Investment Banking / Corporate Finance

Project unlevered free cash flows for an explicit forecast period (typically 5-10 years), discount them back to present value using the weighted average cost of capital (WACC), calculate a terminal value (via perpetuity growth or exit multiple) and discount that back too, then sum the present values of the explicit cash flows and terminal value to get enterprise value — from which you subtract net debt to arrive at equity value.

Comparable company analysis (trading multiples of similar public companies), precedent transactions (multiples paid in similar past M&A deals), and DCF (intrinsic value from projected cash flows). Comps and precedents are market-based and useful for sanity-checking; DCF is intrinsic and more useful when good comparables don't exist or when you want a valuation independent of current market sentiment. Bankers typically triangulate across all three rather than relying on one.

Net income from the income statement flows into retained earnings on the balance sheet. The cash flow statement starts with net income and adjusts for non-cash items (like depreciation) and changes in working capital to arrive at the actual change in cash, which then updates the cash balance on the balance sheet — so all three statements move together whenever one line item changes.

Income statement: operating expenses rise $10, pre-tax income falls $10, and net income falls by $10 × (1 - tax rate). Cash flow statement: net income is down, but depreciation is added back as a non-cash expense, so cash from operations is actually up by $10 × tax rate (the tax shield). Balance sheet: PP&E decreases by $10 (accumulated depreciation), cash increases by the tax shield amount, and retained earnings decreases by the net income change — the balance sheet still balances.

Equity value is what shareholders own — the market value of equity. Enterprise value represents the value of the whole operating business, independent of how it's financed: EV = equity value + total debt + preferred stock + minority interest − cash and cash equivalents. You use EV for operational comparisons (like EV/EBITDA, since EBITDA is pre-financing), and equity value for per-share metrics like P/E.

Common multiples include EV/EBITDA, EV/Revenue, and P/E. EV/EBITDA is preferred when comparing companies with different capital structures or tax situations, since it's capital-structure-neutral and pre-tax — P/E can be distorted by differences in leverage, tax rates, and one-time items that sit below the operating line.

A private equity firm buys a company using a mix of equity and a large amount of debt, the company's cash flows pay down that debt over the holding period, and the firm exits (via sale or IPO) at a higher valuation with much of the debt retired — generating returns from debt paydown, operational improvement, and multiple expansion. Good candidates have stable, predictable cash flows to service debt, low existing leverage, and room for operational improvement.

WACC (weighted average cost of capital) is the blended rate a company pays for its capital, weighted by the proportion of debt and equity in its capital structure. It's calculated as (E/V × cost of equity) + (D/V × cost of debt × (1 − tax rate)), where E and D are the market values of equity and debt and V is their sum. Cost of equity is typically derived from CAPM (risk-free rate + beta × equity risk premium).

Prioritize companies with similar business models, end markets, growth profiles, margins, and size — industry classification alone isn't enough if the economics differ. I'd narrow an initial broad set down based on how closely those fundamentals actually match, and exclude outliers (companies in distress, recent IPOs with unusual multiples, companies with one-time events distorting their financials).

A higher risk-free rate raises the discount rate (both cost of equity via CAPM and WACC), which lowers the present value of future cash flows — so, holding everything else constant, valuation decreases. This is a big part of why growth stocks (whose value is weighted more toward distant cash flows) are more sensitive to rate changes than mature, cash-generative businesses.

Lead with the strategic rationale (why these two companies together create more value than apart — synergies, market access, capability gaps filled), then support it with the financial case (accretion/dilution analysis, valuation for both sides, financing structure), and address the practical risks (integration, regulatory, cultural fit) rather than presenting only the upside.

A deal is accretive if the acquirer's earnings per share increases after the deal closes, and dilutive if EPS decreases. It depends on the relative P/E of acquirer and target, the financing mix (cash, stock, debt), and any synergies realized — a deal can be dilutive in year one and accretive later once synergies are captured.

A strong answer is specific: name what genuinely draws you to the work (the pace, the direct exposure to how deals actually get done, the technical rigor) and connect it to something concrete about that specific group or bank — a recent deal they worked on, their sector focus, something from actually talking to people there — rather than a generic answer about prestige or exit opportunities.

Pick a real, recent deal and be ready to explain not just what happened but why — the strategic rationale, how it was likely valued, what risks it carried. This question tests whether you actually engage with the industry beyond interview prep, so surface-level knowledge ('I read the headline') will get exposed quickly by a follow-up question.

A credible answer describes an actual system, not just a claim of being calm under pressure — building in time for a final sanity check even when rushed, communicating early if something won't be ready rather than surprising someone at the deadline, and having a standard process (checklists, templates) that reduces the chance of error even when moving fast.

It's a horizontal bar chart showing the valuation range implied by each methodology (comps, precedent transactions, DCF, 52-week trading range, etc.) stacked so the ranges can be compared visually. It's used to show a client the overall valuation picture and where different methods converge or diverge, rather than presenting a single number as definitive.

In a cash deal, the acquirer pays cash (often funded by debt) for the target's shares, and target shareholders exit entirely. In a stock-for-stock deal, target shareholders receive acquirer shares at a set exchange ratio, so they retain ongoing exposure to the combined company. Cash deals are typically more accretive (no new shares issued) but increase leverage; stock deals preserve the acquirer's balance sheet but dilute existing shareholders and depend on the acquirer's share price.