brain teaser interview questions

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hello everyone hi and welcome to thechannel wallstreetmojo to know more about this video investment-bankinginterview questions watch the video till the end and also if you are new to thischannel then you can subscribe us by clicking the bell icon that’s givenbelow for your references welcome everyone and today we have a veryinteresting topic something you know nobody is the MBA students they opt forInvestment Banking and they are really very excited to work in this particularindustry so let’s understand you know when you approach for an interview howwe are going to face or what sort of challenges that you have interfaceduring the course so let’s understand the interview questions in detail to getmore understanding about how nitty-gritty to get is player over here let me begin with thetop Investment Banking interview questions see the purpose of theInvestment Banking interview questions and the answers simply to help you aboutyou know the investment banking into the topics there was a fresher show in thefield I am sure you may have had jitters as to what and how to prepare for yourfirst step in this finance world now there could be an unlimited number ofquestions that can be asked on investment banking topics and since it is a verydifficult to cover all of them you would be discussing a few of them of which aremostly important or very vital traits now while reading through thesewrite-ups I would whatever we are going to learn and what we are going to jotdown in terms of write-up so whatever you are going to see I would suggest youto I would suggest you to actively keep answering the question yourself beforechecking the correct answer now what will be this process see this willbasically help you to develop the habit of brainstorming and answering thequestions in a more structured way so what you need to consider here is firstthe draft article thank you and I’ll keep on regularly updating with more andmore questions answer based on your feedbacks so theinterviews nowadays does not have typical questions that have been askedwhich includes like the basics on financial concepts no interviews warnsthe candidate to think and avoid theories which everyone usually knowsand also since these questions are technical ones they would always be acorrect answers so in case you find yourself not knowing a particular answerdon’t try and fake one it is always better to confess that you don’t knowthat’s the best thing to do well let’s begin on the accounting portion that’sthe first question accounting in investment in banking what sort ofquestion they can ask they can say tell me about the three most importantfinancial statements and what is the significance well this is one of themost commonly asked investment banking question but three main financial lawstatements I mean or we all know balance sheet P&L and CFS cash flow statementwhile speaking about the significance the income statement that is the P&L itprovides of the revenue and expenses of the company and shows the final netincome in totality okay that is that it has made over the period of time when wetalk about the balance sheet part the balance should signifies the asset ofthe company in specifically is like planned properties equipments cashinventory and other resources similarly it reports the liabilities whichincludes the shareholders equity debt accounts payable and so on and so forthso balance sheet is such that the assets would always be equal to the liabilityplus shareholders equity so lastly there is thing called cash flow statement youcan say that you know which it is the it is a statement which reports the netchange in cash and it gives the cash flow from the operating and investingfinancing activities of the company apart from this what they can ask you isthat the next sort of question in the same accounting of investment banking isnow in case let’s say you have the chance to evaluate the financialviability okay of the company which statement would you choose and why veryimportant question so it would be basically viability financial viabilityis always cash flow statement so the reason being is that it provides a truepicture of how much cash the business is generating in terms of actual terms sothe cash flows are hence the main thing you actually pay attention to while youare analyzing the overall financial health of the business third let’s saythat depreciation expenses they may say let’s say the depreciation expenses goesup by $100 so how would this affect

brain teaser interview questionslet’s say the depreciation expenses goesup by $100 so how would this affect differential treatmentwell the income statement in case of the income statement with the depreciationexpense decreasing operating income would decline by $100 and as even 40%taxes the net income would go down by closely around $60 when we talk aboutthe cash flow statement the net income of the top of the cash flow statementgoes down by $60 but the $100 depreciation is a non-cash expense andthat gets added back so overall cash flow from operation goes up by 40 withno further changes the overall net change in the cash goes up by Tall of 40when you talk about the balance sheet on the other asset side because of thedepreciation of plant property equipment goes up by $100 and cash that goes up bydollar 40 from the changes on the cash flow statement fourth imagine asituation where a customer pays a mobile phone with a credit card so what wouldyou what this looks like under the cash versus accural accounting well in case ofthe cash based accounting how it will look like the if the revenue would