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 […]
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 […]
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 […]
What are your three greatest strengths?
You should just be relatively honest about your three greatest strengths, while avoiding overconfident answers like intelligence. Passion, attitude, leadership, intellectual curiosity, work ethic, and resilience are some examples. First, list your 3 strengths. Then use this opportunity to tell a quick story about each strength and provide an example from work, school, or extracurricular […]
What is your greatest strength?
This is a personal question and you should generally just be honest about your greatest strength, but make sure the wording is right. Passion, attitude, leadership, intellectual curiosity, work ethic, resilient; the list goes on. Don’t say something that makes you seem cocky, like intelligence (everybody in IB is intelligent to some degree). Ideally, you […]
If Company A is 30% equity, 70% debt currently, but will have a capital structure of 50% equity, 50% debt in year 5, which capital structure do you use for your DCF?
The 50/50% capital structure would be used. When calculating WACC, we assume the optimal target capital structure, which is the capital structure the company will have in the long term and the optimal capital structure for a company in that industry.
What are some key debt metrics, and why are they important?
The leverage multiple, debt / EBITDA, is a common metric comparing debt and EBITDA. EBITDA is a proxy for cash flow that can be used to pay back the debt. It’s also a measure of the core profitability of the business that remains neutral in terms of capital structure, tax jurisdiction, and accounting policies. The […]
What type of multiples would you use for a company in real estate?
P / FFO Per ShareP / AFFO Per ShareP / NAV Per Share FFO = Funds from Operations, which adds D&A and subtracts capital gainsAFFO = FFO + capital expenditures + rent increasesInterest is core to business, so debt is consideredNAV = Net Asset Value (Assets – Liabilities) -> Note that this is a different […]
Do private equity companies add more value to portfolio companies through financial engineering or operational improvements?
Operational improvements adds more value as the impact is far more permanent than temporarily playing around with the capital structure. Strategic shifts or operational improvements may last a lifetime, while capital structure changes and financial engineering will only affect the company until the PE firm sells the company. This kind of question is usually asked […]
