Finance Interviews 101
Introduction
Danielle Dagenais
Finance Career Advisor
Desautels Faculty of Management
danielle.dagenais@mail.mcgill.ca
Mak Doric
Investment Banking Full-Time Analyst
Goldman Sachs, Calgary
mak.doric@mail.mcgill.ca
Agenda
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Interview Format
General Interviewing Tips
Behavioural Questions
Valuation
The Infamous Accounting Question
Sample Technical Questions
Behavioural
Interview Format
 First Round
• 30-45 minutes
• Behavioural and lots of technical
• One to six interviewers
 Second Round
• 3-4 hours
• Even more technical (reactions under fatigue/pressure)
• One, two, or panel interviewers
The First Half Minute
A
B
C
The First Half Minute
A
B
C
The First Half Minute
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Posture
Handshake
Expression
Eye Contact
Walk
Cocktails & Dinners
 Make it about them
 Circulate
 Questions to ask:
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What made you choose [insert firm’s name]?
What do you find most challenging in your work?
How did you make your way to investment banking?
In what industries does your office see the most dealflow?
Would I go to one industry group or be a generalist?
How would you describe the culture of your office?
What is the most important quality for an analyst to have?
Ask questions about your interviewer : Show you listen
e.g. “How did the New York office compare to Toronto?”
Cocktails & Dinners
 Do not:
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•
•
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Ask nerdy finance questions
Talk about how bad the markets are
Talk about what you do not know
Be cocky
 Do:
• Expect out of the blue questions about the economy and investing
• Show an interest in others
• Use your other interests conversationally
COME ACROSS AS AN INTERESTING AND AMBITIOUS PERSON,
FUN AND ENJOYABLE TO WORK WITH
Answering Questions
STRUCTURE
PAUSE
REASON
TONE
STRATEGY
SPEED
Organize your answers and use your fingers
Take the time to think about the question before answering
Walk through your logical thinking process
Be confident and comfortable, calm, not arrogant
Differentiate, summarize and be aware of reaction
Be intelligible - particularly if you have a foreign accent
Walk me through your CV?
THE GOOD,
What is your story? 1-2
minutes:
• Logical flow
• Reasons for your
choices
• Progression
• Successes
• Wrap up the package
Inexorable path to
investment banking
THE BAD…
AND THE UGLY.
I did this, this and that in
school and then I had this,
this and that summer job.
Oh! And I also had this,
this and that
extracurricular.
Here, I brought you a copy.
Walk me through your CV?
THE GOOD,
THE BAD…
AND THE UGLY.
Structure in 5 points:
1. The beginning : Where
are you from?
University?
2. The finance “spark” :
Person? Club? Class?
3. Growing interest :
Jobs/internships/activit
ies?
4. Now : Why this bank,
and why now?
5. The future : What do
you want to be later?
I did this, this and that in
school and then I had this,
this and that summer job.
Oh! And I also had this,
this and that
extracurricular.
Here, I brought you a copy.
Why investment banking?
THE GOOD,
THE BAD…
AND THE UGLY.
Make it personal
Differentiate
Be opportunistic
Structure!
Fit
Some ideas:
• Intense learning
• Working with brilliant
people
• Loving financial markets
• Preferring project work
• Multi-tasking,
pressure…
I like finance, I would like
to live in NY and
investment banking
sounds exciting.
I would like to make piles
of money to retire young.
Tell me about a stock you love?
THE GOOD,
I love X stock because the
CEO there is the best …
and the products are
amazing...
Also, I think the market is
not recognizing… because
it trades at… and it has the
potential to go to…
Add’l comment if needed:
a few key business metrics
THE BAD…
AND THE UGLY.
I love X stock because the
CEO there is the best …
and the products are
amazing...
I don’t have time to follow
stocks while in school.
Where did the DJIA close yesterday?
THE GOOD,
THE BAD…
AND THE UGLY.
12 000?
Han?
13307, up 15… the stock
market traded up on job
creation and a drop in the
unemployment rate to
8.1%.
Add’l comment if needed:
Gold rallied and Silver
jumped…
Top stocks were…
Where did the TSX close yesterday?