notbe accounted until the company charges the customers credit card okay and itobtains an authorization and deposits t funds in its bank account after theseentries would be shown as a revenue in the income statement and also the cashin the balance sheet as against in case of if you see for the accrual accountingwould be shown as the what we call as revenue and that will be shown as aright away but it it would yet not appear in the cash in balance sheetrather it would be shown as account or a receivable only after the amount isdeposited in the company’s bank account it would be reported as cash and alsothat is a portion that is taken into consideration the second sort ofquestions that they can ask is the corporate finance that is basicallyInvestment Banking now in case of the corporate finance investment bankingquestions what do you exactly you faces what the first question it can be likeyou know what is the formula for calculating WACC to expect these kindof a notion lying into the currency back is basically the cost of equity when yousay WACC is ke cost of equity into the proportion of equity plus cost ofdebt into the proportion of debt 1 – tack where the cost of equitycalculated using the CAPM model here it has been calculated as per the CAPMmodel but the formula of the cost of equity is risk-free rate plus beta intoequity risk premium and the cost of debt is basically the risk-free rate isbasically the yield of a 10 year okay it’s it’s basically 10 year or 20years US Treasury now the beta is calculated based on how the how riskyare the comparable companies and equity is all about a risk premium is thepercentage by which the stocks are expected to out form outperform the riskless assets or the proportion is basically the percentage of how much ofthe company’s capital structure is taken up by each of this components theanother question that they can ask is there are let’s say two companies P andQ okay P and Q which are exactly the same but one p has let’s say debtwhereas Q doesn’t have any so in this case which other two companies wouldhave the higher WACC so in this scenario company Q would have a higher WACC okayand in this scenario the Q would have a higher back because the debt is lessexpensive than equity the seven sort of question you know it can be asked thatthe interview at the juncture might ask you that the reason why debt isconsidered to be less expensive the answer to this follow is that intereston debt is tax-deductible forcing very important multiplication of WACC formulaif you see 1- tax now the debt holders will be paid first in theliquidation instinctively interest rates on the debt are usually lower than thecost of equity the numbers that you see and as a result the cost of debt portionof WACC will contribute less to the total figures in the cost of equity portionlet me discuss the third part now the third type of valuation relatedinvestment King questions now first what they can askyou is describe the ways in which the company is valued so this is anothervery common investment banking interview question they can say the you can sayfirst is my president our transaction value analysis and this this is calledthis is called as the transaction multiple valuation when you look at howmuch other have paid for similar

brain teaser interview questionsmultiple valuation when you look at howmuch other have paid for similar companies to determine how much thecompany is worth and to use these method of actively you need to be extremelyvery familiar with the industry of the company you are valuing as well as thenormal premiums paid for such company the second thing is called thecomparable companies analysis now the comparable companies analysis is similarto the president transaction analysis except you are using the whole companyas assessment unit and not the purchase of the company so to use these methodsyou would also look at the similar companies 21 21 or 1 you arevaluing and look at the price to earnings ratio so the EBITDA the stockprice and the other variables you think would be an pointer of the health of thecompany then there is discounting cash flow method that is DCF Method thisis one one you see use the future cash flow okay or what the company will makein the upcoming year so determine the company is worth now what it took tocalculate the DCF okay you need to work out that what problems of future cashflows is for the company and for next 10 years and then work out howmuch that would be in today’s terms of what we call as the discounting thenwork out do you add the terminal value okay of the company and then this willtell you how much the company is worth the 9th type of question of anotherquestion that they can also switch or the situation where we do not use theDCF in the evaluation so we would not use a DCF in the valuation of thecompany has an unstable or unpredictable cash flow where debt and working capitalthey sell phenomenally different role like for example financial institutionslike banks do not reinvest debts and working capital forms a major part oftheir balance sheet so here we do not use DCF for such components the next 10th is investment banking interview questionlist the most common multiples used in valuationwell there are relative valuation techniques that is given like EV byrevenue then you have EV by EBITDA you have EV by a p/e ratio P divided by BV ratio and so on and so forth and that is for the techniques that you used the11 sort of question that they can ask that you know briefly explain whatis leveraged buyout C a leveraged buyout is when a company or investor they buyanother company using mostly called as borrowed funds or the borrowed moneyloans