December 2022 - Finance Interview Coach

Published On - December 30, 2022

Josh Investment Banking, Operational Risk Management

What are some non-financial operational risks in investment banks?

Some non-financial operational risks in investment banks include: Cybersecurity Ransomware Phishing Internal and external fraud Internal salespeople hiding errors or accounts Clients that may be engaged in fraudulent activity Almost 40% of mid-sized and large digital financial services organizations...

Published On - December 30, 2022

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

What are 4 ways to value a company and how do you rank them in terms of valuation?

Precedent transactions provide the highest valuation, since it reflects the multiple at which similar companies were acquired at. With acquisitions, there is a control premium, since companies will pay extra to own a company. Ownership provides control, and lets the owner decide what to do with the ...

Published On - December 29, 2022

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

What are 4 ways to value a company?

4 ways to value a company are: Comparable companies: looking at similarly sized companies in similar industries and seeing which multiples they trade at, then applying this multiple to the target company Precedent transactions: looking at past acquisitions and seeing which multiples they were acquir...

Published On - December 24, 2022

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

How would issuing shares affect the EV / EBITDA multiple?

When a company issues shares, they raise cash from investors while also increasing their equity value (market capitalization) by the same amount. In theory, assuming that investors are indifferent, there is no change to EV / EBITDA because the increase in equity value is offset by the increase in ca...

Published On - December 23, 2022

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

How would you adjust the EV/EBITDA multiple for rent expense for retail businesses?

Some retail businesses will choose to own their stores, and others will choose to rent. Those who choose to rent will have a lower EBITDA because rent expense reduces EBITDA. We shouldn’t penalize retail companies for their decision to own or lease stores, since we are ultimately valuing the compa...

Published On - December 21, 2022

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

What is the cost of equity for a company that trades at 10x P/E?

A proxy for cost of equity is the inverse of price / earnings per share, ie earnings per share / price. You can think of this as the % of return you will get for buying one share, with the return measured as earnings per share. This expected return can be a proxy for the […]...

Published On - December 21, 2022

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

Would you rather buy a company with 4x, 5x, and 6x EV/EBITDA multiples for 2019, 2020, and 2021 respectively, or 6x, 5x, and 4x?

We would prefer to buy the company with 6x, 5x, and 4x EV / EBITDA. Since enterprise value is constant, a declining multiple means that EBITDA is growing, since EBITDA in the denominator. EBITDA is declining in the other example, so we would prefer a company with growing EBITDA....

Published On - December 19, 2022

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

How do you value a football (soccer) club?

Football (soccer) clubs are typically valued using EV / revenue and comparables analysis. This is because many weaker-performing teams do not make positive EBITDA or net income, so it would be difficult to compare EV / EBITDA or EV / EBIT as widely as you’d like. it’s difficult to do a DCF becau...

Published On - December 18, 2022

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

What do you do when you get a negative multiple?

This usually happens when the denominator is negative. For example, for a start-up tech or biotech company, earnings may be negative, so price / earnings would be negative. If EBITDA is negative, then EV / EBITDA would be negative too. Instead of displaying the negative multiple, we replace it with ...

Published On - December 12, 2022

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

If two companies have the same historical and projected financials, same management team, same industry, and same strategy, why might one company be trading at 10x EV / EBITDA and the other company at 12x EV / EBITDA?

The company trading at the higher multiple is more valuable likely for qualitative reasons, since the historical and projected financials are the same. For example, the company trading at 12x may have a more diverse customer base and therefore less customer concentration. The company trading at 10x ...