Guía Banca v5-2

Investment Banking Guide
1
Ricardo Penads & Nicolas Guardans
DRAFT
Contents
Introduction to the Guide ............................................................................................................ 4
What is Investment Banking? ..................................................................................................... 5
Banking Fundamentals ........................................................................................................... 5
Support functions ................................................................................................................ 6
The Investment Banking Division ........................................................................................ 9
Types of Financial Institutions ............................................................................................10
Types of Players in the Industry .........................................................................................14
League Table .....................................................................................................................16
Hierarchy ...........................................................................................................................19
Common Analyst Roles......................................................................................................20
Myths and Realities of Investment Banking ...........................................................................20
Macroeconomic and General Awareness ..............................................................................22
Macroeconomic Indicators .................................................................................................22
FT Exercise........................................................................................................................23
The Recruiting Process ......................................................................................................24
Telephone Techniques for Interviews (Recap) ...................................................................28
The Interviews: Four Things You Should Remember .........................................................29
The CV & the CL .......................................................................................................................30
How to Prepare .........................................................................................................................30
Fit Questions .............................................................................................................................31
General Awareness and Macroeconomic Questions ..........................................................31
Analytical Questions ..........................................................................................................34
Personal Questions............................................................................................................35
Future Questions ...............................................................................................................39
Character Questions ..........................................................................................................42
Verbal and Numerical Tests ......................................................................................................47
Verbal Tests ..........................................................................................................................47
Numerical Tests ....................................................................................................................47
Some tricks and formulas ...................................................................................................47
Where to practice? .............................................................................................................48
Investment Theory Overview.....................................................................................................49
Modern Portfolio Theory.....................................................................................................49
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Accounting and Financial Statements .......................................................................................51

Balance Sheet ...................................................................................................................51
Income Statement ..............................................................................................................52
Statement of Cash Flows ...................................................................................................53
Connecting the Financial Statements .................................................................................54
Putting it all in common ......................................................................................................54
Accounting and Financial Statements Questions ...............................................................56
Valuation ...................................................................................................................................59
Comparable Companies Analysis ..........................................................................................63
Precedent Transactions Analysis...........................................................................................68
Discounted Cash Flow (DCF) Analysis ..................................................................................70
Leveraged BuyOut (LBO) Analysis ........................................................................................79
Quantitative questions, Brain Teasers and Guesstimates .........................................................80
Quantitative Questions ..........................................................................................................80
Most Common Quantitative Questions ...............................................................................81
Brain Teasers ........................................................................................................................81
Common Brain Teasers and Solutions ...............................................................................82
Guesstimates ........................................................................................................................83
Common Guesstimates......................................................................................................83
Case-Studies ............................................................................................................................84
Example of a Case-Study ..................................................................................................84
Major Banks Profiles .................................................................................................................94
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Introduction to the Guide

Failing to prepare is preparing to fail
- Michael Murdoch
Success is a combination of being constantly prepared, on your feet, so that when you happen
to be in the right place at the right time you are ready. We have chosen to highlight the word
prepared because, out of all three (preparation, time and place) it is the one that you have full
control over - you wont be able to choose when the right place and time are, but you sure can
be prepared. Through hard work and preparation you will be able to obtain a competitive edge
that will differentiate yourself from your peers, and that is what will eventually bring you success.
The investment banking industry is an extremely competitive industry to get into. Since the 2008
crisis investment banking jobs have been on a constant fall (some estimates say that nearly
200,000 investment banking jobs have been shed in the Eurozone) and as of today the outlook
for the industry is that this change is for the long-haul. Add to that the fact that the industry
remains as the most popular place to work in for recent graduates of the worlds top universities
and you get what we have today: banks that receive nearly 300,000 applications for 12,000
jobs (a 4% acceptance rate).
The objective of this guide is to help you become a part of that 4%. On our behalf we can
assure you that the guide covers the tools that are needed to get into investment banking. From
basic accounting and valuation concepts to personal interview questions, this guide provides
you with what is needed to be a successful applicant. What we ask from you is that you bring
the hard work and effort to the table. We can only guarantee your success if you put your part
into it. We encourage you to go the extra-mile and put in the hours as the rewards are worth it.
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What is Investment Banking?

Banking Fundamentals
Investment banking is a term used to describe a range of banking and investment products and
services delivered to corporate clients, financial institutions, governments, agencies and, in
some cases, to wealthy or high-net-worth individuals and families.
Essentially, Investment Banks connect investors (those who have the money) with companies
and governments (those who need the money).
Revenue generating areas:

1. Investment Banking Division (IBD): traditionally includes the research and advisory
services that banks offer to its clients for their major transactions such as mergers &
acquisitions and initial or secondary offerings of their shares.
2. Sales and Trading (S&T): is the largest area of an investment bank. It includes the
development, marketing and trading of a large range of securities and other financial
instruments on the worlds financial markets. These include equities, (stocks),
commodities, fixed income or bonds, and currencies. All of these, which are known as
asset classes, can be traded directly or by using derivative instruments such as futures,
options and swaps. These instruments can help clients manage their risks and also
provide investment opportunities.
3. Research: provides research into macro-economic trends and effects, and detailed
analyses of the performance and factors affecting specific industry sectors and individual
companies. The Research Department issues investment recommendations and ratings
for the universe they cover.
4. Asset Management: Area in charge of managing investments for private funds,
individuals and organizations. Its a diverse area of the bank with many roles researchers, portfolio managers, and sales people can all be found here. Their common
goal is to make their clients money make more money, and they do this by investing it in
equities, property, foreign currency and many other types of assets.
Below is an example of what % of the revenue is generated by each team for a typical
investment bank:
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Source: GS annual report as of December 2011
Support functions
In order for the bank to successfully implement its revenue generating business there is a wide
range of business functions that support the client-facing business, the running of a bank and
the practical delivery and support of its products and services. These include technology,
compliance and control and operations, among others. As every investment bank is structured
differently, the precise names given to divisions vary widely.
Source: Deutsche Bank Website
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Private Side vs. Public Side
Source: Deutsche Bank Website
Investment banking has two separate areas in order to protect their clients and to undergo
business in a professional manner. These two areas are the private side and the public side.
1. Private Side: This side of the investment bank is formed by those teams that have
access to inside company information that is not available to the public. It is separated
from the public side by Chinese wall. Private side is known as the investment banking
side of the business. Essentially, these are the teams that are dealing directly with the
company/government and have access to all inside information. It is important to note
that people on the private side of the bank are strictly prohibited from using any of that
knowledge for their own benefit or the benefit of others (i.e. trade on confidential
information). So whenever you hear there was some case of insider trading that means
that some type of private information leaked and someone took advantage of it.
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Source: Business Week
2. Public Side: In the public side employees have access only to information that is publicly
disclosed (i.e. information found in the annual reports, SEC filings, etc.). Public side
includes S&T and research. Although they work in the same building with investment
bankers, they are not exposed to private information as there are strict regulations within
every bank controlling that the S&T and research staff do not take advantage of that
information.
Source: Wall Street Journal as of March 15th 2013
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The Investment Banking Division

The Investment Banking Division is often referred to as corporate finance. It is comprised of five
main areas:
1. Mergers & Acquisitions (M&A): advisory on sale, merger and purchase of a company. It
also covers divestiture of specific assets and other strategic options concerning a
transaction between companies. This area is typically divided by industry groups,
geographical groups and product groups.
2. Leveraged Finance (LevFin): provides a platform for firms to issue high-yield bonds
(junk bonds) to finance acquisitions and other activities.
3. Equity Capital Markets (ECM): assists companies in the issuance of common stock,
whether in the form of an Initial Public Offering (IPO) or a Seasoned Equity Offering
(SEO).
4. Debt Capital Markets (DCM): assists companies in the issuance of bonds and other type
of debt to fund company activities.
5. Derivatives team: The team works with corporations to develop customized risk
management strategies.
The Investment Banking Division is said to be in the private side of the markets, since it works
with sensible and insider information that the public side doesnt have. Therefore, it is essential
for a bank to guarantee the confidentiality of the information the IBD works on. Banks do so by
establishing a chinese wall, that is, a series of security protocols that ensure the information is
not leaked between departments.
Industry, Geographical and Product Groups vary by bank, but they are essentially the same.
Industry Groups focus on specific industries (Telecommunications, Healthcare, Financial
Institutions, etc.), Geographical Groups focus on specific countries or regional areas (UK,
Germany, CIS, EMEA) and Product Groups focus on specific advisory services (M&A
Execution).
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Types of Financial Institutions

In order to fully grasp the role that the investment banking industry has, it is necessary to
understand the other types of players. Hence, lets take a closer look at the different types of
institutions that play a role in the financial arena:
Depository institutions
Commercial Banks: An institution which accepts deposits, makes loans, and offers
related services.
Services offered: Deposits (checking, savings, time deposits, etc.), loans

(mortgages, consumer loans, etc.), services (transfer, facilitating payment, etc.)
Profit sources: Interest margins, fees, commissions
Ownership: State, firms, individuals, members or partners.
Examples: La Caixa, Banco Sabadell
Universal Banks: Universal banks are financial institutions that have both the commercial
arm and the investment banking arm. They were banned in 1933 when the Glass
Steagall Act was introduced which separated commercial banking from investment
banking. Nevertheless, in 1999, the Gramm Leach Bliley Act was introduced which
allowed banks to have both commercial and investment banking operations.
Services offered: Commercial banking services (deposits, loans, etc.) and

investment banking services (advisory, underwriting, securities trading).
Ownership: Group of individuals, institutions
Examples: JP Morgan, Citi
Wholesale Banks: These banks provide services to firms and financial institutions only,
not to retail consumers.
Services offered: Deposits, loans (revolver facilities, etc.), services (transfer,

facilitating payment, etc.)
Examples: Bank of New York Mellon
Savings Banks: These banks were founded with the purpose of encouraging savings. In
comparison to full commercial banks, they do not provide overdraft facilities, FX
activities, take no deposits from corporates and have restricted lending activities.
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Services offered: Deposits, loans (mortgages.), services (transfer, facilitating

payment, etc.)
Examples: Trustee Savings Bank (UK), Erste Bank (Germany)
Savings and Loan Associations: A savings and loan association is a financial institution
that accepts savings deposits and makes mortgage, car and other personal loans to
individual membersa cooperative venture known in the UK as a Building Society and
in Spain as a Caja. These type of institutions were widely popular in the 80s in the
United States, but died down after the failure of about 747 out of the 3,234 existing
savings and loan associations (the S&L crisis was due to the sudden spike in oil prices).
Services offered: Deposits, loans (mortgages.), services (transfer, facilitating

payment, etc.)
Ownership: The depositors own the S&L
Examples: CAM, Catalunya Caixa
Finance companies: Specialized financial institution that supplies credit for the purchase
of consumer goods and services by granting small loans directly to consumers.
Services offered: Fixed deposits (no checking accounts), small loans - the limit
can be lifted if the loan is secured (i.e. financing fixed assets for firms)
Ownership: Group of individuals
Examples: GE Money
Non-Depository Institutions
Life Insurance Companies: Companies that are specialized in selling life insurance,
annuities and pensions products.
Services offered: Term life (no payment unless death within policy period),
whole life (critical illness, permanent disability), endowment, health, hospital
Profit sources: Premiums, insurances that are not payed out, margin on
invested premiums
Examples: Canada Life
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Non-Life Insurance Companies: General, or property/casualty insurance companies,

which sell other types of insurance.
Services offered: House insurance, cars, boats, planes, professional, third

party, damages, financial products, football players leg, etc.
Profit sources: Premiums and investment income
Examples: AIG
Pension funds: Companies that manage the retirement plans set up by a corporation,
government, labour union, or an individual for themselves. It is important to note that
some pension funds are insured by an insurance company.
Services offered: Manage pension payments
Profit sources: Commissions, fees of the pension payments
Examples: Mapfre Pension Fund
Open-end Mutual Funds: A type of mutual fund that does not have restrictions on the
amount of shares the fund will issue. If demand is high enough, the fund will continue to
issue shares no matter how many investors there are. Open-end funds also buy back
shares when investors wish to sell
Services offered: Manage funds
Profit sources: Commissions, performance fees
Ownership: Investors
Examples: Fidelity Investments
Closed-end Mutual Funds: A closed-end fund is a publicly traded investment company

that raises a fixed amount of capital through an initial public offering (IPO). The fund is
then structured, listed and traded like a stock on a stock exchange.
Profit sources: Commissions, performance fees
Examples: Gabelli Equity Trust
Hedge Funds: A fund that manages a portfolio of investments that uses advanced
investment strategies such as leveraged, long, short and derivative positions in both
domestic and international markets with the goal of generating high returns (either in an
absolute sense or over a specified market benchmark). Hedge funds are most often set
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up as private investment partnerships that are open to a limited number of rich

individuals and institutions and require a very large initial minimum investment.
Profit sources: Commissions, performance fees (2% managing fee, 20%

performance fee is the industry standard)
Examples: Bridgewater
Private Equity: Private Equity consists of investors and funds that make investments
directly into private companies or conduct buyouts of public companies that result in a
delisting of public equity. Private equity funds are typically open to institutional investors
and rich individuals and their investments often demand long holding periods to allow for
a turnaround of a distressed company or a liquidity event such as an IPO or sale to a
public company.

Examples: Blackstone
Venture Capital: Venture Capital funds operate by acquiring minority stakes in startup
companies in sectors with high-growth potential, such as technology or biotechnology.

Examples: Sequoia
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Types of Players in the Industry

In the investment banking industry there are 3 types of players: bulge bracket banks, midmarket investment banks and boutiques that specialize in either small transactions or specific
industries. Lets go into them now with a brief explanation and some examples of the most
significant players:
Bulge Bracket Banks: This is a slang term used to describe the largest and most
profitable international investment banks in the world whose banking clients are normally
huge institutions, corporations, and governments.
Deals: Bulge bracket banks execute the biggest deals which tend to be over $1
billion USD. Occasionally they may go down to deals in the $200MM $300MM
USD range (depending on the group and the economy).
Geography: Theyre global and have a presence in cities across all continents.
Services Provided: Bulge bracket banks provide both advisory and financing
services and everything else: asset management, trading, commercial banking,
insurance, and so on.
Examples: Bank of America Merrill Lynch, Barclays, Citi, Credit Suisse,

Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley, UBS.
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Mid-Market Investment Banks: Mid-market investment banks are bigger than boutiques
but smaller than bulge bracket banks which isnt wrong, necessarily, but also doesnt
tell the full story.
Deals: The deals they work on are in between bulge brackets and boutiques a
larger deal at a middle-market bank might be around $500MM USD, whereas a
smaller one might be about $50MM USD.
Geography: Middle-market banks are also in the middle in terms of geography:

they operate in many cities, but are not as global as bulge bracket banks. Often
they have a strong presence domestically, but arent quite as strong
internationally.
Services Provided: Middle-market banks also provide the full range of services:
M&A advisory, ECM, DCM, Restructuring, and other variations on those.
Examples: Houlihan Lokey, Cowen, Jefferies, Houlihan Lokey, KBW, William

Blair.
Boutiques: Regional boutiques are, as their name suggests, the smallest type of
investment bank. Regional boutiques tend to have anywhere from one person to a few
dozen or more.
Deals: The deal size is typically below $100M USD.
Geography: Theyre are limited to one city or region; a few of the bigger ones
might be in several cities, but if the bank has a global presence its no longer a
regional boutique.
Services Provided: The services provided by regional boutiques tend to be

advisory ones (that could be both in restructuring or in M&A). Very rarely do they
offer any sort of financing services.
Examples: GBS Finanzas, Coram Clairfield, Pipper Jaffray, C. K. Cooper &