or even bonds to be able to make purchase know the assets of the companybeing acquired okay are usually used as a collateral for those loans sosometimes the ratio of the debt and equity is in the LBO and can beclosely around 9210 and any debt percentage is higher then that can lead to sort ofbankruptcy well let’s understand the 12th question that is InvestmentBanking interview questions explain what is PEG ratio now the stuff these standsfor the price earning to the growth ratio okay and it takes a p/e ratio andthen accounts for how fast the EPS for the company will still grow so a stockwhich is growing rapidly will have a higher PEG ratio so if a company islet’s say p/e ratio is having let’s say 20 then the PEG ratio is also 20 so somemight argue that the stock is too expensivewell if another company with the same EPS has a lower p/e ratio but also meansthat it is growing faster because the PEG ratio is 20 well Investment Bankingquestion number 13 what is the formula of enterprise valuethe formula for the enterprise value can say that you know it is basically themarket value of equity plus debt plus preferred stock and plus minorityinterest – cash let’s understand the 14th question whydo you think the cash is subtracted okay in the formula for EV so the reasonwhy cash is subtracted is that it is regarded as the non operating assetbecause equity value indirectly accounts for itthe 15 the question why do we consider both enterprise value and the equityvalue see enterprise value if you see it signifies the value of the company thatattributes to all the investor whereas the equity value well as the equityvalue represents a portion available to the equity shareholders so we considerboth because the equity value is the number the public at large seized whilethe enterprise value represents its true value 16 what does it signify if thecompany has negative enterprise value

brain teaser interview questions value 16 what does it signify if thecompany has negative enterprise value

brain teaser interview questionsvalue 16 what does it signify if thecompany has negative enterprise value now when we talk about the negativeenterprise value as I say the company could have negative enterprise valuewhen a company has extremely large cash balance is an extremely low marketcapitalization or both now this could occur in the companies which are on thebank brink of bankruptcy or financial institutions such as banks which havelarge cash balances we will continue with the 17th one nowthey can ask that you know briefly explain the process of the buy side ofM&A deal so a lot of time it is it has been completely research on thepotential acquisition targets and with the company you are representing to gothrough multiple cycles of selections and filtering so based on the feedbackfrom the narrow down the list and they decide which one to be furtherapproached so meetings are conducted to gouge te the receptivity of thepotential seller now serious discussions with the seller okay takes place whichcalls for in-depth due diligence and figure out and figuring out the or socalled the offer price okay negotiations negotiate the price and and apart fromthat and other key terms of the purchase agreement and announced the M&A deal ortransaction now briefly explain the accretion and dilution analysis well inorder to gouge the impact of the acquisition to the acquirer or EPS socalled and also compare it with you know youcan companies EPS if the acquisition would have not been executed soaccretion and dilution analysis is undertaken you can say that in simplesword you can say that in the scenario of the new EPS okay being higher than thetransaction it will be called as a creative while the opposite would becalled as dilutive 19th question now they can ask you given a situation where acompany now 19th question given a situation where a company with a lowerp/e ratio acquires a company with a higher P and in all stock deal so withwith the deal likely to be a creative or dilutive that’s gonna be a question sothe other thing being equal in a situation where the company with a lowp/e acquires with a higher p/e the transaction would be absolutely dilutivein nature to the acquirers earning EPS the reason for that is that acquirer willhave to shell out more for to be of the earning then the marketvalue of its own earning and therefore in such a situation the acquirer wouldhave to issue proportionately more share in the transaction 20 what are thesesynergies and its types well synergies are where the buyer getsmore value than out of the acquisition then what financial would predictthese are basically true well one is called the revenue synergies so this isbasically the combined the company can cross sell the products to new customersor upsell new products to the existing customer now because of the deal itcould be possible to expand its new geographies second is called the costsynergies now the combined company could am argument between the administer tostaff and Kenley overabundant redundant employee so it could also be in theposition to close down redundant stores or probably locations question number 21how does the goodwill gets created in acquisition now goodwill is theintangible assets that mostly stays the same over the year use and it is not amotorized like another other intangible so it only changes when there is calledas the acquisition the goodwill is basically the valuable assets which arenot shown in the financial assets of the balance sheet so for example brand namecustomer relationship intellectual property rights and so on and so forthso goodwill is basically the subtraction of the book value of the company fromits equity okay it is the subtraction of the equity from the for purchase pricethat signifies the value over the fair market value and it signifies the valueof the fair market value the seller that the buyer has actually paid now the nexttopic in the same investment banking interview can be 5th that is initialpublic offer so what can be the IB interviewquestions well see investment-banking question for IB question about 22 and they can ask briefly describe what would you do if the working ifyou’re working on an IPO for a client so first of all we would need declined andgather all the information necessary such as like the financial details suchas customers and learn about the sector