THE GOOD,
THE BAD…
AND THE UGLY.
No idea.
S#&$t?
I did not look at Toronto
but in NY, the Down Jones
was at…
Prepared blurb…
Usually Toronto about
mirrors this unless
something major happens
with resources or energy.
What is underwriting?
THE GOOD,
THE BAD…
AND THE UGLY.
Underwriting is the
process by which
investment bankers issue
securities to raise capital
from investors on behalf of
governments and
corporations.
It generally works like
this… the lead manager…
the syndicate…
Securities are sold to...
The distribution risk…
The credit crisis…
Underwriting is when an
investment bank helps
companies raise money by
issuing securities.
Underwriters are authors
from Australia.
What goes into a pitch book?
THE GOOD,
THE BAD…
AND THE UGLY.
There are different kinds of
pitch books, some
introducing your bank and
giving updates to potential
clients, or others
proposing deals, sell-side
M&A, buy-side M&A, IPOs,
restructurings, debt
issuances…, and so on. So
what goes in each varies.
But in general, one can
expect to see…
A pitch book is a
presentation made to a
client about what the firm
does.
Advice about how to
improve your curveball.
Other classics to prepare
 Did you listen in the company sessions:
• Why our firm?
• Tell me about a deal our firm is involved in?
 Key experience stories:
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•
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•
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Tell me about a time you displayed leadership?
How do you perform in teamwork?
When did you demonstrate work ethics?
What is your weakness?
How do you deal with conflict?
 Much easier prepared than not:
• Why IB and not Sales & Trading? Investment Management?
• If I made you an offer, would you accept it?
• Tell me about current financial events?
Questions come in families
 Walk me through your CV?
•
•
•
•
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Tell me about yourself?
Why should I pick you?
Tell me about your experience?
What should I know about you?
What would make you a good XYZ?
What brings you here
 What are you most proud of?
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•
•
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What was the greatest challenge you faced?
Tell me about a time you demonstrated leadership?
How do you overcome difficulties?
What is your greatest quality?
Thank You Note
Dear Mr Sachs,
Thank you for giving me the opportunity to discuss the opening for a market analyst
position. It was a pleasure to meet you and Mrs Robinson, as well as to learn more
about XX Corporation.
I especially appreciated hearing about your own experience with as an analyst at
XX. The dynamic environment your company offers is particularly attractive. I feel
that this is the type of environment in which I would perform very well.
I look forward to hearing from you. Please feel free to contact me with any
questions regarding my candidacy.
Sincerely,
Jo Blo
Resources
 Career Services:
• www.mcgill.ca/desautels-career
Vault Guide to Finance Interviews
• Interview preparation with a counselor
 Google (!)
• Mergers and inquisition
• Banking or bust
 News:
• Wall Street Journal, Bloomberg, Financial Times, etc.
Questions?
Technical Questions
Accounting Questions
 If you were on a desert island and could only have
access to 1 of the statements, which one would you
choose?
The C/F statement gives a true picture of how much cash the firm is
actually generating, independent of non-cash expenses. “Cash is king”
 If I let you choose 2 statements, which ones would
you choose? Would you still pick the cash-flow
statement?
The C/F statement can be created from the I/S and the B/S assuming you
have access to before and after versions of the B/S
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Accounting Questions
 How would a $10 increase in depreciation affect the
financial statements?
Income Statement
Cash-Flow Statement
Balance Sheet
Operating Income
-$10
Net Income
-$6
PP&E
-$10
Tax (40%)
$4
Depreciation
$10
Cash
$4
Net Income
-$6
Change in Cash
$4
Equity
-$6
27
Accounting Questions
 A company switches from LIFO to FIFO method in an
inflationary environment; how does it affect
statements?
Operating income and earnings will be overstated (lower COGS).
Inventory on B/S will also be higher as “cheap items” are sold first.
C/F will be higher due to increased earnings, offset by change in NWC.
 A company has had positive EBITDA for past 10
years, but it recently went bankrupt. How is that
possible?
