For more Career and MBA related content, follow: @ZiadShares In this video, Ziad and Devon cover the most commonly asked Investment Banking technical questions
The current market/economy is unnecessarily tougher for boomers/senior citizens, I’m used to just buying and holding assets which doesn’t seem applicable to the current rollercoaster market plus inflation is catching up with my portfolio. I’m really worried about survival after retirement.
Just buy Gold, the government has failed us or try to diversify your portfolio to other market sectors, that way your investment is balanced and you don’t get to make so much losses.
Indeed, gold proves to be a strong investment and a reliable hedge against the declining value of the dollar. I've held onto some gold for quite some time, and I'm thankful that my advisor's rapid adjustments to market fluctuations have likely prevented significant losses.
It's actually a great question, it's the one topic in which most of us will shit our pants if they start going into greater depths. But thankfully, they never do.
Not sure how I got here. Did these 10 years ago when I started banking. All I gotta say is: memorize these and run thru the questions 10x and you are set
@@goldtax8447 it could always be better, but my lifestyle is much more preferable than an office monkey, which I was a decade ago. In 2024 I will start to do LBOs. So will need to galvanise some of these young cats to lend me money when the time comes.
Im majored in finance now working in credit risk. I dont know all formulas off the top of my head but knowing how to use excel is the key. Most of your work will be on a computer, if u cant remember google that shit
u work in credit risk buddy 😂😂 none of these questions are einstein level math formulas they're formulas based on financial intuition. knowing these answers is moreso just a signal that you know basic financial shit. i garuntee you ibankers will remember free cash flow formulas until they die.
Softwares answers all the formula questions so not sure why ask this off-hand. It should be assumed one already knows how to calculate based on their credentials. Analysis of companies based on the available data type of questions makes more sense.
There’s 2 things to remember here: Levered cash flows change based on the capital structure of the firm because it assumes the firm uses x% of leverage. Also, there are only 2 real costs (excluding preferred shares): the cost of equity and the cost of debt. Once the cost of debt is covered (your interest expense), all other cash flows get returned to equity. This is what makes the use of leverage so powerful. Thus, in calculating levered free cash flows, you are splitting the CFE & CFD burdens, lessing out the cash flow to debt, and ultimately being left with the cash flow to equity, which then is discounted using the cost of equity.
@@lp9760 the FCF and LFCF formulas are actually a little different. FCF, as you know, is EBIT(1-t) + D&A - change in NOWC - CapEx. For levered free cash flows, the formula is EBITDA - change in NOWC - CapEx - Mandatory Debt Payments. Therefore, it is very similar to FCF, but you don’t include the tax burden after lessing interest. This means it shows the free cash flows after all mandatory expenses have been made (and thus it is cash flow to equity).
Using unlevered free cash flow in a DCF uses WACC as the discount rate and spits out enterprise value. Unlevered free cash flows are earnings available to all investors in the business, shareholders and creditors so a DCF using unlevered cash flows will yield enterprise value. Levered free cash flow is just unlevered cash flow - debt service (interest expense), which represents earnings available only to equityholders because debtholders have already been paid. Accordingly, you use the cost of equity as the discount rate and get equity value rather than enterprise value as the final result.
It is defined as no of outstanding shares times the price of a share. Even in cases of startups, despite them burning cash and incurring losses, the share price is never negative. A neg share price would mean that the company is actually paying you money for owning their stock/company. Remeber valuation is not just about how much you have earned in the past or in the present but also about the future. Startups may be in losses at present but they have great growth potential.
You actually can have negative equity (book value), however not market capitalization value. Now, Boeing is an example of negative equity ( book value).
I have no idea about any of this since im not even in a remotely close field, but if in my interviews they asked actual formulas I would leave on the spot as you already know they're clueless
Well you’re clueless because in investment banking it’s a necessity to know formulas by heart since it’ll cost you time to look them up or not knowing them well will cost you extra steps.
@@MrMDannycorrect. FCF should be learned in a introductory finance class and enterprise calculations in a intermediate finance/corporate finance class.
FCF is something not one single person in industry won’t know perfectly as it is a very simple concept and there are a couple of ways to calculate it, varying depending on the situation.
I’m currently a freshman, I took this financial accounting course series on EdX by Cambridge, and a ton of this stuff was actually discussed in this interview, which felt really rewarding for me because it’s the first time I’ve seen my time spent on that actually pay off. I took it because I’m in the loop with an investment research firm, and they do a lot of accounting statement research stuff. Hope I made the right decision lol
I think you haven’t worked in banking. Relationships and trusts are just as important, if not more important than precise calculations. I don’t think investment banking will go away ever.