brain teaser interview questionssuch as like the financial details suchas customers and learn about the sector they belong to now after this you wouldmeet other bankers and lawyers the registration statement which woulddescribe the company’s business and market to its investor next you wouldreceive the commence weeks in organization the road shows where youwould present the company to the institutional clients and alsoconvincing them to invest in them after raising capital for the clients thecompany would start trading on the exchanges the next is question number 23that they cannot say what are the benefits of the company of gettinglisted why they should get listed so it is important step for a company toachieve liquidity and there are certain investors who would want to invest onlyin Exchange listed issuers so it helps the company to establish a recognizedvalue for the stock which in turn could help it he uses talk for acquisitionrather than cash the next is miscellaneous questions nowin terms of miscellaneous what what they can ask is what is the pitch book whichbook basically depends on the kind of the deal the company is pitching for butthe common structure would include like bank credentials to prove the expertiseof the company and similar deals before so summary of the company’s optionsappropriate financial models and valuation investment banking chartspotential acquisition targets or potential buyers no it it can also bethese summary and key recommendations question number 25 you take an asked tella company that you admire or follow and pitch me a stock well you need tostructure you answer for such an 19 banking interview questions keeping inmind something following you didn’t give the name of the stock that you have beenfollowing and the reason for the same quickly summarize what the company’sbusinesses provide a quick overview of the financials to indicate its size andhow how profitable it is also if you can provide with the specific details ofliked revenue the EBITDA or multiples or its be multiples and so on and soforth so provide reasons as to how the stock or the business is more attractivethan its run you should speak about the trends and the stock has had at least inthe past 3 to 5 years you could also talk about the future outlook ofthe company also 26 when buying a company why do the P form use leveragethe private equity firm basically reduces the amount of the equity to thedeal by using a significant amount of leverage stage to help the finance orpurchase price so by doing this it will increase the private equity firms rateof return substantially and when existing the investments 27 in what isthe convexity convexity is more accurate measure of the relationship betweenyield and price changes in the bonds in relation to the changes in the interestrates so duration calculates this as a straight line when in actuality it is aconvex curve it is a convex curve and hence then hence the name so this isused as the what we call as their risk calculations because it can tell you howthe bond yield will respond to the interest rate change then comes questionnumber 28 define the risk adjusted rate of returns now whenlooking at the investments you cannot simply look at the returns that isprojected so if the profit from the investment let’s say a is greater thanthe profit of the investment B you may immediately want to go for investment abut investment he might have a greater chance of the total loss than inverseand B so even though the profit may be larger it is lot riskier therefore notnecessarily that was not not not necessarily a better investment now theadjusted rate of return is when you are not looking at the return that aninvestment may give you but you also measure the risk of the investmentnow these adjusted rate of return is usually denoted by a number or ratingnow if you are technically minded you may also want to mention that in all theways the 3 risks are measured like beta alpha you have so called Sharperatio R square ratio and standard deviation so after discussing so manyquestions let me give you my final conclusion on this topic the key tosuccessfully answering these questions and technical investment banking questionis to apply the concepts very important you are learning and you need to testyourself hope I hope this was helped to you to learn some important questionsand answer on the investment banking topics and bring you basically the stepcloser to crack higher profile interview I wish you all the very best and justmake sure that know we have only touched upon the technical questions and thetypes but from this you would also have to prepare for some personal questionslike why investment Banking interview questions brain teasers which areusually part of the testing the candidates well that is it for thisparticular topic if you have learned and enjoyed watching this videoplease like comment on this video and subscribe to all our channels to ourchannel for all the latest updates thank you everyone