If you could only use two financial statements, which would you use to evaluate an investment? Assume you have at least two years of data.
You would use the income statement and balance sheet. The income statement shows the profitability of the company, and can display key metrics like revenue growth, gross margin, and EBITDA margin, which are key to understanding and valuing a business. We should use the balance sheet if we have more than two years of data. […]
If you could only use 1 financial statement with 5 years of data, but were given information about dividends, share buybacks, and equity issuances, which would you use to evaluate an investment?
We should use the balance sheet if we have at least two years of data, as well as dividend information, share buybacks, and equity issuances. This is because you can effectively figure out the changes in cash flow and net income by comparing this year’s balance sheet with the previous year’s balance sheet. The change […]
If you could only use one financial statement, which would you use to evaluate an investment?
We should use the cash flow statement, because it tells us the most about a company’s financial health. Cash is king, because we ultimately decide on a company’s value based on its cash flows. The income statement only shows net income, but this is an accounting number and it does not show important cash flow […]
Why do many traditional mid-market PE firms avoid holding the real estate when buying a company?
Many traditional mid-market PE firms which focus on buying companies for their cash flows and do not have any real estate groups will try to avoid having to buy a lot of real estate in order to complete an LBO. This is because they prefer to focus on their core competencies in buying companies with […]
When should a private equity firm hire an investment bank for a deal? What value do they add? (1 min)
Most mid-market PE firms can execute acquisitions without the advice of an investment bank, since their team often consists of ex-bankers with deal experience and modeling experience. However, selling a portfolio company or doing an IPO of a portfolio company is not something a PE firm can do by themselves. Selling a company requires reaching […]
Tell me about an industry trend you’re following in private equity.
You should try to speak to a trend that is related to the group you’re interviewing for or the subsectors that the PE firm focuses on. For example, if the group is focused on infrastructure, you can speak to how solar power projects have been significantly boosted from the US infrastructure spending bill, and many […]
Why not work for a hedge fund instead if you’re passionate about investing? (Private Equity Interview)
The key here is to emphasize your interest not only in investing, but also in learning more about business strategy and being more hands on with the direction of portfolio companies. As the owner of a company as opposed to a minority investor, you have almost complete control and can help determine which growth strategy […]
Why this firm (private equity)? (1 min)
For this answer, you should combine some subjective reasons about the team and people as well as more objective reasons about the track record and focus of the private equity firm. For example, you should mention any subjective reasons about the team, and it helps tremendously if you’ve had a chance to talk to somebody […]
Why private equity? (1 min)
There are two or three ways you can answer this question. You can tell a story about how you became interested in private equity, or you can list a number of reasons you’re interested in private equity, and back them up with examples from work or even school. You can also combine these two methods […]
Walk me through a deal you’ve worked on. (1-2 min)
First, you should provide the context of the deal and company. Explain the target business in an easy-to-understand way, and describe its key segments. Provide a quick overview of the acquirer and its strategic rationale. It’s important to explain upfront why the deal is happening and what the industry backdrop is. For example, is this […]