Company, Dresner Partners, etc.
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League Table
Source: Thomson Reuters as of May 2013
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Hierarchy
The hierarchy in an Investment Banking Division is very well defined, although it can vary by
bank and region:
Analyst: the very bottom of the ladder. You can start in an analyst position right out of
college or after successfully completing an internship in a bank. The Analyst does all the
grunt work (i.e. valuation, modeling and pitch books) as well as any other tasks that are
required by the team. The typical work week ranges from 80h to 100h.
Associates: they are in charge of both coordinating the work of the analysts as well as
doing some of the work themselves (dont expect a lot of help from their side). Analysts
are typically promoted to Associate after finishing the Analyst program which typically
lasts between 2-3 years (varies on the bank) or straight out of an MBA after completing
an associate internship.
Vice President: they are in charge of overseeing that the work that is required by the
senior people in the team is prepared on time by the associates and the analysts. VPs
are also expected to begin to develop client relationships and generate revenue for the
firm as well as other managerial work.
Senior Vice President/Director/Executive Director: they focus mainly on deal execution

and client relationships.
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Managing Director (MD) / Partner: this is the highest level, the top of the ladder. They
are in charge of bringing the business to the division and focus exclusively on client
relationships and making sure that the deal execution is on track.
Common Analyst Roles

As an Analyst, you will be expected to perform and work long hours. You will basically do the
grunt work, going from valuation and modeling to administration tasks. Below is a list of the
typical Analyst roles:
Role
Activities
Team Support
Printing services, creative services, markup

corrections, benchmarking, comps and
basic financial analysis
Business Development (Pitches)
Slide preparation, research, team meetings,

information outputs, basic financial analysis,
company research (trade relationships,
organisational charts, subsidiaries) and
valuation and valuation updates
Admin tasks
Internal reporting using APIs and updating the

team about relevant news concerning the
companies or sector you cover
Execution (Deal)
Valuation of the deal, bookbuilding, document

and filings preparations, negotiation between
parts, closing of the deal
Myths and Realities of Investment Banking

Myth: Get a job in banking and youll be a millionaire within a few years. Youll earn so much
money you can retire at 30 with a jet, yacht and country mansion.
Reality: Not really. Not all bankers are millionaires (especially before they are 30). Most have
normal, down to earth lives. You may earn more than similar level roles in other industries, but
not as much as for a private jet.
Myth: You've got to be a certain type of person to work in banking. Theres no diversity, with few
women or minorities represented.
Reality: False. Even though there tend to be more men than women within the industry, banks
are working really hard to increase the number of women and ethnic minorities to both their
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graduate schemes as well as to more senior positions. Recently some banks graduate intake is
up to around fifty-fifty men versus women.
Myth: There are only two cities to work in if you're serious about banking London and New
York.
Reality: London and New York City are important financial centers but there are many more
across the globe. To name just a few: Hong Kong, Singapore, Tokyo, Frankfurt, Shanghai,
Chicago, Zrich, Geneva and Sydney, with new ones appearing all the time.
Myth: Bankings one of the most cut-throat industries around. Sink or swim, thats the choice. If
youre not good enough, youre out.
Reality: Yes, employers are looking for the brightest, most talented people and once youre in,
youve got to give one hundred percent. But graduates are often surprised about the reality of
the banking culture: how people look out for each other and how much support they get. Its
hard work, but youre all in it together.
Myth: Graduates get all the boring jobs. You'll be making the tea and filing paper for the first
year.
Reality: Graduates are actually grunt workers of the team. The more junior you are, the more
there is to learn its the same in any industry. But in lots of banks youll find you get a
surprising amount of responsibility. Anyone whos skilled and willing is recognized.
Myth: Its all work work work in banking. The hours you work are extremely long. You have to
give up your personal life, your boyfriend or girlfriend, your family, your hobbies.
Reality: Yes, you have to work very hard. But the number of hours you work vary dramatically.
For example, if you work on the trading floor youll do an intense 10-hour day. On the other
hand, if you are in Corporate Finance and youre on a big deal you can pull all-nighters. Getting
ahead in any new career requires long hours and dedication; banking is no different (except that
the hours might be just a little bit longer).
Myth: The financial crisis hit the industry hard. Banks havent yet recovered. Theres no point in
applying for jobs anytime soon. There just arent any available.
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Reality: Its true that the financial crisis did indeed hit the industry hard and many banks froze
recruitment. But that doesnt mean confidence isnt now growing again. Competition may be
even fiercer than before, but there are opportunities out there.
Macroeconomic and General Awareness

Macroeconomic Indicators
What you basically have to know is the state of the economy at the time of your interview. Be
prepared to answer questions about general market conditions and expectations, and their
effect in the general economy and the firm (FT Exercise).
Practitioners often use three types of macroeconomic indicators that you should take into
consideration in order to give informed answers to macroeconomic and general awareness
questions. These indicators can be leading indicators (they precede the business cycle),
coincident indicators (they run coincident with it) and lagging indicators (they confirm the trend
and thus lag the business cycle).
The main indicators by type are listed below:

Leading Indicators
Indicator
Reason
They capture business sentiment, since

Manufacturers new orders for consumer
manufacturers try to anticipate the demand
goods and materials
for their goods
Stock prices usually anticipate economic
S&P 500 Stock Index (or relevant benchmark) turns, since they depend in great part of
expectations of the business cycle
Long-term yields reflect market expectations
Interest rate spread between 10-year yields about the direction of short-term interest rates
and overnight borrowing rates
and the overnight borrowing rate follow the
economic cycle
Index of Consumer Expectations
Gives insight of future consumer consumption
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Coincident Indicators
Indicator
Reason
Employees payroll
Once recession or recovery is clear,

businesses adjust they payroll accordingly
Aggregate real personal income
Captures current state of the economy
Industrial Production Index
Measures industrial output
Lagging Indicators
Indicator
Reason
Inventory-sales ratio
Inventories accumulate as sales initially

decline and become depleted as sales pick
up, confirming changes in the economy
Change in CPI
Inflation generally adjusts to the cycle late
Change in GDP
Self explanatory
You should also check country specific indicators to back your answers if you are asked about
the state of your local economy, like the spread between 10-year German bonds and 10-year
Spanish bonds (Spanish risk premium), in the case of Spain.
FT Exercise
The FT Exercise is often used to assess the candidates capacity to analyze and synthesize
general market news. You are given 30 minutes to pick 3 news you consider interesting from
the Financial Times and are asked to expose the new to the interviewer following predetermined
general guidelines, which usually are:
General comprehension: what is the new about? Whats going on?
Macroeconomics: what is its effect on the general economy?
Microeconomics: what is its effect on the company? What implications does the news
story have for the specific sector?
Miscellaneous: how can our firm profit from this new information? Which department
should be concerned about this particular article? What new opportunities do you see for
the firm given this article?
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Decide the
industry and
bank
Prepare
your CV and
CL
Submit your
online
application
Online test
First Round:
Phone
interview
Second
Round:
Local office
interview
Assessment
Center
OFFER!
The Recruiting Process
The process of obtaining an offer to work for an investment bank is a long one which typically
takes several months to complete. Like in any other application, the first step that one must take
is to do some background research on the industry and the different investment banks. This step
is very important as it will help one see if the skills that are required by the industry match those
of the candidate, and it will also help him/her find the bank and team that best fulfill those needs.
Even though this guide is a great start, you should do further research on your own. We strongly
advise that you take a look at some of the information that we recommend at the end of the
guide.
Once the candidate has done some background research they must prepare their cover letter
and curriculum vitae (See How to prepare the CV & CL Section). The CV and the CL are
submitted online through the portal of the investment bank where the candidate is automatically
prescreened by a computerized program. This first check serves as an initial filter for spelling
mistakes, inconsistencies throughout the application, grades, etc. If the candidate passes this
initial prescreening then they are typically sent an online test which they must complete within
the next few days (See Test Section). Please note that not all banks send candidates an online
test, so if you dont receive one it does not mean that you have been automatically discarded
from the process.
If the candidate meets the minimum requirements from the online test then they advance onto
the next stage: the telephone interview. Telephone interviews typically last 20 to 30min and are
conducted by analysts and/or associates in the investment banking division. Candidates are not
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given much time to prepare for telephone interviews, so its important that they begin preparing
before they are assigned an interview slot. Telephone interviews are pretty standard across the
interview and they typically cover the following questions:
Tell me about yourself?
Why do you want to be an Investment Banker?
Why do you want to work at this Investment Bank?
Tell me about the classes you are taking? Favorite and least favorite classes?
Biggest Strengths and Weaknesses?
What are the main ways investments bankers values a company?
Walk me through a DCF?
What are the different valuation techniques?
Walk me through the major lines of an Income Statement? Balance Sheet? Cash Flow?
These questions are covered in the typical telephone interview so candidates must be ready to
answer them thoroughly. The questions are reviewed in detail in their respective sections. On
top of that, here are some other tips that can be useful when conducting the telephone
interview:
The interviews are very predictable so make sure to be 100% prepared
The technical questions cannot be missed. These concepts are considered to be the
basic building blocks that all successful candidates should understand.
Book a room that has good telephone coverage.
Use a phone that can be used with no hands as it is important that you are comfortable
and can write down things without a problem
Be ready 10 to 15min prior to the actual telephone interview as your interviewer may call
you beforehand
For those candidates that are applying to countries that have different time zones (i.e.
London from the rest of Europe) clarify the time zone in which the interview will happen
Speak clearly and confidently over the telephone: remember that your voice will be the
only image that they will have of you
You may have materials with you during the interview (i.e. a printed version of your CV).
It is important that these are ready and laid out correctly before the interview - looking for
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your CV in a mountain of papers during a phone interview is not the best approach to
conducting the interview.
Last but not least: have a positive attitude! Even though interviews are not the most
comfortable of situations you must remember that you are being given an opportunity to
be interviewed and that the person that is interviewing you is taking time off of their
extremely busy schedule to interview you, so be positive and grateful.
If candidates complete the telephone interviews successfully they then move onto the second
round which must be conducted in person. These rounds are either done on the university
campus or in the closest office. For example, if a candidate is in Lyon, because most banks only
have offices in Paris, the candidate is flown into Madrid for the interview. The second round
usually has anything from one to five interviews and the length can vary from 20min to a full
hour per interview. The questions that are asked in second rounds can vary much more than
those asked in first rounds so its difficult to have an exact guideline of the questions that will be
asked to candidates. Nevertheless, as a broad guideline you should expect the following:
All the questions that were asked during the phone interview
Technical focus:
o
Markets
Banking fundamentals
Valuation
Competence questions
Second round interviews tend to be the most technically focused ones as they are typically
conducted by associates and junior VPs, although one may be interviewed by more junior or
senior people (i.e. Senior Analyst or a Managing Director). Here are some useful tips for second
round interviews that all successful candidates should keep in mind:
Be prepared, these interviews are more extensive than telephone ones
The technical questions cannot be missed. These concepts are considered to be the
basic building blocks that all successful candidates should understand.
Read the Financial Times from page to cover on the days leading to the interview, it is
very probable that you will be quizzed on recent macroeconomic events
Arrive slightly early to the interview, DO NOT arrive late
Be confident and clear when you communicate. Try to avoid being overly nervous.
Bring a calculator in case you are tested
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Last but not least: have a positive attitude! Even though interviews are not the most
comfortable of situations you must remember that you are being given an opportunity to
be interviewed and that the person that is interviewing you is taking time off of their
extremely busy schedule to interview you, so be positive and grateful.
Candidates that manage to succeed in the second round interviews are then faced with the
assessment center. The assessment center, also known as super-days are a full day of
different kinds of interviews, tests, and case studies. The goal of the assessment center is to
culminate the recruiting process with a final set of interviews to conduct a final evaluation of the
candidate. Assessment centers typically cover the following items:
Test
Interviews
Case study
Guesstimates
Focus group
Other Some assessment centers may contain other kinds of evaluation methods
As assessment centers are the culmination of the interview process, candidates will be
evaluated on all of the skillsets that have been required of them up until the moment. Therefore,
it is important that candidates prepare thoroughly for the assessment center, reviewing all of the
materials that they have been preparing up until the moment. The questions that are covered
may vary greatly, so it is important that you review all of the questions that are covered in the
guide for this round. Here are some general tips that you should keep in mind during the
assessment center interview:
Be very prepared, you have worked so much to get here, you really have to nail it
Dont get overwhelmed by the other candidates, you are here to play your own game
and you should not get distracted by the others
Read the Financial Times from page to cover on the days leading to the interview, it is
very probable that you will be quizzed on recent macroeconomic events
Arrive early to the interview, under no circumstance should you arrive late
Be confident and clear when you communicate. Try to avoid being overly nervous.
Bring a calculator and a pen for the test, if you forget your calculator you will have to
take the test without it, trust me you do not want that to happen.
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Last but not least: have a positive attitude! Even though assessment centers are not the
most comfortable of situations you must remember that you are being given an
opportunity to be interviewed and that the person that is interviewing you is taking time
off of their extremely busy schedule to interview you, so be positive and grateful.
Below is a rough guideline of the schedule of the different events
Sep
Oct
Nov
Dec
Phone
interviews
begin
Prepare
CV &CL
Offers for
internships
Second
rounds
begin
Submit
Applications
Feb
Jan
First
Assessme
nt Centers
Spring Weeks
Mar
Apr
May
Spring Weeks
Jun
e
Summer
Internships
begin
Telephone Techniques for Interviews (Recap)

These are some techniques for the preparation of telephone interviews. Be sure you do the
most of them, even if they sound dumb!
1. Preparation for phone communications:
a. Have the necessary information (this guide, for example) at the ready, in front of
you.
b. Tape information to the wall and have it open on your computer (you can do
yourself a dashboard with all the information you consider relevant).
c. Keep all your research close at hand.
d. Have a notepad and a calculator ready.
e. Keep a mirror nearby (reason below).
f.
Have a metaphorical Do Not Disturb area to work in.
g. Turn off all noise, if possible. That includes email notifications, cell phones...
h. Warm up your voice while waiting for the call, before the call, and earlier that day.
i.
Have a glass of water handy.
j.
Try not to have others in your call environment.
k. Try to use a headset for your phone so you have free movement in both hands.
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l.
Dress comfortably. Do not put too much clothes on in case you get nervous, it
will suffocate you!
2. The Stand and Deliver Technique: stand up and move around the space for as much of
the phone conversation as you can. You will become more animated, you will gesture,
your blood will circulate, and you will have considerably more energy.
3. The Vanity Technique: if you have purchased a phone message machine and read the
directions you will see that some of them tell the owner to smile while they are recording
the answer message. The reason for this is that when we smile while speaking it warms
the quality and tone of the voice. If you hang a mirror in your phone environment, every
time you walk by it and you see yourself it can remind you to smile while speaking. This
technique may seem silly, but it really works.
The Interviews: Four Things You Should Remember

1. The entrance
a. The true interview starts the moment you can be seen and it does not end until
you are both out of eyeshot and earshot of everyone associated with the
interview environment (usually about two blocks away from the site).
b. Walking into the room: always maintain eye contact with your interviewer
2. The Introduction
a. The Handshake must be firm, but dont crush your interviewers bones.
b. Speaking your name: only about 60% of peoples names are understood in
introductions.
3. Dealing with:
a. The chair: sit on an angle to the interviewer, it will capture his/her attention more
effectively.
b. To regain attention, you can move in the chair and change the angle.
c. Use gestures, but keep them in the upper plain of the body.
4. The Exit
a. Be sure you thank the interviewer for his/her time. If you can, get his/her
business card to send a post-interview email thanking again for the interview. It is
very important that you send such email.
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The CV & the CL
How to Prepare
All you have to do is a bit of research and prepare your answers. Your main goal here is to fit in
the corporate culture, so you have to make sure you find a common ground between yourself
and the stated company values and culture, which can be usually found in their website.
This part requires you to sit and think about yourself: your strengths, your weaknesses, your
different reactions to different situations, your behaviour, etc. It is important that you make a list
of all these personal traits and know them by heart, you will sure be asked questions about
them.
You should always be ready to link the information on your CV (education, work experience,
extracurricular activities, etc.) with the competencies required to be in banking. You can talk
about the specific skill-set you acquired in your internships or the basic conceptual background
you learned at your university. You have to be the best candidate and the best fit and the only
tools you have to demonstrate that are your Cover Letter, your CV and your interview, so do
your homework!
Also, when facing questions about specific situations and how you managed them, you should
use the STAR Technique:
Situation: what was the situation and when did it take place?
Tasks: what task was it, and what was the objective?
Action: what action did you take to achieve this?
Results: what happened as a result of your action?
Try to choose an example that is relevant and describes the competency the interviewer is
trying to assess, has a positive outcome, is specific and answers the question.
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Fit Questions
General Awareness and Macroeconomic Questions
In all of the interviews there will be some general awareness and macroeconomic questions that
will be asked. Essentially bankers want to see that you are genuinely interested in the industry
and that you have done your research on the subject. Aside from the information that you will
find below it is important that you keep yourself updated by reading financial press such as the
Financial Times.
What does an analyst do?
Analysts work on pitches and deals most of their time. A pitch is a proposition made by the
bank to a company about a specific transaction, and the deal is the execution of the transaction
itself. Other tasks include support and administrative tasks. In a pitch, the analyst is in charge
of the grunt work (model, valuation, slides, etc.); in a deal, the analyst is in charge of
assisting in the execution of the deal.
What does an investment banker do?

