dinner, and work in either
my room or the library until I was done, which usually wasn't
until pretty late at night or into the morning. While I know it
isn't the same stress and time commitment as finance
requires, I feel my experience has left me well prepared."

What is the most intellectually challenging thing

you have done?
Sample Answer: "In my internship last year, I was responsible
for aggregating data my company collected and summarizing
it using Microsoft Excel. When I started, the analysts on the
team had been doing the aggregating, manually collecting all

the data, applying formulas, etc. It seemed like they were

wasting a lot of time. I had a little bit of experience with VBA,
and over the course of about a week, I taught myself to
automate the entire process whenever new data became
available. It was great that as a summer intern I was able to
implement a system that is still saving time today. "

...and hundreds more, along with

company specific trends...don't
underestimate the importance of the
fit questions.

IMPORTANT: LOOK AT

Essential Reading for your

Investment Banking
Interview: What to Expect
and How to Prepare

WALL STREET PREP