@@MrMerlin5000 no it was assumed (D&A is incl. in operating expenses) and therefore we add D&A back to Net Income (not actually net income, it's tax-effected EBIT/operating income)
No one will hire you based on regurgitation of formula. This is a choreographed vocab test. They are trying to encourage people who know nothing to get into the field. When fields are suffering they do not recruit people who are intelligent in the field, they’ve already tried that. They are now recruiting regular people who would have never had a chance in the field with the shiny optimism of “this is a job above your caliber that you can get if you do the bare minimum but this is a job you might not have gotten otherwise but we are desperate” then when you get it, they treat you like a slave.
Investment bankers recruiting through a youtube video marketed to the public is hilarious. The economy is so upside down that investment bankers are asking the common man if they have any ideas. They will take advantage of you.
Lmao literally no real life interview in IB revolves around "YO SHOW ME HOW MUCH YOU CAN REMEMBER BY TELLING ME THE FORMULA FOR XYZ" Second half was better
what? 1. enterprise value = market cap + preferred share + netdebt? that is wrong answer 2. negative enterprise value due to excessive cash? obviously wrong answer again. accumulated negative earnings is causation
His answer is right, EV=Mcap+outstanding debt+pref stock+minority interest-cash/cash eqv. 2. According to the formula you could have a negative EV but it is not real life applicable-scenario.
@@shabierstanakzai9964 No it was wrong. I know everybody calculates EV like that, but everybody is wrong. The purpose of subtracting cash is thah the cash is not a part of the main business and you want EV to be comparable to other businesses (for example). But cash is not the only thing that is unrelated to the main business that companies can hold. They can have non-operating real estate, investments in equity, bonds, overfunded pensions... you name it. All of those things should be subtracted. Proper formula should be: equity and equivalents + debt and equivalents - non-operating items. That's the only correct formula. And I know... Thats a shocker that most pristine financial institutions do it incorrectly...
@@user-hh6ye3ty3deverybody is wrong, okay little man if every single person in finance has made an error why are you the only one crying wolf about it, kiddo? When there are hundreds of millions of people smarter and more technical than you, buddy?
The current market/economy is unnecessarily tougher for boomers/senior citizens, I’m used to just buying and holding assets which doesn’t seem applicable to the current rollercoaster market plus inflation is catching up with my portfolio. I’m really worried about survival after retirement.
Just buy Gold, the government has failed us or try to diversify your portfolio to other market sectors, that way your investment is balanced and you don’t get to make so much losses.
Indeed, gold proves to be a strong investment and a reliable hedge against the declining value of the dollar. I've held onto some gold for quite some time, and I'm thankful that my advisor's rapid adjustments to market fluctuations have likely prevented significant losses.
Please can you leave the info of your lnvestment advisor here? I’m in dire need for one.
Just research the name Angela Lynn Shilling. You’d find necessary details to work with a correspondence to set up an appointment.
I just checked her out and I have sent her an email. I hope she gets back to me soon.
How do you calculate the cost of equity - that's a great question 😂😂😂
😂😂😂😂😂
It's actually a great question, it's the one topic in which most of us will shit our pants if they start going into greater depths. But thankfully, they never do.
CAPM
@@jai7961 I just got this question the other day and was frozen.
Dividend growth too
Not sure how I got here. Did these 10 years ago when I started banking. All I gotta say is: memorize these and run thru the questions 10x and you are set
bosh
do you need to actually know all these financial things and macro knowledge for the actual job?
@@hasanaslam931 yes of course
yes@@hasanaslam931
yeah, and this was pretty basic@@hasanaslam931
Great stuff!
Excellent!
This was honestly very helpful.
Learned a lot from this and Im not even looking for a job in IB. Heck I don't even need a job I have a business, but learned a lot!
U make good money?
@@goldtax8447 it could always be better, but my lifestyle is much more preferable than an office monkey, which I was a decade ago.
In 2024 I will start to do LBOs. So will need to galvanise some of these young cats to lend me money when the time comes.
@@goldtax8447 yes
What business
Can I purchase 50.1% of your business?
great stuff, devon!