An investment banker assists companies in their search for funds and provides advisory
services for the companies transactions. An investment banker advises companies on mergers
and acquisitions, issuance of bonds and equity, and provides advisory services in restructuring.
Essentially, an investment banker connects the individuals / companies who have the money
(investors) with those who need the money (companies / governments).
What's the lifestyle of this industry? How many hours do we work per week?
Investment bankers typically work 80h - 100h per week, depending on the business needs. This
involves very little hours to sleep and a lot of stress, since you are working in a competitive and
highly demanding environment. This question will surely be followed by will you be able to cope
with it?.
What was our firm yesterday's close?

If you dont know it, try to remember the last time you checked (shouldnt be more than a couple
of days) and give an approximation (somewhere in the neighborhood of...). However, you
should ALWAYS check the price of the firms stock before going to an interview.
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What is the IBEX35/DJIA/S&P500? What was its yesterday's close?
The IBEX35 is the Spanish Market Index, comprised by the 35 most liquid stocks of the
Continuous Market.
The DJIA is the Dow Jones Industrial Average, comprised by 30 major companies in the
US (traditionally, they were heavy industry stocks).
The S&P 500 is the most closely watched Index in the US. It is comprised by the 500
biggest companies in the US.
What has happened on the market the last 3/6/12 months?

This is your turn to show how update you are of the markets. You should try to explain major
events in the US Market, the European Market and the Emerging Markets in general. The
interviewer is not asking for an in-depth analysis of the situation of the markets, he/she only
wants to make sure that you follow the markets and you are up-to-date. Do not bore your
interviewer with too much information, but do not omit anything relevant.
Where is the market going?

This question wants to assess your capacity to understand the markets and its underlying
trends. The best way to answer this question is by breaking up your predictions in different
scenarios: optimistic, base case and pessimistic. Do not take a lot of time in your answers, the
whole question shouldnt be more than 2 minutes long. Other question similar to this:
Where will the stock market will be in 1/3/6/12 months?
What financial press do you usually read? What's on the front page today?
If you usually read financial newspapers, you should be clear on this one. If you dont, its never
too late to start! If you dont want to start (you will have to eventually), try at least to read the
major headlines at least 4 or 5 days before your interview.
Can you identify any recent trends in our industry in the last 12 months?
On the line with the above, its just about reading and understanding the underlying trends of the
market. For example, the major trend during 2007-2009 was the consolidation of the banking
industry, with the big banks acquiring the bankrupted banks (JPM - Bear Stearns, BofA - Merrill
Lynch, Nomura / Barclays - Lehman Brothers, etc.).
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What is a bulge bracket firm? And a boutique?

A Bulge Bracket (BB) firm are the largest financial institutions with presence all over the globe.
Their clients are governments and big companies and institutions. A Boutique is a small
investment bank which is regionally focused and takes part in deals with a lower value.
What do you think the ECB will do in the next 6/12 months concerning interest rates?
Again, just checking if you are able to read the markets and see their trends. As long as you
dont sound stupid with your predictions, an opinion is just an opinion and there is no correct
answer for this one, just be sure you can throw some arguments in.
What is the EURIBOR/LIBOR/Fed Funds Rate? What is it's current level?
EURIBOR: EURopean InterBank Offered Rate, its the interest rate banks use to lend
money to themselves. It is often the benchmark rate for floating rate securities and
mortgages.
LIBOR: London InterBank Offered Rate.
Fed Funds Rate: the overnight rate of the Federal Reserve.
Which company would you invest in? Why?

This is an easy question if you are prepared. Before the interviews, do a little bit of research and
choose a company you think is a good investment. It is very important that you know the
general facts by heart (i.e. scope of business, products or services, last share price, etc.). You
will be asked to explain why you think that specific company is a good investment, so be
prepared to back your opinions.
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Analytical Questions
The purpose of analytical questions is to try to assess your basic analytical skills. Interviewers
dont want a nuclear physicist but they do want to see that you have certain ability with
numbers. Essentially they are looking for you to demonstrate your communication abilities and
make sure you can express abstract concepts clearly.
Can you tell me about the process you used to analyze a project that you have done recently?
For all the analytical questions you must always try to use the STAR technique that was
discussed in the previous section. Basically, you should try to break down the method of
analysis that you used how you came up with the initial estimates, and the results that were
obtained.
Can you tell me about a time when you submitted a report or project with mistakes?
It is highly unlikely that you have always submitted perfect reports with no types of errors
therefore you should try to think of an example of a project where you made a mistake and were
able to either fix it or learn from it. Remember to use the STAR technique to answer this
question; focusing on what you gained from it rather than the mistake itself.
How well can you multi-task?

When you use the STAR technique in this question try to find a concrete example of time when
you were really flustered with all the work that you had on your shoulders. Again, you must pick
an example where you eventually succeeded in meeting the deadlines.
Can you tell me what kind of analytical skills you developed in your latest internship?
If you havent interned anywhere previously or in your last internship you did not learn any
meaningful analytical skills then try to answer this question in the context of a relevant course
that you may have taken in university.
Have you ever worked on a project that was shown to a large group of people?
Once again you must focus on using the STAR technique and look for an example where the
end result was a successful one. If the example that you give happens to involve working with a
team then even better.
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Personal Questions
Personal questions are straightforward questions that are asked by the interviewer because
they want to further understand your drive for investment banking. Its important for you to
understand that the purpose of these questions is for the interviewer to have a better
understanding of the person that they are looking to hire and how their personal experience has
led them to have an interest in investment banking. Its important that you keep the big picture in
mind so that you direct all of the answers to these questions in that direction.
Tell me about yourself.

You are bound to get this question in all interviews. It can be asked differently (i.e. walk me
through your resume, tell me about your background, who are you) but essentially they are
looking for the same thing: for you to go through the major events that have taken place
throughout your life and how they have led you to want to be an investment banker. It sounds
simple, but you really have to nail this question as it will usually be the first question that you will
be asked in all interviews and it can have a profound effect on how the rest of the interview
turns out.
The key aspects that you must keep in mind when answering this question are:
Be brief, aim for something under than 2-3min
Go through your resume in a chronological order
The question should be answered as a story, always explaining why each event made
you interested in investment banking
You cannot have your resume in front of you, so its important that you know your story and that
you have practiced it thoroughly so that you are not caught off guard.
Why did you attend your university?

Regardless of what university you are attending its important that you make it clear that you
chose it after evaluating several options and going for the best one. You should have a reason
as to why you chose that university over any other and you must show that you thought about
all the alternatives not just randomly picked a university. For example, if you are attending a
university that is especially strong in finance then mention how you picked the university that
would best prepare you for a future career in investment banking.
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Have you ever lived in another country or studied abroad? If so tell me about that experience.
Once again explain why you chose to live/study abroad and what you learnt in that experience.
Try to come up with something that is either relevant (i.e. discovered how the Singapore stock
exchange worked whilst studying abroad in Singapore for a semester) or interesting (i.e.
crossed the Amazon river whilst on exchange in Brazil). Its important to note that if in your CV
you have mentioned that you can speak the language of the place where you went on exchange
there is a high probability that you will have to answer this question in that language at some
point. For example, if you say that you can speak Chinese and you happened to go on
exchange to Shanghai, there is a large possibility that you get asked to answer this question in
Chinese by a fluent Chinese interviewer.
Can you multi-task?

They are not looking for the perfect multi-tasker, but what they want to see is that you are an
organized person that can tackle different projects at the same time. Always give specific
examples that show how well have you been able in the past to coordinate different activities at
the same time.
What do you do for fun?

There is no correct answer for this question. The interviewer is trying to know whether you are a
bookworm or if you have any life outside your university. Your answer should be honest and
direct, but try not to say things that can offend your interviewer. This is a simple question, dont
blow up your interview by trying to be cool (in your opinion).
What was your favorite class in college?

You dont have to say Accounting or Finance or Financial Markets Fundamentals. Try to pick a
class that you truly enjoyed (either because of the content or the teacher).
What are your favorite movies/books?

As long as you are balanced with your answers, this question shouldnt be a problem.
Tell me something interesting about you that's not included in your resume
This question is quite tricky. Since you always try to include every piece of worthy information in
your CV, you can feel there is nothing interesting about you not included there. You should do
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the effort to think about a couple of things and explain them. As always, give an answer that is
neither strange nor boring.
Do you have any questions for me?

You have to prepare for this one, as you will always be asked this question at the end of the
interview. Its a very good opportunity to learn about the firm and the position, and even to get
ideas for your the answer for a question in the next interview. Examples of questions:
Whats your background / work experience?
What do you like about working here? What would you change?
What kind of responsibility am I supposed to expect during my internship / as an

Analyst?
And any specific questions about the industry, financial markets and so to turn the
interview into a (friendly) conversation.
Can we continue this interview in XXX language?

Again, this question should be extremely easy unless you have lied on your CV, which is not
advisable (they usually discover it quite quickly). If the interviewer asks you to continue the
interview in a language you are not fully comfortable with (lets say you have an intermediate
level of French and the interviewer wants to continue in French), you should try to explain as
clear and simple as you can what level you have in that language (specifying your experience
with it) and that you would prefer to continue in English because you express yourself better in
that language. It is quite rare to be asked to continue an interview in a language in which you
are not fluent, but you never know.
Why did you choose to go to XX university?

Give reasons that are somehow linked to IB. Your goal is to come up with a story where you
have focused you career into IB, and that you focused your past work experience and education
to reach your goal. You should state that you chose your university for its quality, reputation and
because you felt that the education you were going to receive was top-notch.
Why did you major in XX?

This is a good way to introduce your genuine interest in finance, the markets and the business
world in general.
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What was your overall GPA?

Although its clearly obvious, you should not lie in this question. Banks undergo screening
processes prior to hiring you, so lying in this question is not acceptable (nor in any other
question...). If you have a good GPA, youre clear. If you do not, dont panic and try to explain
why your grades are not as good as they could be, without implying any strong weaknesses
(Im a bit lazy / I have problems concentrating). Also, try to stress the competencies you have
acquired during your education and how you could apply them for the position. Other question
similar to this are:
What courses did you do the best/worse in?
What awards did you win in university?
Have you held any leadership positions in university?
Tell me about your college experience

Your answer should be the one a balanced person would give. You have to show you are a
responsible person who does the work and studies hard, but you still have social life. Its all
about balancing work and personal life.
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Future Questions
Contrary to what you might think because of the number of hours that you work, nearly all
interns, and the first year or so of an analyst typically cost the bank more than what it receives in
return. Therefore because the bank is investing quite a sizable bit of money in you it wants to
make sure that youre planning on staying there for a while. That is why its important that you
respond to these questions showing that you are committed to the bank for quite some time.
Nobody expects you to know what youre going to be doing in 10 years, but they do want to
know that you plan on staying at the bank for the foreseeable future.
What are your long-term plans?

They are trying to measure your degree of commitment to the industry. It is OK to say that you
dont have plans for very long-term, but that you are thrilled by the perspective of becoming an
Investment Banking analyst. Its just about showing commitment, but dont sound as if IB is the
only job you would consider to do in the rest of your life.
With what other banks are you interviewing?

You should state the other banks you are interviewing with and the round you are in their
processes. In the means of possible, you should try to sound as if other banks are very
interested in you (without showing off). This is all about personal marketing, but you have to be
careful with what you say, you dont want to sound as if you are applying to their bank without
any interest in the position.
Why do you want to be an investment banker

Whatever you do, just dont say its for the money. You can emphasize your interest in the
industry and the discipline, past working experience and extracurricular activities you have done
in the past. It is important that you show enthusiasm (not too much!), motivation (again, not too
much!) and proactivity. They will want to know if you have the attitude, the mindset, the
willingness to sacrifice and the attention to detail.
Why do you want to work for our bank?

Here is where your previous research comes into action. You should demonstrate that you have
done your homework and that you know what does the bank do. Always structure your answer
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around three key pillars: the reputation of the bank, its strengths and its unique corporate
culture (in which you fit perfectly!). If you are applying to a BB, tell them how excited you are to
get a broad experience in the industry. If you are applying to a Boutique, tell them how much
you like a smaller firm where there is more client interaction.
What do you know about our bank?

Similar question to the one above, but you will have to be way more specific here. You should
focus on league table rankings, strengths of the bank, major events and recent transactions and
company-specific information (divisions, countries in which it operates, scope of business, etc.).
Other similar question might be:
Can you tell me some specifics about our departments/company organization?
Is your interest in finance genuine? Can you prove it?

Your interest in finance is genuine and you can prove it. You are not one of those who came to
Investment Banking because everybody did it or because your university told you, you were
interested in the markets and the industry way before that. You should also try to prove your
interest giving examples of past work experiences and university qualifications.
What motivates you?
Your motivations, your ambitions, your goals... Try not to sound like youre going to step on
every colleague to reach to the top. Instead, you can explain your future professional goals and
that you have the drive and the initiative needed to achieve your goals.
Are the hours a problem for you?
Do not answer this question saying that you can cope with all the hours easily and that they are
not a problem for you. Nobody will believe you. Investment Banking hours are very tough and
even the most prepared analysts suffer the lack of sleep. To answer this question, try to smooth
the problem by saying that the hours are just part of the job and that you are ready to pay that
price for the training, the insight, the broad experience and the opportunities investment
banking and the firm offer for your professional career.
What would you do if you did not have to work for money?
It wont be Investment Banking, you need a convincing answer for this one. It would be
advisable to step a little bit out of the crowd, but dont exaggerate. This is completely up to you,
give your best shot and know your story! Also, try not to sound superficial in your answer.
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Describe your ideal job

Again, a linking question. Try to link your ideal job with the job you are applying to, but do not
sound too obvious (that would be a huge mistake). You can say that you ideal job is doing what
you like to do, For example, if you could talk about how your ideal job would be one where you
could do the type of work that you would be doing in investment banking but with shorter hours.
Private equity firms are starting to recruit analysts straight out of college. Why dont you apply
there where the pay is higher and the hours are better?
Trick question! Even though many people go into banking hoping that they can later move onto
private equity its important that you stay committed to the bank that you are interviewing for. In
this case you should mention how your interest is not in buying companies but advising many
companies and how the exposure that you would get in an investment bank is not comparable
to the exposure that you would have in a private equity firm as an analyst where you would
maybe analyze a few companies vs. investment banking where you would get to analyze many.
Hence, even though the pay and the hours are slightly better, you learn much more in
investment banking.
What appeals to you about this position?