The company is spending too much on capex (not included in EBITDA),
high interest expense, credit crunch, one-time charges
28
Valuation (a classic)
 Walk me though a DCF
WACC = r_e * E/V + r_d * D/V * (1-T)
- How to impress: discuss assumptions with cost of debt and equity,
mention challenges with “in-between” securities like preferred shares
and convertibles, challenges with tax rates
UFCF = EBIT (1-T) + D&A – Capex – Changes in NWC
- How to impress: discuss the fact that this is value available to all
stakeholders in the firm and potentially how to get to LFCF and
calculate the equity value
29
Valuation (a classic)
 Walk me though a DCF (continued)
Terminal Value
- Multiple: most commonly used method in industry, typically
EV/EBITDA is used based on comparables (impress by using
companies that will be comparable in 5-10 years) or normalized
historical average
- Growing perpetuity: typically a measure like GDP growth will be used
Enterprise Value = Equity Value + Debt + Preferred Shares + Minority
Interest - Cash
- How to impress: Discuss convertibles, operating leases and other debt
like instruments
30
Valuation (a classic)
 Walk me though a DCF (continued)
Pros/Cons
- Pros: Intrinsic valuation, can be used to back test how much a
company needs to grow to achieve a certain stock price, investors can
see where value comes from
- Cons: too many assumptions (importance of sensitivity analyses),
“garbage in, garbage out”, does not explain why a company is not
trading where it should be, should not be used for companies with
unpredictable/unstable cash-flows
Mid-year convention
- Good way to impress interviewer!
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DCF Summary Page
32
Relative Valuation
 What makes a good comp?
-
Industry
Size
Growth Stage
Geography
Capital Structure
 Which metrics to use?
-
EV / EBITDA (numerator and denominator for equity and debt)
P/E
(numerator and denominator for equity only)
 What if a company has negative EBITDA?
-
Climb up the income statement (EV / Revenues)
33
Relative Valuation – Basic Steps
1. Determine the target company’s EPS, EBITDA, and Sales for
current year and possibly forward year (using research
analyst estimates)
2. Determine the set of comparable companies (comp
universe) and their trading multiples
• Similar companies based on industry, size, business model, risk,
capital structure – anything you can control
• Separate lists if company is a conglomerate
3. Multiply average industry multiple by current or forward
performance of target company to determine the relative
value of the firm:
Mavg x Operating Metric = Enterprise Value OR Equity Value
Relative Valuation – Pros & Cons
 Stock prices are determined by relative values
 Fewer assumptions than for DCF
 Not a gauge of intrinsic value
• Reflects the market’s current opinions on value – average could be
skewed based on company-specific factors and economic
environment
• Only values companies when valued the same way as their peers
 Often difficult to find true comparables
• Can use sum-of-the-parts valuation (NAV) for a diversified
corporation, which is a weighted-average of each division under
specific industry multiples
Sample Comp Sheet
Comparables Table
U.S. Auto Manufacuturers
GENERAL MOTORS
FORD MOTOR
DAIMLER AG
Japanese Auto Manufacuturers
TOYOTA MOTOR
NISSAN MOTOR
HONDA MOTOR
MAZDA MOTOR
SUZUKI MOTOR
MITSUBISHI MOTORS
Japanese Auto OEMs Average
European Auto Manufacuturers
VOLKSWAGEN
RENAULT
BAYERISCHE MOTOREN WERKE
PEUGEOT
FIAT
European Auto OEMs Average
Korean Auto Manufacuturers
KIA MOTORS CORPORATION
HYUNDAI MOTOR
General Motors
Global Auto OEMs Average
Mkt Cap ($B)
Price ($)
Debt ($B) Debt/EBITDA Profit Margin (%)
ROE (%)
P/E 2013
P/E 2014
37.99
49.68
58.66
27.80
12.95
54.93
5.2
104.3
111.7
0.15x
7.46x
6.94x
3.0
4.4
7.5
17.1
36.6
14.6
8.28x
9.38x
8.95x
6.42x
7.83x
7.78x
172.5
41.59
66
8.25
12.59
5.97
50.03
9.20
36.43
2.75
22.44
0.99
148.9
56.2
52.9
8.8
5.1
3.7
6.05x