Im majored in finance now working in credit risk. I dont know all formulas off the top of my head but knowing how to use excel is the key. Most of your work will be on a computer, if u cant remember google that shit
u work in credit risk buddy 😂😂 none of these questions are einstein level math formulas they're formulas based on financial intuition. knowing these answers is moreso just a signal that you know basic financial shit. i garuntee you ibankers will remember free cash flow formulas until they die.
this guy's GOOD
Investment bankers recruiting basically through a youtube ad. Times are tough😂
perfect
Bruh if they ask formulas I’m finished
What’s worse is when you’re in the middle of answering the question and they all of a sudden ask what 18 X 18 is.
Softwares answers all the formula questions so not sure why ask this off-hand. It should be assumed one already knows how to calculate based on their credentials. Analysis of companies based on the available data type of questions makes more sense.
where can we see the written guide ?
I wish they would ask easy questions such as this at interviews lol
what did they ask you?
He's a business man doing BUSINESS
What did he mean with his answer in the levered vs unlvrd cashflow question?
There’s 2 things to remember here: Levered cash flows change based on the capital structure of the firm because it assumes the firm uses x% of leverage. Also, there are only 2 real costs (excluding preferred shares): the cost of equity and the cost of debt. Once the cost of debt is covered (your interest expense), all other cash flows get returned to equity. This is what makes the use of leverage so powerful. Thus, in calculating levered free cash flows, you are splitting the CFE & CFD burdens, lessing out the cash flow to debt, and ultimately being left with the cash flow to equity, which then is discounted using the cost of equity.
@@Viipxzcheers! So for lvrd cash flow we just deduct interest expenses from out fcf - Or anything else as well?
@@lp9760 the FCF and LFCF formulas are actually a little different. FCF, as you know, is EBIT(1-t) + D&A - change in NOWC - CapEx. For levered free cash flows, the formula is EBITDA - change in NOWC - CapEx - Mandatory Debt Payments. Therefore, it is very similar to FCF, but you don’t include the tax burden after lessing interest. This means it shows the free cash flows after all mandatory expenses have been made (and thus it is cash flow to equity).
Using unlevered free cash flow in a DCF uses WACC as the discount rate and spits out enterprise value. Unlevered free cash flows are earnings available to all investors in the business, shareholders and creditors so a DCF using unlevered cash flows will yield enterprise value. Levered free cash flow is just unlevered cash flow - debt service (interest expense), which represents earnings available only to equityholders because debtholders have already been paid. Accordingly, you use the cost of equity as the discount rate and get equity value rather than enterprise value as the final result.
i think this is really a nerdy thing
asking formulas lol
These comments saying this is easy geez… I forgot all this stuff one year out of school 😂😂
Yo na if my future interviews are like this im screwed
Believe me, nobody is doing this shit.
What is a DCF and IRR. What is exotic option.
Discounted Cash Flow and Internal Rate of Return
You can not have negative equity value? What if the company is a Microcompany (entrepreneurship) and there is cumulated losses? 👀
It is defined as no of outstanding shares times the price of a share. Even in cases of startups, despite them burning cash and incurring losses, the share price is never negative. A neg share price would mean that the company is actually paying you money for owning their stock/company. Remeber valuation is not just about how much you have earned in the past or in the present but also about the future. Startups may be in losses at present but they have great growth potential.
You actually can have negative equity (book value), however not market capitalization value. Now, Boeing is an example of negative equity ( book value).
Why is knowing this off-hand considered useful?
Because it's off-hand
it’s a D measuring contest
I have no idea about any of this since im not even in a remotely close field, but if in my interviews they asked actual formulas I would leave on the spot as you already know they're clueless
Well you’re clueless because in investment banking it’s a necessity to know formulas by heart since it’ll cost you time to look them up or not knowing them well will cost you extra steps.
Bro what? That’s such an arrogant and presumptuous comment lmao
@@ismigomeztrue
Do you learn these things in an internship? Or is this personal studying
That's very basic stuff that you should know before applying for your very first job
@@MrMDannycorrect. FCF should be learned in a introductory finance class and enterprise calculations in a intermediate finance/corporate finance class.
FCF is something not one single person in industry won’t know perfectly as it is a very simple concept and there are a couple of ways to calculate it, varying depending on the situation.
I’m currently a freshman, I took this financial accounting course series on EdX by Cambridge, and a ton of this stuff was actually discussed in this interview, which felt really rewarding for me because it’s the first time I’ve seen my time spent on that actually pay off. I took it because I’m in the loop with an investment research firm, and they do a lot of accounting statement research stuff. Hope I made the right decision lol
I learnt this in my BSc. in engineering management undergraduate program. The course's name was Corporate Finance.