Go with everything here. There are three key points that you should include in your answer: 1)
the bank itself (its reputation, leading position, worldwide perspective, its values and corporate
culture...), 2) the people in the bank (because they are great!) and 3) the position itself
(exposure to real deals, learning opportunities, etc.).
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Character Questions
Even though mainstream media portrays investment bankers as some immoral sharks that
prowl wall street only thinking about their paychecks, the reality is that investment banking is a
job like any other, and the people that are going to hire you want to make sure that they are
hiring somebody that has character that fits in with the culture and values of the firm. Essentially
bankers want to see how you would react in different situations and what kind of personality
traits you have.
What are your strengths?

You are usually asked to list 3 personal strengths. As an analyst, you are expected to have
strong quantitative/numerical skills, ability and willingness to learn quickly and attention to detail,
among others. Again, try to do a little research on the values the company states in its website
and try to translate them into strengths. If the company is team-oriented, you should be a team
player. Its that simple.
What are your weaknesses?

Like above, you are usually asked to list 3 weaknesses. There are two important things you
should bear in mind in answering this question: 1) the weaknesses you state should not be a
dealbreaker for the interviewer (I am a heavy drinker), and 2) you should state in a quick line
how you are trying to improve on that point. It is also important that you do not state
weaknesses that are hidden strengths, you will come off as arrogant and petty (so avoid I
work too hard and stuff like that).
You spot a typo in a pitch book that has already been sent for printing, what would you do?
What the interviewer wants to know is whether you are resourceful in dealing with a problem or
not. You can answer by stating your action plan, which could be something like this: I would tell
my Analyst / Associate / VP so they are aware of the typo and try to propose solutions for it, like
1) make sure the pitch book is not sent to the client with the typo, 2) check if the printing job has
already been done and if you can correct the typo without significant delays, 3) if not, ask for
permission to correct the typo and send the work again to the printing services.
Tell me about a time when you failed to honor a commitment

Tough question. Try to keep the situation as subjective as possible, that is, try to make the
commitment as irrelevant to the interviewer as possible, without the commitment being stupid.
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Also, try to smooth it up by specifying any situation beyond your control and emphasize all the
efforts you made to correct it. You can use the STAR Technique in this question to structure
your answer, but dont forget the learning from my past errors part!
In your most recent internship, what feedback did you get? What are the key competencies you
acquired? What were your responsibilities?
The key in this question is give examples and associate them with the competencies the
position requires. They will want the feedback to know how did you get along with your
colleagues, and the competencies and responsibilities to know how well did you perform and
how much were you able to learn from the internship.
Describe yourself in 3 words / What would a friend say about you? What about a university
colleague?
Easy question if you are prepared. Give 3 characteristics about yourself and back them up with
examples. As always, try to link them with the requirements of the position and the general fit
profile of the firm. There is nothing difficult in these questions, the only thing you have to worry
about is the strength of your arguments.
Why should we hire you today?

This question is a unique opportunity to directly sell yourself. You should link your key
competencies and your CV experiences with the requirements of the position and the reasons
of why you feel you will be a good fit in the organization. If you can back it up with short, clear
examples, it will be a plus. Other question which is similar to this one is:
What do you think this position requires? How well do you match?
Why should we not hire you today?

You have to be careful with this one. You dont want to completely discard yourself, but you also
dont want to sound arrogant (I dont see a reason why you shouldnt hire me). Maybe you can
simply say that it could be because the bank is not hiring today (i.e. hiring freeze).
What has been your greatest failure?

As in the question about failing to honor a commitment, you should try to find a failure thats not
a dealbreaker for the interviewer, but that it is serious enough to be considered a real failure.
You can use the STAR Technique in this question, explaining the situation and what was at
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stake, your action in the situation and the results. As the results will have to be negative, try to
explain how you tried to correct the mistakes and learned from them.
What has been your greatest achievement?

Similar to the one explained above, you should try to find an achievement that best fits in the
purpose of this question, that is, assess how you act to reach success. Do not pick any
achievement that the interviewer may think as stupid (meeting-my-girlfriend kind of stuff).
Again, structure your answer using the STAR Technique to give a clear and concise answer.
Tell me a joke
A dog goes into an investment banking job interview, and the banker says to him, You've got
the job, but only if you can do three things. First, you have to be able complete an LBO model in
30 minutes. So the dog runs to a computer and astoundingly creates a full model in 30 minutes.
That's very nice! Next, you must be able to spread 10 comps manually in under an hour.
Immediately, the dog sits down at the computer and completes everything in only 30 minutes.
That's perfect! Lastly, you must be bilingual. So then the dog says, Meow!
Teach me something in 2 minutes

This question is aimed to evaluate your ability to summarize information in a clear and
structured way. Try to pick a topic which is not too difficult to understand, but stay away from
kindergarten stuff. For example, try to teach them about a project that you have presented
recently.
Sell me this stapler / this chair / something in 2 minutes

Similar to the one above, this question assesses your capacity to come up with good arguments
and defend a position in a quick, structured and clear way. Do not give arguments just for the
sake of it, try to be creative and persuasive, but keep it real. You can talk about the technical
specifications of the stapler, the superior comfort of the chair, etc.
What does it take to succeed in our business? Do you think you can succeed?
This is another linking question. What does it take to succeed? Attitude, motivation, team
work, etc. You should demonstrate that you have these qualities by referring to previous
experiences where you have needed to use them and how they have turned out. In other words
you should bring up the most important skills that you have and back them up with examples.
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Explain your role in a team project or any other group activity

The key in this question is the STAR Technique. Pick a group activity where you had a
leadership or close-to-leadership position. The interviewer will want to know if you are a team
player, if you can organize your tasks and other peoples tasks and if you are good coordinating
a team.
Describe a situation where teamwork failed

STAR Technique again. As in other similar questions, explain how did you manage the failure,
how did you try to correct it and what were the results; and what lessons did you learn so you
dont repeat past errors.
Can you think of any ethical conflict you have encountered? How did you act?
Although you may think ethics are not important in banking, all banks make a lot of efforts to be
ethical. Using the STAR Technique, you should explain the situation and the ethical conflict,
what was your responsibility and your tasks, how did you take action and what were the results.
Try to choose an ethical conflict that would also be a conflict to the interviewer, dont make it too
subjective. Its all about giving an example that is not extreme, where the interviewer can see
him or herself involved.
What's your leadership style? Are you a leader or a follower?

The key to this question is flexibility. The question will try to test your capacity to step aside
when the situation needs it. You have to make clear that you have the leadership skills to lead a
group of people and work together to achieve your objectives, but that you also recognize those
situations where other people are leaders and that you are the collaborative type of person who
pushes for the team.
Give me an example where you came with a creative solution to a problem

This is a classical situation question, so use the STAR Technique and give an example that
adjusts to what they are looking for, which is your ability to think outside the box and come up
with innovative or creative solutions to problems. Try giving an example of a situation in a
business context, it will add value.
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What events have had the most impact on your life?

The only advice here is keep it real, with your feet on the ground. The example must be tangible
in the sense that the impact on your life should be measurable for someone who doesnt know
you. A balanced situation is key.
How do you define stress and how do you manage it?

Everybody will have their own definition for stress, so we wont impose that. This question is
about your ability to work under pressure, so what you have to make sure is to ace it in the how
do you manage it part. You want to project the image of a person who will not freak out when
youre under a lot of pressure and that you are able to organize yourself and work with tight
deadlines without compromising the quality of your work.
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Verbal and Numerical Tests

After submission of the online application, you will be asked to sit an online verbal and
numerical test (tests vary by bank, verbal tests are not done in every bank). Banks typically
outsource the pre-screening process to two main providers: Kenexa and SHL. Kenexas test are
friendlier than SHLs in the sense that you can go back to past questions, so you can skip or
return to check your answers. You will typically be given 20 minutes to answer 15-18 questions.
Verbal Tests
Verbal tests are designed to test your reading comprehension in a foreign language. The test
consists in a series of texts of which you will be asked 3 questions, answers being True, False
or Cannot Say. Although it may seem easy, these tests are also timed and a quick
understanding of the text is crucial.
Hint: you should answer your questions based on the information provided in the text, and
ONLY on that information. It doesnt matter if you know the answer, if its not in the text you
dont know it. It is also common to find questions that can be influenced by a personal opinion.
Numerical Tests
The best way to ace these tests is by practicing. However, there are some formulas and tricks
you should use to speed things up in the easy questions, so you have more time for the tougher
ones. Remember: it is very important that you practice this tests, because apart from testing
your numerical skills they also test your time-managing skills.
Some tricks and formulas

1. Growth between Year 1 and Year 2: (Year 2 / Year 1) - 1
2. Value given growth:
a. Year 1 x (1 + Growth) = Year 2
b. Year 2 / (1 + Growth) = Year 1
3. Geometrical growth or Year on Year (YoY) growth between Year 1 and Year N: Growth
= (Year N / Year 1) ^ (1 / (N - 1)) - 1
4. Value given geometrical growth:
a. Year 1 x (1 + Growth) ^ N = Year 2
b. Year 2 / (1 + Growth) ^ N = Year 1
5. Number of years to reach X value:
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a. Number of years = ln (Year N / Year 1) / ln (1 + Growth)

b. Rule of 72: to calculate what it takes to double an amount, just divide 72 by the
growth rate expressed in 100s to have an approximation of the number of years.
Example: an investment to double at a 15% rate would take (72 / 15) = 4.8 years.
6. Proportions
i.
Odds: when you have X:Y, the proportion of X is X / (X + Y)
7. You will be asked to use spot and forward rates to calculate a certain amount of money.
Its all about practicing with the exchange rates of the bridge currency.
Where to practice?
The key to verbal and numerical tests is practice so we strongly recommend that you train
online using the various websites that provide this sort of information. Here are some useful
links:
http://www.shldirect.com/practice_tests.html
http://www.psl.com/practice/
http://www.assessmentday.co.uk/
http://practicetests.cubiks.com/default.htm
http://students.efinancialcareers.co.uk/numerical_test.htm
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Investment Theory Overview

Investment theory covers what tools that are needed to cover the decision-making process of
choosing investments. We will cover Modern Portfolio Theory, the Capital Asset Pricing Model
and the Efficient Market Hypothesis.
Modern Portfolio Theory

The Modern Portfolio Theory (MPT) is an investment theory that aims to maximize the
expected returns of a portfolio for the level of risk that is assumed by the manager of that
portfolio. In order to be able to relate the expected returns with the equivalent levels of risk the
portfolio manager has to carefully select proportions of different assets. The MPTs primary
innovation was to recognize that risk must be measured, not in terms of each security, but by
how the risk of each security relates to those of other securities in the portfolio (Chernoff, 2002).
The Modern Portfolio Theory gained great importance in the latter part of the 21st century and its
creator, Harry Markowitz, won the Nobel Prize for Economics in 1990. However, since then the
model has been heavily criticised because of the assumptions that it makes. Lets take a closer
look at the model in order to fully understand its strengths and its flaws.
Basic Assumptions1: The Underlying Assumptions of Modern Portfolio Theory In order for
Modern Portfolio Theory to function, it requires several underlying assumptions. These
assumptions have been challenged in the recent market activity of 2007 to 2009 and include:
1. Investors act rationally: Clearly, the liquidity-lead bull market escalation in asset values
from 2002 to 2007 could be described as irrational exuberance. The market, which is a
clearinghouse for risk and not a measure of risk in and of itself, was not pricing risk
appropriately. As more money flowed into the capital markets, leverage increased and
expected returns were distorted from reality. As the markets seized up in late 2007 and
ultimately collapsed in 2008, investors again acted irrationally as securities were
liquidated regardless of relative valuation.
2. There is no friction in the market and capital flows freely between a buyer and seller. As
the capital markets seized up in 2008, leverage was forced out of the financial system
faster than the system could handle. Examples of this deleveraging included: banks
stopped lending to each other; banks stopped lending to businesses and consumers;
corporations could not place commercial paper; and corporations could not borrow in the
public market. As a result of this unprecedented seizing in our capital markets, the U.S.
Source: Winthrop Capital Management
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government implemented several programs that were designed to transfer the leverage
in an orderly manner from the private sector to the government. The existence of these
programs gnaws at the feet of free market capitalism. They also fly in the face of this
important assumption that allows Modern Portfolio Theory any practical application.
3. Investors consider each investment alternative as being represented by a probability
distribution of expected returns over some holding period. This implies that historic
returns are representative of future expected returns. And, since investment returns are
deemed to be random, it is fair to say that expected returns are random as well. This is
much like driving a car while looking in the rear view mirror.
4. There is a positive relationship between risk and return. Over long time frames, there
has been a positive return to both stocks and bonds. However, this relationship can
breakdown over short and intermediate time frames. There is no axiom in the investment
business that investment returns will always be positively correlated to risk.
5. Investors estimate risk on the basis of the variability of expected returns. Markowitzs
theory assumes that all investors desire to reduce the variability of their investment
returns. The value of MPT was that it brought a measure of risk into the analysis of
expected returns in financial assets. It accomplished this through the notion that it would
be a good thing for investors if the variability of returns was minimized over a measured
time period. The variability of returns is measured by the variance or standard deviation.
While we would agree that standard deviation is a measure of risk, it is not the measure
of risk. Investors may have other risk measures, such as a need to maximize the liquidity
of a portfolio, the need to protect a portfolio from rising interest rates the need to
maximize the income of a portfolio while minimizing its exposure to default risk, or the
need to protect the portfolio from permanent value impairment
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Accounting and Financial Statements

Questions regarding Accounting and Financial Statements require you to have basic accounting
knowledge and to understand the connections between the three statements. Generally, the
questions you are expected to answer require you to explain the impact on the financial
statements of a given situation.
Complete information about a companys financial statements can be found in quarterly results
and yearly results, usually found in the companys website or in the local financial regulator
website. For example, for quarterly data on US companies you can refer to form 10-Q by
searching in the SEC Database (EDGAR).
Balance Sheet
Provides information on a companys assets and its capital structure (equity and liabilities/debt).
The basic equation underlying the BS is Assets = Liabilities + Equity.
The basic elements of the Balance Sheet are explained below:
Assets: what the company owns. Assets are the resources the company uses to
generate profits.
Liabilities: what the company owes. Liabilities are the sources of funds have been
borrowed by the company to fund operations.
Equity: represents the funds that the shareholders used to fund the company and start
the business.
The basic components of the BS are divided in two

different groups: current and non-current accounts.
Current accounts refer to assets and liabilities that are to
be held in the balance sheet for up to one year or one
operating cycle of the business. Non-current accounts
refer to assets and liabilities that are not expected to be
sold or settled within one year or one operating cycle of
the business. A balance sheet with separated classified
current and non-current accounts is referred to as
classified balance sheet (in opposition of the liquidity-
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based presentation, which ranks the balance sheet accounts in liquidity order).
Income Statement
The Income Statement presents the financial results of a company. It gives information on
revenues, costs that had to be paid and the net profit (loss). Therefore, the basic equation
underlying the IS is Revenues - Costs = Net Profit (Loss), ignoring the effect of gains and losses
that can arise from non-recurring events or extraordinary activities.
The major lines of the Income Statement are:
Revenues: what the company has sold during the year
Expenses: what were the costs incurred in the production and selling of the
products/services and the costs incurred in operating the business.
EBIT: Earnings (Revenues - Expenses) Before deducting Interest expense on debt and
other interest bearing liabilities and Tax.
EBITDA: EBIT + Depreciation and Amortization of tangible and intangible assets.
EBT: Earnings Before deducting corporate Tax.
Net Income (Loss): what is left for the shareholders of the company after deducting all
costs and taxes.
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Statement of Cash Flows

The Statement of Cash Flows reflects all the cash movements (cash receipts and cash
payments) the company has had in a period of time. Although income is very important to
assess the financial viability of a company, cash flow is also essential, since it gives you
information about the cash position of the company and its ability to transform business in cash.
Therefore, the Cash Flow Statement reconciles the cash in the beginning of the period and the
ending balance at the end of the accounting period.
There are three major types of cash flows:

1. Operating Activities: includes all cash receipts and payments made in relation of the
normal business activities and operations, such as net income, changes in accounts
receivable, changes in inventory and changes in accounts payable.
2. Investing Activities: includes all activities considered as an investment for the company,
like the purchase (or sale) of a long-term asset.
3. Financing Activities: includes all cash transactions that are made to obtain or repay
capital, whether it is equity or debt. It includes cash inflows from equity issuance and
cash outflows from repayment of debt.
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Connecting the Financial Statements

The three Financial Statements are dependent on one another, either directly or indirectly, so
you are expected to know the links between the Statements. There are some basic accounting
rules that can help you linking them. These are:
Asset UP = Cash Flow DOWN / Asset DOWN = Cash Flow UP
Liabilities UP = Cash Flow UP / Liabilities DOWN = Cash Flow DOWN
The major connections of the Financial Statements follow the BASE rule (Beginning, Additions,
Subtractions, Ending).
Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings
Beginning Cash Balance + Net Change in Cash = Ending Cash Balance
Beginning PP&E + Capital Expenditures - Depreciation - Write-downs = Ending PP&E
Beginning Debt Balance + Debt Issuance - Debt Repayment = Ending Debt Balance
Cash Flow from Operating Activities includes Net Income and changes in Current Assets
and Liabilities (or changes in Working Capital)
Cash Flow from Investing Activities includes changes to Long-Term Assets
Cash Flow from Financing Activities includes changes to L/T Liabilities and Equity
Putting it all in common

What do interviewers expect from us? Its simple, they will want you to explain the impact of an
economic or financial event (increase in revenue, an asset write-down, etc.) in the three
financial statements. You should always explain the changes in the following order: IS, CFS and
BS.
Hint: remember the tax effect on some of the changes!