4.66x
4.28x
7.87x
1.93x
2.65x
1.9
2.4
3.2
3.9
1.1
-3.0
7.2
9.8
8.1
7.6
6.2
16.70x
10.65x
15.34x
26.47x
16.16x
29.90x
19.20x
11.54x
8.04x
10.58x
10.66x
12.73x
11.74x
10.88x
89.75
18.59
188.60
62.88
155.3
43.6
4.82x
8.18x
3.4
5.0
32.2
7.3
6.76x
6.15x
5.85x
4.89x
56
2.58
6.68
87.32
7.27
5.34
91.7
43.0
36.8
5.79x
14.09x
3.51x
5.8
-16.2
0.5
17.8
-42.4
3.9
8.70x
8.43x
10.01x
7.91x
6.04x
6.30x
20.09
43.96
49.53
199.55
3.6
42.5
0.85x
4.13x
8.2
10.1
25.5
21.0
5.90x
6.42x
5.34x
5.89x
37.99
27.80
5.2
0.15x
3.0
17.1
11.5
8.28x
12.52x
6.42x
8.29x
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Precedent Transactions – Overview
 Value of a company if it were to be taken over by
another company (i.e. take-out value)
 Precedent transaction values should always yield
higher values than relative valuation
• Historical take-over premiums are 20-30%
 Not relevant if company is under certain scenarios
(company is family-controlled and not looking to
sell, etc.)
Precedent Transactions – Basic Steps
1. Find historical takeovers within industry
• Look for similar transaction size, and most recent first
2. Try to cover at least one economic cycle in terms of
precedent transactions, as some takeover
premiums might reflect a takeover boom in an
industry
3. Multiply relevant multiples (P/E, EV/EBITDA,
EV/Sales, etc.) by company figures to obtain the
firm’s takeover value
Precedent Transactions – Pros & Cons
 Often very relevant, especially for undervalued firms
 Reflects how much the company would be worth in
the eyes of its industry peers
 Often used when firm is selling off a division
 Only useful if firm will consider takeover
 Precedent transaction values are often higher than
intrinsic value (reflect over-payment in takeover
transactions)
Sample Technical Questions
 What are other valuation methods?
 If a company with a higher P/E acquires a company with a lower P/E, is
this an accretive or dilutive merger?
 Why would an acquirer be willing to pay a premium to the current trading
price?
 What method of valuation would result in the highest value? Why?
 What is minority interest? Why do we add it to the Enterprise Value
formula?
 What makes a good LBO target?
 How do you value a company with negative historical cash flows?
 Two companies have the same balance sheet and income statement, yet
company A is trading at a significant premium to company B. Why could
this be the case?
Sample Technical Questions Cont.
 Why can’t you use EV/Earnings or Price/EBITDA as valuation metrics?
 What is cheaper, debt or equity?
 If you own a start-up mining company in Canada and you require
additional capital, would you rather finance your company with debt or
equity? Why?
 What would have a greater impact on the value of a firm: a $1,000,000
rise in FCFF for the next five years, or a $500,000 rise in the terminal
value FCFF?
 What are the two types of synergies? Which ones are more credible?
What are break-even synergies?
 Calculate the real interest rate using the nominal and inflation rate.
 What is a yield curve?
 What is the duration of a zero-coupon 10-year bond?
Brainteasers
 How many oranges are consumed in Canada
annually?
 You have a hose along with a 3 liter bucket and a 5
liter bucket. How do you get exactly 4 liters of water?
Brainteasers
 Interviewers are not looking for you to answer the question immediately,
it’s not a test of smarts
 Do not panic!
 Logically think through the question, interviewers are analyzing your
capacity to think logically in stressful situations
 Think out loud, don’t sit in silence
 Ask questions if you’re confused but totally stumped (but make sure to
listen to the answer well)
 Sometimes thinking backwards is the key to many brainteasers
 Don’t feel rushed, work through everything and they may help you along
the way
 Speak confidently and clearly
 You don’t have to come up with an absolute correct answer, they are
usually looking more for the way you approach the question
Questions?