All this is answerable by Advanced AI goodbye banking jobs finally
I think you haven’t worked in banking. Relationships and trusts are just as important, if not more important than precise calculations. I don’t think investment banking will go away ever.
Everything can be automated with AI, given enough R&D dollars are poured into it, including your tiny typing computer job, little buddy.
I thought this was a parody at first , do they actually ask such simple questions? I learned 3/4 of this in one course
@@Godbullet98😂😂😂
Wow. Pls I'll like to know which course that was @joshgeorge5921
No true interviewer will ask question from an ipad😂😂😂
MEMORY
welp im screwed
It is not called net income after you subtract tax. It is NOPAT.
Literally the same thing. There’s more than one word to call it
Net income is the income after paying out interest expense, right? Here he just subtracted the tax. @@thetwoboyz4542
The first question (Revenue to FCF) is wrong.
Elaborate
He forgot to substract D&A when calculating NI
I see makes sense
@@MrMerlin5000 no it was assumed (D&A is incl. in operating expenses) and therefore we add D&A back to Net Income (not actually net income, it's tax-effected EBIT/operating income)
Fair point, an excellent candidate would have mentioned that though
I am going to throw up, I have a superday today and I have not even taken my first finance class in college.
How’d it go
@joebertotto7220 actually not bad? If I get an offer I'll lyk 😤😤
@@ezabellakhan8488 waiting for your update, best of luck!
@@ezabellakhan8488update?
Update?!??
I’m cooked
No one will hire you based on regurgitation of formula. This is a choreographed vocab test. They are trying to encourage people who know nothing to get into the field. When fields are suffering they do not recruit people who are intelligent in the field, they’ve already tried that. They are now recruiting regular people who would have never had a chance in the field with the shiny optimism of “this is a job above your caliber that you can get if you do the bare minimum but this is a job you might not have gotten otherwise but we are desperate” then when you get it, they treat you like a slave.
The candidate is perfectly showing how to be good at fake at something you are not. So people know you are faking it😂
He answered the questions fine wdym? This is coming from a finance major
No one asks this
Investment bankers recruiting through a youtube video marketed to the public is hilarious. The economy is so upside down that investment bankers are asking the common man if they have any ideas. They will take advantage of you.
LaMonica’s isn’t that good compared to New York city pizza….it’s passable at best. Orlando not too bright
go start a business people. stop studying how to be a slave to someone else
Business failling rate is way too high. Markets are very concentrated at this point
Starting in finance is prob one of the best careers before becoming an entrepreneur
Lmao literally no real life interview in IB revolves around "YO SHOW ME HOW MUCH YOU CAN REMEMBER BY TELLING ME THE FORMULA FOR XYZ"
Second half was better
Bro just go be a plumber make tons of cash, can’t be automated , work for your self and no student loan debt and best of all no business casual
IB opens way more exit opportunities and is a lucrative career. Getting into IB and not being kicked out = set for life pretty much.
Too much mumbo jumbo… if you can explain it to a 5th grader it’s pretty much meaningless information
Did he get the job? I’d have hired that cat no issues.
Are these seriously what they ask such CFA lv 1 Corp fin/equity question? I would be acing every bit of it giving a better answer than the guy.
A company you admire? GREAT QUESTION. Couldn't be more cringy
Beta measures risk not volatility
the question wasn’t what it measures though?
Its a correlation not necessarily volatility @@carterhughes683
what?
1. enterprise value = market cap + preferred share + netdebt? that is wrong answer
2. negative enterprise value due to excessive cash? obviously wrong answer again. accumulated negative earnings is causation
His answer is right, EV=Mcap+outstanding debt+pref stock+minority interest-cash/cash eqv. 2. According to the formula you could have a negative EV but it is not real life applicable-scenario.
His answer was literally right
@@shabierstanakzai9964 No it was wrong. I know everybody calculates EV like that, but everybody is wrong. The purpose of subtracting cash is thah the cash is not a part of the main business and you want EV to be comparable to other businesses (for example). But cash is not the only thing that is unrelated to the main business that companies can hold. They can have non-operating real estate, investments in equity, bonds, overfunded pensions... you name it. All of those things should be subtracted. Proper formula should be: equity and equivalents + debt and equivalents - non-operating items. That's the only correct formula. And I know... Thats a shocker that most pristine financial institutions do it incorrectly...
@@user-hh6ye3ty3deverybody is wrong, okay little man if every single person in finance has made an error why are you the only one crying wolf about it, kiddo? When there are hundreds of millions of people smarter and more technical than you, buddy?