IS/BS Changes
Change in...
Impact
Revenue
IS: Revenue, Gross Profit, EBIT, EBT and

Net Income
CFS: Net Income, CF Operating and Change
in Cash
BS: Cash and Equity
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COGS
IS: Gross Profit, EBIT, EBT and Net Income

CFS: Net Income, Working Capital, CF
Operating and Change in Cash
BS: Cash, Inventory and Equity
Operating Expenses
IS: EBIT, EBT and Net Income

CFS: Net Income, CF Operating and Change
in Cash
BS: Cash and Equity
Depreciation
IS: EBIT, EBT and Net Income

CFS: Net Income, Depreciation,
Operating and Change in Cash
BS: Cash, PP&E and Equity
CF
Asset/Liability Write-Down
IS: EBT and Net Income

CFS: Net Income, Write-Down, CF Operating
and Change in Cash
BS: Cash, Asset/Liability and Equity
Current Assets
IS: No Changes
CFS: Working Capital, CF Operating and
Change in Cash
BS: Cash and Current Assets
Current Liabilities
IS: No Changes
CFS: Working Capital, CF Operating and
Change in Cash
BS: Cash and Current Liabilities
Cash Flow Statement Changes
Changes in...
Impact
Capital Expenditures
IS: No Changes
CFS: CapEx, CF Investing and Changes in
Cash
BS: Cash and PP&E
Investments
IS: No Changes
CFS: Investments, CF Investing and Change
in Cash
BS: Cash and Investments
Dividends
IS: No Changes
CFS: Dividends, CF Financing and Change in
Cash
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BS: Cash and Equity

Issue (Repay) Debt
IS: No Changes
CFS: Issue Debt, CF Financing and Change
in Cash
BS: Cash and Debt
Issue New Shares
IS: No Changes
CFS: Issue Shares, CF Financing and
Change in Cash
BS: Cash and Equity
Accounting and Financial Statements Questions

What's the difference between the IS and the CFS?
The Income Statement gives information about the economic situation of the company, how
much has it earned as a result of its operations in an accounting period. The Cash Flow
Statement gives us information about the cash inflows and outflows of the company.
What are the links between the BS and IS? BS and CFS? IS and CFS?
You have the major links in the previous table. It is not common for an interviewer to ask this
question expecting you to know every single link.
How would a machinery all-cash purchase affect the three statements in year 0? Value: $100
Assuming that we purchase the machinery on Jan 1:
IS: there will be no effect on the Income Statement.
CFS: a use of cash of $100 in Cash Flow from Investing Activities.
BS: cash decreases by $100 and PP&E increases by $100.
How would a machinery all-cash purchase affect the three statements in year 1? Value: $100
IS: assuming a 10% amortization with no residual value and a 30% tax rate, net income
would decrease by $7
CFS: cash flow from operations would increase by $3
BS: PP&E decrease by $10, cash increases by $3 and retained earnings decrease by $7
How would the all-cash sale of the machinery affect the three statements in year 2 for $90?
IS: assuming its at the beginning of year 2, no amortization applies, so no affect to IS
CFS: cash flow from investing would increase by $90

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BS: cash would increase by $90, PP&E would decrease by $90
Is D&A a cash expense?

Depreciation & Amortization is not a cash expense. Its a provision you make (you set aside
some funds) to replace your equipment / intangible assets when they become useless.
What are the three major lines of the Cashflow Statement?

The three major lines of the CFS are the Cash Flow from Operating Activities (what the
business generates), the Cash Flow from Investing Activities (the capital expenditures the
company makes) and the Cash Flow from Financing Activities (the cash inflow and outflow
resulting from the financing activities of the company, like bond issuances, dividend payments,
etc.)
What is FIFO? How does it affect the three statements?

FIFO means First In, First Out. If a company manages its inventory using FIFO, in an
environment of rising prices, we will have lower COGS, higher gross profit and higher net
income, higher inventory balances, higher working capital and lower cash flows.
What is LIFO? How does it affect the three statements?

LIFO means Last In, First Out. If a company manages its inventory using LIFO, in an
environment of rising prices, we will have higher COGS, lower gross profit and lower net
income, lower inventory balances, lower working capital and higher cash flows. LIFO is not
allowed under IFRS but common under US GAAP.
What are deferred tax assets/liabilities?

They are created when taxable income (on tax return) is not equal to the pre-tax income on the
financial statements due to temporary differences. Deferred tax assets are created when
taxable income > pre-tax income, and we must recognize a valuation allowance if its more likely
than not that the DTA will not be recognized. On the other side, deferred tax liabilities are
created when taxable income < pre-tax income.
How can an aggressive revenue recognition policy affect the financial statements?
Yes. With an aggressive revenue recognition policy, a company can overstate its earnings
during an accounting year, resulting in a higher Net Income for the first years. But when part of
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those earnings do not materialize, the company will have to restate its earnings and will incur in
losses due to the revenue overstatement. An aggressive revenue recognition policy can be
considered accounting fraud, as the examples of WorldCom and Enron illustrate.
How do deferred/accrued assets/liabilities arise?

They arise when there is a temporary difference between the time we record a cash transaction
and the time we recognize the revenue/expense on the income statement. For example, when a
company pays for insurance, it must pay a lump sum per year. That lump sum is recorded as a
cash expense, but the company will not recognize the expense until a full month has passed.
During that period, the company will account for it as a prepaid expense, an asset.
Why do we test goodwill for impairment?

Goodwill is the difference between the price we paid for a company/asset and its fair value. We
will test goodwill for impairment annually and will recognize a loss when the value of the
goodwill on the balance sheet is higher than its fair value.
How would a machinery debt purchase affect the three statements in year 0?
Assuming that we purchase the machinery on Jan 1 and that debt is non-amortizing with a 5%
interest payment:
IS: there will be no effect on the Income Statement.
CFS: a use of cash of $100 in Cash Flow from Investing Activities and a source of $100
in Cash Flow from Financing Activities, so cash balance remains neutral
BS: PP&E increases by $100, long term debt increases by $100
How would a machinery debt purchase affect the three statements in year 1?
IS: assuming a 10% amortization with no residual value and a 30% tax rate, net income
would decrease by $10.5
CFS: cash flow from operations would decrease by $0.5
BS: PP&E decreases by $10, cash decreases by $0.5 and retained earnings decrease
by $10.5
How would the sale of the machinery affect the three statements in year 2 for $90?
IS: assuming its at the beginning of year 2, no amortization applies, so no affect to IS
CFS: cf from investing would increase by $90, cf from financing would decrease by $100
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BS: cash would decrease by $10, PP&E would decrease by $90 and debt would
decrease by $100
Valuation
You will be expected to know some specific details about some of the most commonly used
valuation methods in the industry. These are: comparable companies (or comps), precedent
transactions, discounted cashflow (DCF) and leveraged buyout (LBO) analyses. There are other
valuation techniques, like Sum Of The Parts (SOTP), liquidation value, etc.
Interviewers will ask you all types of valuations questions, from simple questions (like defining a
valuation method) to more tougher ones (perform a simple LBO valuation). These interviews are
known as technical interviews. You are not expected to be a valuation geek, but it will surely
make you stand out of the crowd if you demonstrate your interest and your knowledge in
valuation, since it is one of the core tasks in this industry (recall the Common Analyst Tasks
we discussed earlier).
These valuation methods should be combined when valuing a company, since each method has
its advantages and constraints when giving a meaningful valuation. The typical valuation
analysis will combine these methods in a football field, which is a graph in which you plot the
different value ranges these methods have given in order to judge and perform a final analysis
to reach to a final valuation of a company, business or group of assets.
General Valuation Questions

What are the major valuation techniques?
They are Comparable Companies, Precedent Transactions, DCF and LBO.
Rank the valuation techniques

Precedent Transactions, Comparable Companies or DCF, LBO. Precedent transactions usually
ranks first because of the synergies and control premium, Comparable Companies and DCF
usually share the position (depending on the market sentiment and assumptions made), and
LBO usually ranks last because since the financial sponsor requires a high IRR for the
transaction, the purchase price is usually lower.
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What could a company do with excess cash on its balance sheet?

It can engage in positive-NPV projects or return cash to its shareholders via dividends or share
repurchase plans. It can also engage in strategic takeovers or any other M&A activity.
What can you do with a non-performing part of a company?

You can divest the assets to the shareholders or sell them in the market. To sell them, you
would ask an investment banker to search for a buyer. If more than one buyer is interested in
the assets, the investment bank and the company will negotiate with them, either by private
negotiations and a bidding war between the companies or by a simple auction.
What is a strategic buyer?

A strategic buyer is typically a company from the same sector of the target company (usually a
competitor). The strategic buyer is usually willing to pay more for a company than the financial
buyer, due to its ability to realize synergies from the transaction.
What is a financial buyer?

A financial buyer or financial sponsor is typically a Private Equity or Hedge Fund. A financial
buyer cannot compete in price with the strategic buyer, due to its IRR requirement that pushes
the financial sponsor to offer a lower price.
What are the possible considerations for a merger or acquisition?

A merger or acquisition can be paid both in cash or stock, or a mix of both.
What are synergies? What types of synergies are there?

Synergies can be either cost synergies or revenue synergies. Cost synergies are cost
reductions that arise from the transaction, due to the infrastructure combination or redundancies
in the cost structure of the resulting company. Revenue synergies are revenues that are
expected to be realized due to the combination of businesses (cross selling opportunities, new
product base, R&D, etc.). Revenue synergies are very difficult to predict and are not always
forecasted in the valuation analyses.
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What is a hostile takeover?

A hostile takeover is a takeover in which the management of a company does not recommend
the purchase price offered by the acquiring company and the buyer decides to still pursue the
acquisition.
Can you explain me a recent M&A deal?

This should be obvious, but pick a recent M&A deal in which the bank you are applying is or has
been involved. You should be able to give as much information as you can about the deal:
companies involved investment banks involved, specific details of the transaction, valuation
metrics, etc. You will find the information in Reuters, Dealbook, Bloomberg, MergerMarket, etc.
Can you give me an example of two companies that should merge? Why?
This is a simple and straightforward question. Try not to propose a merger or acquisition of two
very large companies, as your interviewer will ask you about possible antitrust issues. Try to
pick two small companies you know well and back your answer with as much information as you
can on the companies, the sector, etc. Also, pick two companies from the sector you said you
are interested in (should be obvious).
Why do companies pay a premium for the companies they acquire?

In a takeover, the acquiring company gains full control of a company. The existing shareholders
will typically demand a control premium to the acquiring company, as a compensation for the
reduction of their influence in the companys decisions.
What is a poison pill? Why is it used?

A poison pill is a strategy that some companies use to defend themselves from the attack of a
company interested in acquiring the company. The strategy can be a flip-in, where the existing
shareholders (excl. the acquirer) have the right to buy more shares at a discount; or a flip-over,
which allows existing shareholders to buy the acquirers shares at a discount after the merger.
What we mean when we say that a merger has been accretive/dilutive for the shareholders?
An accretive deal is an acquisition in which the shareholders of the acquiring company see a
rise in the EPS of the resulting company. A dilutive deal is just the contrary.
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What does the concept "money left on the table" mean?

In an IPO or SEO, the money left on the table is the difference between the price at which the
company started trading and the price at close, times the number of shares outstanding. For
example, if a company is offered at $25 per share and closes at $50, the company has left on
the table (50 25) = $25 per share. That money has gone to the investors who dumped the
shares in the secondary market instead of going to the company. Its the money the company
could have raised should the price was the price at close at the first day of trading.
What is an IPO?
An Initial Public Offering is the issuance of shares in the primary market for the first time. A
company will do an IPO if it needs cash to fund operations or as a means of exit for Private
Equity Funds that want to monetize its investment.
What is a SEO?
A Seasoned Equity Offering is the issuance of shares in the primary market, but not being the
first time. The rationale is the same as IPOs.
Why can a merge or acquisition fail?

There are many reasons. An acquisition can fail either because the expected synergies have
not materialized regulatory issues or inability to sell specific assets that were intended to be
sold. The biggest problem is integration and corporate culture tensions between the acquirer
and the acquired company.
What are the rationale of mergers and acquisitions?

A company may want to merge to increase its position in the market, to enter a new market or
segment, to diversify its product portfolio or just because of an industry consolidation.
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Comparable Companies Analysis

Comparable companys analysis provides a market benchmark, against which an analyst can
reach to a valuation of a company, business or assets. Therefore, this analysis captures the
current market sentiment on the companies that are thought to be comparable to the one we are
trying to value (more on this later).
The analysis is quite simple: all you have to do is benchmark the comparable companies (peer
companies) against one another based on various financial statistics and ratios. We then
calculate trading multiples for this universe and apply them as a proxy to the financial statistics
and ratios of our target company. The multiples use a measure of value (Enterprise Value or
Equity Value) in the numerator and a financial statistic (EBIT, EBITDA, EPS) in the
denominator.
The rationale of this valuation method is quite simple: similar companies should trade at similar
multiples. In order to get the value of the target company, we have to extrapolate the sector
multiples to the target companys specific data, and reach a valuation.
There are 5 simple steps to perform a comps analysis:
1. Screening and Universe Selection
2. Financial information research
3. Spread financial statistics and ratios and compute multiples
4. Benchmark
5. Perform the valuation
Screening and Universe Selection

The main goal is to identify companies that are similar to our target company, called peer
companies. We will include a company in our universe if it meets the following criteria:
Business profile:
o
Sector: the company operates in the same sectors and sub-sectors as the target
company.
Products and services: the company offers similar products and services as the
target company.
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Customers and end markets: the company has a similar customer base as the
target company. The end markets (the underlying markets in which the products
and services of the company are used) are also important.
Distribution channels: the company uses the same distribution channels as the
target company.
Geography: the company operates in the same countries or the same

geographical area as the target company. This is very important, since a
company meeting the above criteria operating in the US may not face the same
economic drivers, growth, consumer preferences and cultural background as
other company operating in the Middle East.
Financial profile:
o
Size: the companys market capitalization must be similar to the target company.
Size can vary the trading multiples (large caps do not trade at the same multiples
as small caps), as well as other business-specific characteristics, like economies
of scale, customers, etc.
Profitability: the companys profitability (measured by ratios) has to be similar to

the target companys profitability, since more profitable companies have higher
valuations than companies with low or no profitability.
Growth Profile: the growth profile is also very important, since the market
discounts into the share price (and hence the multiples) the growth opportunities
and potential profitability of a company.
Credit Profile: the credit profile also affects the valuation, since a company with a
lot of debt will not have (or should not trade at) the same multiple of a debt-free
company.
Financial Information Research

In order to move on to the next step, we have to find all the financial information needed. This
information can be found in the SEC filings (for US companies), investor relations websites,
earnings announcements, annual and quarterly reports, equity research reports, consensus
estimates, press releases, etc.
Spread financial statistics and ratios and compute multiples

The calculation of multiples is very simple; the only thing you have to bear in mind is to use the
adequate metrics and drivers. The key here is the capital structure: you will either have to deal
with metrics that take into account the capital structure (usually equity metrics like net income,
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dividend yield, or EPS), or metrics that do not take it into account, that is, metrics that include
both equity and debt (like sales, EBIT, or EBITDA).
For the metrics that only matter to equity, we will use the Equity Value (EqV). Equity Value is the
market capitalization of a company (shares outstanding x share price). You will not typically be
asked to compute the fully diluted shares outstanding (includes stock options that are in-themoney, warrants and other convertible securities). We will not cover how to calculate it, since it
is not a typical interview question, but you should know what it is.
For the metrics that take into account the whole company, we will use the Enterprise Value
(EV). The Enterprise Value is the value of the whole company, what a buyer would pay for a
company assuming no control premium or synergies. It is calculated as follows: Equity Value +
Total Debt + Preferred Stock + Non-controlling (Minority) Interest Cash. Intuitively, the
Enterprise Value is what you would be left with if you acquire a company (note that cash is
subtracted, since you are essentially buying cash for cash).
After computing the Equity and the Enterprise Values, we can start computing the trading
multiples. The most typical ones are:
EV/Sales.
EV/EBIT.
EV/EBITDA.
EqV/Net Income, which is called Price-to-Earnings ratio (P/E).
The above multiples are the most commonly used. Note that Sales, EBIT and EBITDA are
financial statistics available to all share and bond owners (the entire capital structure). Hence,
they are compared to Enterprise Value. However, Net Income is only available to equityholders, so we use Equity Value to compute the multiple.
Every sector has its sector-specific valuation multiples. It is advisable to review the multiples of
the sectors you are most interested in to demonstrate your knowledge on specific valuation.
Some sector-specific multiples:
Telecommunications: EV/Population, EV/Subscribers, EV/Fiber Miles, etc.
Retail: EV/EBITDAR (EBITDA and Rent Expense), EV/Square Footage.
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Metals&Mining,
Natural
Resources,
Oil
&
Gas:
EV/Production,
EV/Capacity,
EV/Reserves
Financial Institutions: EqV/Book Value, EqV/Tangible Book Value, etc.
Benchmark
After spreading all the trading multiples and the necessary information, the analyst will perform
a benchmark in order to come up with a multiple range. The analyst will have to discard outliers
and do the necessary adjustments. The mean, the median, the 25th percentile and the 75th
percentile are useful measures analysts use to a meaningful multiple range.
Perform the Valuation

After getting the multiple ranges, the analyst will apply the multiples to the financial statistics and
ratios of the target company, therefore coming up with a valuation. This valuation will have the
following Pros and Cons:
Pros
o
Market information: is used, so the valuation captures the current sentiment on

the sector.
Relativity: the company is benchmarked to its peers.
Ease of use: easy to compute and to update.
Cons
o
Market information: can be skewed, since investors are not always rational in
their expectations.
Peers limitation: there may not be any truly comparable companies in the
industry, leaving this method completely useless. Also, the use of the valuation
using peers can leave out of the equation company-specific issues.
Intrinsic valuation ignored: market expectations can completely ignore the

intrinsic value of the company (again the irrationality of the investors).
Comparable Companies Comps Questions

What are the pros and cons of using comps?
Long story short, the pros are that you capture the market sentiment and it is easy to compute,
and the cons are that market information can be skewed and the fundamental value of the
company may be ignored.
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What are the most common multiples for comps/precedent transactions?

The most common multiples are EV/EBIT, EV/EBITDA, EV/Sales and the P/E ratio.
Can you give some examples of industry-specific multiples?

You should have in mind one or to sectors/industries that you like before the interview. Once
you have them, try to learn as much as you can of the sector dynamics. You should be able to
list some of the multiples of the industries. This is a very simple question provided you have
done your homework.
How would you value a start-up company?

A start-up company rarely has any meaningful earnings, so the best approach to value a startup company is to use the EV/Sales multiple. If the company has no sales at all, try to use other
drivers like the number of subscribers in a webpage for a technology company, or the
production capacity for a power company that is just starting.
Why do we use EV/EBITDA instead of EqV/EBITDA?

This is a very simple question. EBITDA stands for Earnings Before Interest, Taxes, Depreciation
and Amortization. Whenever Interest is included in the financial statistic, it means that the metric
takes into account the bondholders of the company, and therefore we should use Enterprise
Value, since the Equity Value is the value of the equity excluding debt (bondholders).
What is Enterprise Value? How do you calculate it?

Enterprise Value is the value of the whole company, the value that a buyer must pay in order to
acquire the company. To calculate it, you add up the Equity Value, Net Debt (Net Debt = Debt
Cash), non-controlling interests and preferred stock.
What is Equity Value? How do you calculate it?

It is the value of the equity ownership of the company, the value of the residual claim the equity
has in the companys assets. The Equity Value is the market capitalization of the company, that
is, the number of shares outstanding times the price of the shares.
Comparison of two companies by using comps
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When comparing two companies using comps, we have to make sure they meet the criteria to
be truly comparable. These criteria are detailed above. You may be asked to find the difference
between companies with different EV/EBITDA multiples, for example. You should try to find the
criteria that are not met in order to justify the difference in the multiple.
Walk me through a comps analysis

You first screen and select the universe of comparables. After that, you will spread the financial
statistics and ratios and calculate the trading multiples. After that, you will benchmark them and
try to extrapolate the sector multiples, making the necessary adjustments. You will then apply
them to the target companys financial statistics and ratios and come up with a valuation.
Comparison of two companies with different composition of IS, what multiple do you choose?
You will have to take into account the cost structure of the company and choose the financial
statistic that fits into our analysis. For example, if a company rents its machinery and the other
one buys it, you will not use EBIT, since the company that owns the machinery will have to pay
for D&A and its multiple will be lower. For the sake of comparability, you will use EBITDA as
your statistic (depending on how the other company pays the rent expense, since EBITDA will
not be suitable if the company pays rent on an operating basis).
What adjustments do you have to make to a comps analysis?

You will make the necessary adjustments to discard from your analysis those companies that
have very low or very high multiples (outliers), since they can skew the valuation.
What is P/E and why is it used? How do you calculate it?

The Price-to-Earnings Ratio (P/E) represents how much is paid for 1 monetary unit of the
companys earnings. The P/E ratio also reflects the market expectations of a company: when it
is very high, the company is expected to grow at a faster rate than when the multiple is low. It
can also reflect the general attractiveness of the company in the market. It is calculated dividing
the companys market capitalization by its earnings or, alternatively, dividing the share price by
the earnings per share (note that the former accounts for the whole equity ownership and the
latter is in a per share basis).
Precedent Transactions Analysis

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Precedent transactions use the same approach as the comparable companies analysis. The
process is as simple as the comps process: find past transactions that are comparable (the
companies involved are comparable) to the target company or the company we are trying to
value. After that, we will compute specific multiples taking into consideration the total amount
paid for the company.
The steps for this valuation method are the same as the comps analysis:
1. Screening and Universe Selection
2. Information Research
3. Spread financial statistics and ratios and compute multiples
4. Benchmark
The only difference in the process is that instead of looking for comparable companies, we are
looking for acquisitions or transactions that involve companies that are similar in nature to the
company we are trying to value.
It is important to distinguish between two types of buyers: the strategic buyer and the financial
sponsor. The strategic buyer will pay higher prices (Enterprise Values) for the companies than
financial sponsors. The rationale is simple: a strategic buyer can realize synergies from the
acquisition. The financial sponsor, however, has higher cost of capital and higher return
requirements, so it is unable to compete with the strategic buyer in a bidding war.
The valuation using this method will have the following Pros and Cons:
Pros:
o
Market information: is used, so the market sentiment is captured in the valuation

of the target company. The information will display current (if the transactions are
recent) conditions concerning M&A transactions and capital markets.
Relativity: again, the multiples approach and the benchmark allow valuing the
company relative to its peers and how much it was paid for them.
Ease of use: easy to compute, avoids making assumptions.
Cons:
o
Market information: can be also skewed depending on investor expectations and

M&A environment.
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Time: precedent transactions may not be representative for the company or the
sector itself in a given time period.
Existence and information: there may not be any transactions comparable for the
company we are valuing or the information on the deals is very limited.
Acquirers valuation: can be wrong or can assume conditions not given in the
market at the point of the valuation.
It is quite important to note (it is a must-ask question in an interview) that Precedent

Transactions will generally yield a higher valuation than the rest of the valuation methodologies,
due to the fact that synergies expected to be realized and the control premium for the stock are
included in the purchase price, and therefore they flow into the multiple.
Precedent Transactions Questions

What are the pros and cons of using precedent transactions?
No explication needed. Just list them and make sure you give a clear and concise answer.
Does precedent transactions always yield a higher valuation than the other methodologies?
Precedent transactions usually yield a higher valuation than the other methodologies because
the multiples used in the comparable transactions universe implicitly include the synergies
expected on the deal and the control premium. However, it depends on the market sentiment: if
a companys comparable transactions were completed in a period of market turmoil and in the
moment of the analysis the market is extremely high, the comparable companies analysis may
give a higher valuation for the company. It would be the same for the DCF analysis if the
assumptions are extremely optimistic, although this is very improbable.
Walk me through a precedent transactions analysis

It is the same process as the comps question but using precedent transactions. You should
have any problem with this type of questions.
What adjustments do you have to make to a precedent transactions analysis?

It would be advisable to discard those deals in which the M&A market or the capital markets
were extremely optimistic or pessimistic at the time of the transaction for obvious reasons.
Discounted Cash Flow (DCF) Analysis

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Discounted Cash Flow (DCF) is a fundamental valuation methodology, that is, it takes into
account the free cash flow generating power of the company. The current market conditions do
not affect as directly as in the previous methodologies, although it can affect the assumptions
made for the DCF. This method yields the intrinsic value of the company, instead of the market
value of the company (relative to its peers).
A DCF analysis consists in projecting the three financial statements for a period of 5-10 years to
calculate the companys free cash flow for every year, the calculation of a terminal value and the
discount (bring future amounts of money to present) of those values to the Weighted Average
Cost of Capital (WACC), to come up with a value of the company today.
This method is highly dependent on assumptions and the discount factor (WACC): a change in
these significantly impacts the output of the valuation. An analyst will perform a sensitivity
analysis in order to assess those impacts and evaluate how sensible the valuation is (the higher
sensible, the weaker the valuation, since reality always depart from assumptions).
The steps for the Discounted Cash Flow Analysis are:

1. Prepare and project the three financial statements
2. Project Free Cash Flow (FCF)
3. Calculate WACC
4. Calculate Terminal Value
Prepare and project the three financial statements

The three financial statements are projected throughout the projection period, typically 5 to 10
years. The projections involve making assumptions (for example, regarding Days Sales
Outstanding, % Working Capital over Revenues, and others) and adjusting the statements for
non-recurring items, that is, income or costs that are not recurring, that they will not be incurred
in a regular basis.
Project Free Cash Flow (FCF)
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The Free Cash Flow is the cash the company has in hand that can use for whatever purpose it
may want. The premise of the DCF is that this cash is the cash that the company can use to
repay debt and pay to the shareholders. This measure is calculated as follows:
(+) Earnings Before Interest and Taxes (EBIT)

(-) Taxes
(=) Earnings Before Interest and After Taxes (EBIAT)
(+) Depreciation and Amortization (D&A)
(-) Capital Expenditures (CapEx)
(-) Increase/Decrease in Net Working Capital
(=) Free Cash Flow
This formula is very important for the technical interviews, since its one of the main pillars of the
Discounted Cash Flow Analysis. Note that the Free Cash Flow above calculated is the Free
Cash Flow to the Firm (FCFF), since Interests are included (bondholders are included). To
calculate the Free Cash Flow to Equity (FCFE), we will have to subtract the Interests, so instead
of starting with EBIT, we will start with the Net Income. Free Cash Flow to Equity is typically
used in Leveraged BuyOut Analysis (more on this later).
The Free Cash Flows of the projection period represent a portion of the final valuation, since we
have to project the companys growth in the subsequent years. We will do that calculating the
Terminal Value, which includes the value of the company outside the projection period.
Calculate WACC
The Weighted Average Cost of Capital is the cost of the total company funds, whether they are
equity or debt. WACC is calculated with a target capital structure, which is one of the main
assumptions of the model.
The formula for WACC is the following:
D
E
WACC rd 1
re
DE
DE
Intuitively, the WACC is the after-tax cost of debt times the percentage of debt in the capital
structure plus the cost of equity times the percentage of equity in the capital structure.
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This is the simple WACC formula, which assumes a simple capital structure of debt and equity,
excluding any convertible or hybrid securities, like preferred stock. Some interviewers will ask
you the complete formula of the WACC. In that case, the formula is the same factoring in the
effect of the cost of preferred securities (dividend yield) times its percentage in the capital
structure.
Cost of Equity Estimation

The Cost of Equity is the required rate of return that investors expect to have from the company
for their funds. Unlike the Cost of Debt, that can be computed from the companys debt, the
Cost of Equity is not easily given. To compute the Cost of Equity, we will use the Capital Asset
Pricing Model (CAPM).
We will not discuss the suitability of the CAPM nor its limitations in this guide. Essentially, the
CAPM is calculated as following:
re r f L rm r f
Therefore, the Cost of Equity is the risk free rate (rf) plus the levered beta times the market risk
premium (the difference between the return on the market, rm, and the risk free rate, rf).
The Beta is the correlation of the company with the market. A Beta can take any value (-,+)
and represents the sensitivity of a companys stock to the movements of the market. For
example, if a company has a beta of 2 and the market moves 1% up, the companys stock will
move 2% up. If a company has a beta of -3 and the market goes down by 2%, the company will
go up by 6%. The correlation can be positive (it moves with the market) or negative (it moves
contrary to the market), or have no correlation at all (beta equal 0).
There are two types of betas: beta asset and beta equity. The asset beta is the correlation of a
given group of assets to the market, and the beta equity takes into account the capital structure.
Similar to the CAPM approach, the beta equity is the beta asset plus the effect of the capital
structure on the assets, namely the leverage risk.
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The beta you will get from data vendors such as Bloomberg or Capital IQ is the beta equity of
the company. If your company is privately-owned (and thus there is no beta available), you can
imply the beta from the beta equity of the peer group. To do that, you have to unlever the beta
equity of the peer group, that is, you neutralize the capital structure risk or leverage risk to arrive
to a beta asset. That beta asset will be levered to the capital structure of the target company,
yielding the beta equity.
The formula to lever and unlever the beta is the following:
L U 1
1
E
As you can see, the beta levered is the beta equity; and the beta unlevered is the beta asset.
Calculate Terminal Value

There are two ways to calculate Terminal Value: the exit-multiple method and the perpetual
growth method (Gordon growth model).
Exit-Multiple Method
This method calculates the terminal value of the company by applying an exit multiple to the
EBITDA (for example). It is a very straightforward method that has two sources of value: the
increase of the financial statistic or driver (a higher EBITDA at exit will imply a higher terminal
value), or the multiple arbitrage (a higher exit multiple, assuming constant EBITDA, will imply a
higher value).
Perpetuity Growth Method (Gordon growth model)

The final years Free Cash Flow grows indefinitely to perpetuity at a constant rate. This method
is the most commonly used. The long-term growth rate is typically close to the GDP growth. The
formula to calculate the terminal value under Gordon growth is the following:
TV
FCFn 1 g
WACC g
Perform the valuation

The last step is performing the valuation applying the Net Present Value (NPV) formula to the
free cash flows we have calculated and the terminal value, taking the WACC as the discount
rate.
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A simple way to do it is to calculate the discount factors and then applying them to the Free
Cash Flows. The discount factor is defined as:
Discount Factor
1 WACC n
After that, you apply it to the Free Cash Flow and you sum all the discounted amounts to arrive
to the Enterprise Value of the company. To calculate the share price you will have to calculate
the Equity Value and then divide by the shares outstanding.
After performing the valuation, an analyst will typically do a sensitivity analysis to check how the
valuation is affected by a change in the underlying assumptions.
This methodology has the following Pros and Cons:
Pros:
o
Intrinsic Value: it takes into account the cash flow generating power of the
company, which is a fundamental approach to value.
Market independent: it is not affected by periods of investor irrationality.
Flexible: it allows doing multiple scenarios and sensitivity analysis.
Cons:
o
Highly dependent on assumptions: forecasts tend to never be right and the final
output is usually very sensible to changes in the assumptions.
Terminal value: it can account for the majority of the value of the company.
Depends on WACC: it assumes a constant capital structure, limiting the

effectiveness and meaningfulness of the valuation.
Discounted Cash Flow Questions

What is WACC? How do you calculate it?
WACC is the Weighted Average Cost of Capital. It is the average cost of funds for the company.
You calculate it by adding the after-tax cost of debt times the percentage of debt in the company
and the cost of equity times the percentage of equity in the company.
What is Beta? How do you calculate it?

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Beta expresses the correlation between a stock and the market. You should perform a
regression analysis between the market (S&P500, for example) and the stock and take the
slope of the expression (y = a + bx, beta is b).
What's the difference between the levered and the unlevered Beta?
The unlevered beta is the asset beta, since it does not take into account the capital structure of
the company, contrary to the levered beta, which is the beta equity.
What are the pros and cons of using DCF?

The most important point is that the DCF uses the fundamental approach to reach to an intrinsic
valuation of the company, but the other points are also worth to mention.
What is CAPM?
The Capital Asset Pricing Model is the model we use to calculate the cost of equity or the return
that the equity owners expect from the company for their funds.
What's the difference between the levered and the unlevered free cash flow?
The levered free cash flow takes into account both bondholders and equity owners, and
therefore it is known as the free cash flow to the firm. The unlevered free cash flow is the cash
flow after paying bondholders, so it is known as the free cash flow to equity.
Walk me through the calculation of FCF.

(+) Earnings Before Interest and Taxes (EBIT)
(-) Taxes
(=) Earnings Before Interest and After Taxes (EBIAT)
(+) Depreciation and Amortization (D&A)
(-) Capital Expenditures (CapEx)
(-) Increase/Decrease in Net Working Capital
(=) Free Cash Flow
What is the EPS? How do you calculate it?

Earnings Per Share are the amount of earnings attributable to each share. You calculate it by
dividing net income by the number of shares outstanding.
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What is the fully diluted EPS? How do you calculate it?

Fully diluted EPS is the amount of earnings attributable to each share taking into account the
dilution effect of the convertible securities if considered converted (warrants, options, preferred
stock, etc.). It is calculated as the net income divided by the fully diluted shares outstanding.
What's cheaper: equity or debt?

Debt is cheaper, since investors demand a higher expected return from the company than
bondholders. Bondholders typically demand the risk free rate plus a small premium, but equity
owners demand the risk free rate plus the market premium adjusted to the risk of the investment
(expressed by the beta). The intuitive explanation is that since debt holders have the right to
claim the assets before equity, equity-holders demand a higher return on capital invested in
exchange for that risk.
What is riskier: debt or equity?

Debt is riskier because debt requires the payment of interest, and the failure to pay results in a
default and bondholders can seize the companys assets. However, equity cannot require
payment of dividends and has a residual claim in the assets of the company, which can only
seize after all bondholders have been paid.
What is the terminal value? How can you calculate it?

Terminal Value is the value outside the forecasting period of the valuation analysis. You can
calculate it either by the exit-multiple method (applying a multiple to the last years EBITDA), or
by the Gordon Growth Model, that takes the last free cash flow of the forecasting period to
perpetuity.
What is EBITDA? Why is it useful and how do you calculate it?

EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization. We
calculate it simply by subtracting COGS and SG&A expenses to Revenue, excluding the interest
expense, depreciation and amortization, and taxes. It is useful because it gives an idea of the
earnings power of the company before payments that can be misleading, since interest expense
and taxes are not operating expenses and D&A is a non-cash expense.
What is Working Capital? How do you calculate it?
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Working Capital is the money needed to fund the regular operations of the company. It is
calculated as the following: Accounts receivable + Stocks Accounts payable.
What is CapEx? How do you calculate it?

Capital Expenditures are the investments the company makes in new PP&E or non-current
assets. It is calculated simply by summing up all relevant lines in the cash flow statement (in the
investing cash flow) or by a simple BASE-rule (Beginning, Addition, Subtraction, Ending). For
example, if the beginning balance is 100, the ending balance is 300 and the depreciation is 50,
CapEx will be 250.
Why do we include D&A in the calculation of FCF?

Because D&A is a non-cash expense. Therefore, it is money that can be spent in positive NPV
projects or to be given back to shareholders.
What's the net change in FCF if D&A goes up/down by 10?

If D&A goes up by 10, EBIT will go down by 10, EBIAT will go up by 7 (assuming a 30% tax
rate), and FCF will go up by 3. You have to take into account the effect of taxes. If the tax rate is
0%, the FCF will not change.
What is the market risk premium?

It is the premium that investors demand over the risk free rate for the additional risk taken by
investing on the market. It is calculated as the return of the market as whole minus the risk free
rate.
Do negative-beta investments exist? Can you give some examples?

Negative-beta investments are investments that have a negative correlation with the market,
that is, it moves up when the market is down, and down when the market is up. Although it is
very difficult to find a truly negative-beta investment, some investments considered safe havens
can have a negative beta in a context of market turmoil, but only for some short period of time
(and therefore, not meaningful). Gold can be considered a negative-beta investment during a
crisis, because usually when markets are down, investors get out of their positions and invest in
gold as a safe haven, making the price of gold rise and develop a negative correlation with the
market.
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Walk me through a DCF analysis

This is a very simple question that you should answer without any problem. Just study what you
have learned above!
What adjustments do you have to make to a DCF analysis?

You will adjust the IS for non-recurring items that cannot be forecasted and are not part of the
on-going operations of the company. We will also adjust our assumptions in order to reach a
conservative and reasonable valuation of the company, should we need to.
Leveraged Buyout (LBO) Analysis

A Leveraged Buyout is the acquisition of a company using debt. Very rarely will questions on
LBOs go into great detail, but its always good to have some basic understanding of how the
valuation method works and its key drivers.
How does an LBO work?

An LBO is very similar to buying a house with a mortgage you want to minimize the amount of
initial equity and maximize the debt (as long as you can repay it). Using a similar logic, in an
LBO transaction one party tries to acquire a company using the least amount of equity and the
most amount of debt and then use the cash flows generated by the company to repay that debt.
The goal is to, after a few years of the company repaying the debt used to acquire it, sell it and
benefit from the increase of its equity relative to the debt in the capital structure.
How would you model an LBO?

Unlike other forms of valuation, in the LBO model you must first make some assumptions on the
price that will be paid for the company. This is typically done using the average multiple in
recent transactions that have taken place in the industry. Other assumptions that have to be
made are the amount of leverage (debt/equity) and the interest rate of the debt.
Once this is done you must project out the companys Income Statement, Balance Sheet and
Cash Flow Statement, and determine how much debt is paid off each year, based on the
available Cash Flow and the required Interest Payments.
Finally, a series of assumptions regarding the sale of the company have to made, usually
assuming an EBITDA Exit Multiple similar to the one used at the point of acquisition, and
calculate the return based on how much equity is returned to the firm.
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What are the drivers of the LBO model?

The amount of leverage used by the company and the interest rates for the debt has a
significant impact on the model. Also, the multiples assumed for entry and exit have a very
important impact on the returns. Finally, regular operational characteristics also have a
significant impact on the valuation.
What makes a good LBO target?
Private equity funds typically look for companies that can be easily modelled so that they can
use significant amounts of leverage. In other words, the more stable and predictable a company
is, the easier it is to obtain financing for a private equity for the acquisition and the cheaper that
financing is. Hence, the most important characteristic of a good LBO target is to have a stable
and predictable business that has a lot of excess cash to repay debt. A strong management
team also helps, as does a base of assets to use as collateral for debt.
Why is the LBO valuation typically known as the floor valuation for the company?
This is sometimes called a floor valuation because PE firms typically pay less for a company
than strategic acquirers because of a combination of two factors: i) they have no operating
synergies that they can use to increase their purchase price ii) they need to obtain high returns
for their investments.
Quantitative questions, Brain Teasers and Guesstimates

An Investment Banking Analyst should have very strong quantitative and analytical skills, so you
should expect the interviewer to test them. There are 3 main ways:
1. Quantitative questions: simple mental mathematical calculations.
2. Brain Teasers: involves a logical or mathematical problem with a creative solution.
3. Guesstimates: involves making assumptions and mental calculations to reach a result.
Quantitative Questions
Quantitative questions are usually products between two two-digit numbers (i.e. 35 x 43),
square roots (
) and fractional numbers (, ). Here are some useful tricks to solve
them:
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Separate the product into a sum of products. For example, 35 x 43 = 35 x (40 + 3) = 35 x

40 + 35 x 3 = 1,400 + 105 = 1,505. The best way to practice this is to multiply random
two-digit numbers.
For square roots, you will have to know a few of them by heart. For example, 25 x 25 =
625, 12 x 12 = 144, and so on. If you get a number that is not a perfect square, try to
approximate the result and explain your steps. For example,
is , which is
or
approximately 0.96. Obviously, you can try other approaches, this is just an example.
For fractional numbers, we suggest you learn the fractionals of the prime numbers, as
you will be able to reach to the other numbers by simple calculation. For example, for ,
knowing that is 0.25, is 0.125, times 3 is 0.375.
Most Common Quantitative Questions
Type
Questions
Product
17 x 17, 17 x 18, 25 x 24, 33 x 33, 35 x 37, 42

x 47, etc.
Square Root
Sqroot of 625, 144, 289, etc
Fractional
1/7, , , 1/11, 1/12, 5/9, etc
Powers
You should be able to do all the numbers

from 1 to 10 cubed
Brain Teasers
There is no real trick to brainteasers as they can come in all shapes and forms. Nevertheless
practice is always a great tool and will surely get you ahead. Ideally, the best way to answer
these questions is to know them beforehand, but unfortunately that is not typically the case. The
best way to deal with them if you dont know them is to say it honestly and ask for the solution
(for the next time!). Also, do not lie if your interviewer asks if you already knew the brain teaser,
it will be counter-productive.
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Common Brain Teasers and Solutions

The balance
Q: You are given a scale of 12 marbles. The scale is an old fashion one (pictured below). The
device enables you to conclude either that the contents of the dishes weigh the same or that the
dish that falls lower has heavier contents than the other dish.
The 12 marbles appear to be identical, but there is one unusual one (its either heavier or
lighter). How do you find it using the scale 3 times (not more)?
A: You separate the marbles into two groups of 6 and measure them. Once you have done this,
one of the sides will be heavier than the other. You then take those 6 marbles and separate
them into two groups of 3 and repeat the same experiment. Finally, you take the set of the 3
heavier marbles and measure two and leave one outside of the measured group. If the two that
are measured are the same weight then the remaining marble is the culprit, if not you will know
by the balance which is the heavier/lighter marble.
Infinite Additions
Q: What is the sum of integers from 1 to 100?
A: 100 + 1 = 101, 99 + 2 = 101, etc. there are 50 pairs of 101 = 50 x 101 = 5050
Degrees, degrees!
Q: How many degrees, if any, are there in the angle between the hour and the minute hands of
a clock when the time is quarter past three?
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A: One quarter of one twelfth of 360. That is one quarter of 30 = 7.5
Smelly socks
Q: You have 11 blue socks and 7 red socks in a drawer in a dark room. What is the minimum
number of socks you need to take out of your drawer and carry into your living room (it is well lit)
to guarantee that you have at least a matching pair of socks?
A: 3. Think about it.
Summer days
Q: A pool gets a new machine that doubles the number of liters that it can pump into it a day
each day for a month. On what day of the month is the pool half full?
A: The half way mark is the day before the last day of the month, so the 29th.
Guesstimates
Guesstimates are designed to test your ability to make assumptions and estimate a given
number. What the interviewer will want to know is if you are capable of making the necessary
assumptions to reach to a conclusion. Dont worry too much about the final answer (remember
its a guess), but try to sound convincing in your assumptions and their quality. The best way to
learn how to solve guesstimates is by practicing.
Common Guesstimates that you should try

How many liters of Coca-Cola are sold in the world in one year?
How many tennis balls / table tennis balls can you fit in an Airbus A-320?
How many mortgages are there in the UK?
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Case-Studies
It is common in all processes, usually in the second or the final round, to be asked to solve a
Case-Study and do an individual presentation to a senior banker. You can also be asked to
discuss it in group with two senior bankers and 4 or 5 candidates.
The Case-Study will typically give you an overview of the sector and the economic context in
which the company operates and the major strategic challenges coming up. After the
introduction, you will be provided with information about three or four alternatives (acquisition
targets, expansion plans, etc.).
There is no correct answer for this case-studies, the evaluation depends on your reasoning, the
power of your arguments and your answers to the questions made after you present your
solution. It is advisable to structure your answer around three pillars:
1. Strategic considerations: does the alternative fit into the strategic plans of the company?
Will the alternative open new markets for the company? New products? New revenue
streams?
2. Operational considerations: is the alternative feasible taking into account the capacities
and limitations of the company? Do we need extra resources? Can we take any
advantage in terms of economies of scale or synergies with our existing infrastructure?
3. Financial considerations: can we pay for it? How are we going to pay for it? How is it
going to affect to our credit rating? Is it profitable?
Try to use as much information as you can from the case-study and try to back every statement
and conclusion you make with the relevant information. Do not take things for granted and be
prepared to defend your conclusions in front of the senior banker / panel.
Example of a Case-Study
Below is an example of a simple case study that you can encounter in an assessment center.
Candidates would have 15 min to prepare the information in the case study and then have to
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present it to a senior investment banker. Its important that you keep in mind that the annexes
are not always important!
QZE: TIME FOR EXPANSION?
QZE is the worlds largest producer and retailer of clothes. The group designs and
manufactures almost everything by itself, and new designs are dispatched twice a week to its
QZE stores. Most manufacturing is now shifting to low labor cost countries, mainly to Morocco,
China, and Turkey, although much production continues in the UK and the rest of Europe,
particularly for its X brand. In addition, QZE has a factory for shoe design, production and
distribution in the town of Leeds.
As of 2007, QZEs stores have men's clothing and women's clothing, each of these subdivided
in Lower Garment, Upper Garment, Shoes, Cosmetics and Complements, as well as children's
clothing (QZE Kids). Currently their sizing on women's clothing goes to a US size 12 or a UK
size 14.
QZE is a vertically integrated retailer. Unlike similar apparel retailers, QZE controls most of the
steps on the supply-chain, designing, manufacturing, and distributing its products. 50% of the
products QZE sells are manufactured in the UK, 26% in the rest of Europe, and 24% in Asian
and northern African countries and the rest of the world. So while some competitors outsource
all production to Asia, so far QZE makes its most fashionable itemshalf of all its
merchandiseat a dozen company-owned factories in the UK and Portugal, where labour is
somewhat cheaper than in most of Western Europe. Clothes with a longer shelf life, such as
basic T-shirts, are outsourced to low-cost suppliers, mainly in Asia and northern Africa.
On August 16, 2011, an Indonesian television show called A WIGA (of the Bandeirantes TV
network) accused the company of using suppliers who were running sweatshops for their
outsourced production. On August 17, 2011, the Regional Superintendency of Labour and
Employment of Jakarta, Indonesia, closed a factory that produced QZE's clothing for its poor
labour conditions. Filipinos were being brought illegally to Indonesia, locked in small apartments
and sewed clothes for 1214 hours a day. They could not leave the apartment without the
consent of the supervisor and didn't have hot water for taking showers or food for lunch. The
Filipinos earned about 1 USD for each dress they sewed, although the retail price in its stores
was about 70 USD for the same dress. Many of the workers were forced into paying their wages
to human traffickers who had smuggled them into the country.
In a statement, QZEs
representatives said that the accusations of slave labour made against the retailer represent a
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serious breach in accordance with the Code of Conduct for External Manufacturers and
Workshops of QZE. The incident had a significant impact on the companys quarterly sales.
QZEs dominant position in the market has given it very high market shares in some of the
countries where it sells its items. For example, in the UK QZE has a 70% market share in the
retail segment. It also has a 60% market share in countries such as a France, Spain and Italy. In
the rest of the countries in Europe it has a lower market share, and in Asia, Africa and America
its market share is not that significant.
QZEs strong performance during the past few years has not only allowed it to establish itself as
the leading player in the sector but they have also allowed it to generate a very strong and
steady cash flow. With all the cash that QZE has generated, they are looking to further
strengthen their market position and acquire a competitor.
QZE has mandated your bank, Merrill Lynch, to analyze strategic alternatives and to
present, in a brief 10min presentation, the different options that the company has and
which one you would recommend. The QZE management team allows you to use any
presentation display that you may choose.
ABC
ABC is one of the leading companies in Asia, with strong competitive positions in China, Japan
and Singapore, where they sell all their products and have a market share of 10%, 35% and
50%, respectively. The Companys marketing strategy is very aggressive and it has established
itself as one of the best-known brands in Asia Pacific, according to Nielsen in their very recent
report about the clothes sector in Emerging Markets.
ABC produces its clothes in Bangladesh, where almost all its production capacity is located.
ABC has recently been denounced by International Amnesty in a recent report of supporting
labour slavery and very poor working conditions by producing in Bangladesh and using their
supplier network. The authorities are looking into the case of ABC, but they havent reached a
conclusion yet on whether to fine the company and demand the immediate close-down of the
plants or not.
The Company is valued at $5.0 billion, with an EBITDA of $500 million. The EV/EBITDA multiple
is 10.0x. The Company has no problems concerning debt repayments and other asset/liability
write-downs and has good and sustainable profit margins.
JACK BLACK
In 2010, Jack Black, a young and fresh entrepreneur who had just finished his undergraduate
studies in Business Administration, founded Jack Black Plc, a clothing retailer.
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Jack Black has enjoyed a terrific start of business with a spectacular growth in brand awareness
and market share, topping 15% of the UK market last year. The Company prides itself of being
an all-UK-made Company that creates jobs in England, where it sells its products.
The management team is very friendly and open, and the Company has been nominated one of
the Best Companies to Work, with the strengths focusing on the entrepreneurial spirit of the
Company and the relaxed job atmosphere. Jack Blacks price in the market implies an
EV/EBITDA multiple of 20.0x, with high expectations on future revenue generation attached to
it.
SUES
Sues was founded by Sue Chateau, a French-born American with a lot of free time. The
Company has been running on a going concern since 1920 and its management consists of the
members of the Chateau family, who are quite elderly by now.
The Company has a strong position in the US market, where it accounts for 17% of the market.
Its production facilities are located in the US, UK and North of Africa. Its clothing brand, Inedit, is
experiencing problems in terms of popularity among the young, and the Company is
experiencing a decrease in sales for the most recent quarter. The valuation implies an
EV/EBITDA of 13.0x, which reflects the market sentiment regarding the loss of brand
awareness.
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EXHIBIT A
Cline examines how the demand for inexpensive, trendy clothing can lead to
devastating results
Rachel Brown rachelbrown@daltoncitizen.com
Varnell native Elizabeth Cline is a self-described former cheap fashion addict.
Not unlike many American fashionistas, her closets were stuffed with dozens OK,
hundreds of items of clothing, most of them cheaply made, trendy and ready to be
thrown out or shoved to the back of the closet after just a season or two.
The cycle of disposable clothing and Americans appetite for cheap fashion comes at a
high cost, though, according to Clines recently released book Overdressed, The
Shockingly High Cost of Cheap Fashion. In its pages, Cline writes about how
consumers unquenchable thirst for frequently having something new at a low price has
contributed to the mass exodus of manufacturing jobs from the United States, poor
working conditions for garment factory workers in many countries and lower quality
goods
for
consumers.
Cline, whom close friends and relatives know as Lorri, is advocating a shift toward the
slow fashion movement and garments produced stateside. Now a journalist living in
New York, Cline has been interviewed recently by The New York Times, MSNBC,
NBCs Brian Williams and other national news outlets about her book and her research.
Until the last couple of years, Cline said she regularly shopped at stores like Old Navy,
Target and TJ Maxx, clothing retailers with a reputation for producing fun, trendy
clothing at an affordable price. One day, she discovered she owned more than 350
items of clothing.
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I was just really curious about how retailers are able to sell clothes for so cheaply and
how low price changes the way we consume, she said. Americans are buying more
clothes than ever before.
So Cline pitched her idea to publishers and got Penguin to sign on. She spent about two
years conducting research and writing the book. Through her research, she said, she
learned there are all kinds of consequences to the cheap fashion industry. There are
environmental costs, human rights concerns and cultural consequences.
Inside the country, she visited Los Angeles and Greenville, S.C., to see textile mills. She
traveled to the Dominican Republic, Bangladesh and China. She learned about
American towns that used to revolve around manufacturing and saw steep job losses
once clothing makers decided to ship their operations overseas.
Among the more surprising lessons Cline said she learned was that U.S.
manufacturers had outsourced almost every bit of the garment and textile industry. In
1990, about half of Americans clothing was made in the U.S. Now, just 2 to 3 percent is
made domestically as manufacturers sought cheaper labor, she said.
Part of low price is associated with job loss in the U.S. and with exporting jobs to lowcost countries, she said.
Those exports can lead to conditions that sometimes produce bad consequences, Cline
said. Take, for example, the building collapse at a garment factory in Bangladesh that
killed more than 1,100 workers. Cline said its often easier to oversee working
conditions and correct dangerous practices at home than it is to get involved in what
happens overseas.
Clines grandmother, Routh Cline, said her granddaughter grew up in Varnell and
attended Westwood School in the late 1980s when she was young before moving away
to Cairo, Ga. Routh Cline said Elizabeth Cline enjoys fashion, but her love of clothes
wasnt the main reason she wrote the book.
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Shes really socially conscious, Routh Cline said. Clines work has been featured in
several prominent publications including New York Magazine, Popular Science and The
Nation.
The cheap fashion treadmill
Fashion cycles are speeding up compared to centuries, or even decades, earlier.
Silhouettes, colors and various features used to stay in style for several years but are
now considered outdated after only a season or two.
Were on this cheap fashion treadmill, Elizabeth Cline said.
Yet many people on tight budgets feel they cant get off the treadmill. Better-made
clothes tend to be more expensive. Cline has some advice for these people, too.
One piece of advice concerns quantity versus quality. Rather than buying 25 poorly
constructed but low-cost shirts, for example, consumers are better served spending
more money per item on a few things that are well-made and wont wear out as quickly.
Cline also advocates learning to sew its easier than you think and mending,
repairing and refashioning older clothes so they last longer. Buying clothes secondhand and fitting them as necessary is another good option, she said. Many people who
do buy cheaper clothing can also simply keep it longer, she said.
The easiest things people can do is not necessarily treat clothes as a disposable good,
getting more use out of what you wear ... she said. Every time Im in Dalton, I always
hit the thrift stores because I find really good stuff at like Providence (Ministries) and
Goodwill.
The result of these consumerism changes, she said, will be better economic
consequences here and abroad and less negative impact on the environment. To make
one T-shirt, for example, takes 700 gallons of water, she said, and Americans consume
more than 20 billion garments per year.
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So who bears the responsibility for all the consequences cheap fashion has caused? It
is partially consumer-driven. I think that consumers kind of have been lulled into wanting
cheap products and were also kind of hooked on instant gratification, Cline said. We
got away from the value of saving up for the best dress money could buy. We lost the
art of delayed gratification and investing in clothing, but at the same time I put a lot of
the blame on clothing companies. They advertise heavily to us that cheap clothing.
Even our first lady wears Target and H&M. Its part of our culture now to celebrate
getting really cheap things. Yet change is possible, she said. I think that as consumers
we have more power than we realize, and that the way we shop does have
consequences on the planet and for the jobs, both here and abroad, Cline said. I think
theres also a personal component to it. I dont think people get a lot of satisfaction or
long-term happiness out of just shopping cheap. Cline says being an ethical fashion
consumer can be fun. Shes working on scheduling appearances at colleges around
the country where she can share her ideas with students, and shes also writing a book
about
domestic
manufacturing.
For
more
information,
visit
Clines
website,
overdressedthebook.com.
EXHIBIT B
Over 5000 Pounds of Winter Apparel Donated to Hurricane Sandy Victims
Posted By: Amatullah Guyot on May 28, 2013 1:08 pm
Earlier this month SnowSports Industries America (SIA) teamed with New York based
charity Kids in Distressed Situations (K.I.D.S.) in efforts to distribute winter apparel to
hundreds of families and children in the Rockaways in Queens who are still struggling
after Hurricane Sandy in October 2012.
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K.I.D.S. is an organization aimed to help the snow sports industry efficiently target its
clothing donations to children affected by Hurricane Sandy. The New Year New Start
Sandy relief program was created as a response to the reduction of aid for the hurricane
victims as the holidays and new year approached. In January, during the 2013 SIA
Snow Show, 5000+ pounds of winter apparel were collected.
To watch the highlights from the SIA Snow Show, check out The Ski Channel video on
demand network! Photo: Ski Channel/ Shannon Quirk
About 69 snow sports companies donated the estimated 5000+ pounds of winter
clothing to help struggling families and children keep warm during next winter. The
donations from the 69 companies and individuals is estimated to be valued over
$100,000. The proceeds were distributed at two separate functions, The Winter in May
celebration and the All In Skateboard event.
The first distribution event happened on May 10, 2013 during the Winter in May
celebration at The Far Rockaway Community Library where K.I.D.S. distributed winter
clothing. As a result, about two-hundred families received donations on a first-come,
first-served basis while enjoying the festivities. On May 14, the second distribution
event, The All In Skateboard event was held at the Queens Library for Teens,
distributed many athletic and skate shoes to hundreds of children from the Rockaways,
most of which were distributed by SIA members.
Companies like Spyder contributed as well. Collecting new winter apparel was a great
way for the industry to use its unique resources to impact the lives of these children,
said Tom McGann, president and CEO of Spyder.
Many needs of the victims have yet to be met but these distributions of winter apparel
allowed for one less worry for the Hurricane Sandy victims who are now prepared for
the upcoming winter season.
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EXHIBIT C
Selena Gomez: Is She Using Justin Bieber For Fame?

Wed, June 5, 2013 9:50pm EDT by Jenny Pickard 6 Comments
Courtesy of Twitter
Is Selena Gomez a sell-out? Being the longtime girlfriend of Justin Bieber, 19,
definitely
has
its
perks
especially
for
fellow
entertainer!
source
tells HollywoodLife.com EXCLUSIVELY whether or not Selena has been taking

advantage of Justin to make herself more famous.
Justin is like the Michael Jackson of our era, so its beneficial for her, the source
explains, adding that Selena is not using Justin to boost her career. Shes got her own
talent though, shell be okay. They do like each other. Its young love.
We totally agree! Selenas talent is why her career is flourishing, not because of her
relationship with Justin.
HollywoodLife.com learned EXCLUSIVELY that unfortunately, Justin and Selena have
called it quits again. They are not together right now, the source reveals. They are
just friends. They are always on and off.
Justin recently partied at a strip club in Miami, and it definitely seems that hes enjoying
his time as a single man. When a source close to Justin was asked if the As Long As
You Love Me singer has been hooking up with other girls since the split, the source
revealed, He does his thing, he is low key. He is quiet about it.
HollywoodLifers, do YOU think Selena used Justin? Vote below!
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Major Banks Profiles
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Investment Banking Guide

Accounting and Financial Statements .......................................................................................51

Introduction to the Guide

What is Investment Banking?

Revenue generating areas:

Source: GS annual report as of December 2011

Source: Deutsche Bank Website

Private Side vs. Public Side

Source: Deutsche Bank Website

Source: Business Week

Source: Wall Street Journal as of March 15th 2013

The Investment Banking Division

Types of Financial Institutions

Services offered: Deposits (checking, savings, time deposits, etc.), loans

Profit sources: Interest margins, fees, commissions

Ownership: State, firms, individuals, members or partners.

Examples: La Caixa, Banco Sabadell

Services offered: Commercial banking services (deposits, loans, etc.) and

Profit sources: Interest margins, fees, commissions

Ownership: Group of individuals, institutions

Examples: JP Morgan, Citi

Services offered: Deposits, loans (revolver facilities, etc.), services (transfer,

Profit sources: Interest margins, fees, commissions

Ownership: State, firms, individuals, members or partners.

Examples: Bank of New York Mellon

Services offered: Deposits, loans (mortgages.), services (transfer, facilitating

Profit sources: Interest margins, fees, commissions

Ownership: State, firms, individuals, members or partners.

Examples: Trustee Savings Bank (UK), Erste Bank (Germany)

Services offered: Deposits, loans (mortgages.), services (transfer, facilitating

Profit sources: Interest margins, fees, commissions

Ownership: The depositors own the S&L

Examples: CAM, Catalunya Caixa

Profit sources: Interest margins, fees, commissions

Ownership: Group of individuals

Ownership: State, firms, individuals, members or partners.

Examples: Canada Life

Non-Life Insurance Companies: General, or property/casualty insurance companies,

Services offered: House insurance, cars, boats, planes, professional, third

Profit sources: Premiums and investment income

Ownership: State, firms, individuals, members or partners.

Services offered: Manage pension payments

Profit sources: Commissions, fees of the pension payments

Ownership: State, firms, individuals, members or partners.

Examples: Mapfre Pension Fund

Services offered: Manage funds

Profit sources: Commissions, performance fees

Examples: Fidelity Investments

Closed-end Mutual Funds: A closed-end fund is a publicly traded investment company

Services offered: Manage funds

Profit sources: Commissions, performance fees

Examples: Gabelli Equity Trust

up as private investment partnerships that are open to a limited number of rich

Services offered: Manage funds

Profit sources: Commissions, performance fees (2% managing fee, 20%

Services offered: Manage funds

Profit sources: Commissions, performance fees (2% managing fee, 20%

Services offered: Manage funds