Well it's come again. Recruiting season. I've been surprised how many students have reached out to me this year, wanting to get advice and hear about where I work. It's a good thing though - the more that reach out, the better chance we have of finding the best new analysts!
I've noticed more and more how easy it is to tell the difference between somebody who has prepared and somebody who hasn't. And the difference is obvious within three minutes of talking with a person. This is why when you interview, the interviewer usually makes a decision by the time you've told your story - the rest of the interview is spent confirming that decision, whether to ding you or to pass you on.
I thought it might be helpful to write down one of the ways I prepared which I feel really helped me perform in interviews.
So a little background. I had just finished up my internship at a bulge bracket bank, and was thinking about what to do next. I felt like it would be a good idea to interview around, and I reached out to people I had met in the lead-up to internship interviews. Luckily, I had a great summer and was able to have some substance to my resume as I was sending it out. At the places where I didn't know anybody, I simply sent my resume to the websites of those companies. I didn't think it would lead to anything, but when you don't have anything to lose, why not? It turns out that I ended up taking a job at one of the places that found my resume through the website.
As interviews progressed, I was fortunate enough to get a few offers. At this point, I realized that I was going to have to make some decisions about what I wanted to do for the two years following college. I had a lot of questions, like, "Bulge bracket or boutique?" and "Investment banking for a career or private equity after banking?"
I decided that to really be able to figure out where I wanted to be, I needed to decide what I want out of my two-year analyst experience. I sat down with a blank sheet of paper and began writing out what I really wanted as an analyst.
My thoughts focused around three broad categories: (1) Finance / technical experience, (2) Culture / lifestyle and (3) Career / Exit opportunities.
Finance / Technical
Within this section, I included the following:
-Deal team size (10-15+ at bulge bracket, 4-5 at boutique)
-Generalist vs. product/industry group
-Modeling (templates vs. building from scratch)
-Analyst responsibility (double-staffed with other analysts or sole analyst on deal teams from day one? Run the model or share with associate? etc.)
-Mentoring (assigned or just part of the culture? Interaction with senior people daily or never? Chain of command or flat culture?)
It turns out that the things most important to me were to get a lot of responsibility and experience modeling from the get-go. I also wanted to be a generalist and focus on M&A, because I had decided that my long-term goal was to go to private equity.
Culture / Lifestyle
-"Face time" policy
-My view of the culture (basically I just used adjectives to describe how I viewed each bank's culture based on my interactions with people from the banks)
-Salary (not that important, but still a data point)
This section was important to me, but it wasn't what really swayed me one way or another. I still view investment banking as an investment in the future, and if you have to deal with a rough culture for two years, you can do it. But, if you can go to a top-tier bank and be in a great culture, even better.
Exit Opportunities
-Firm's view on interviewing for private equity (fire you vs. help you)
-Firm's view on promoting internally
-How well have analysts done in the past in recruiting at this bank? (this was all based on hearsay and research I did on my own just looking at various websites of the PE shops)
Although this isn't something you can bring up as a positive point in an interview about why you would want to work at a specific bank, it was very important to me. In the group where I spent the summer, the analysts who were interviewing literally had to lie about what they were doing and sneak out to interviews. I really didn't want to be put in a position where I felt that I needed to be dishonest just to do what I wanted. Because this was a priority, I ended up choosing a bank where people are very willing to help you prepare for and do well in private equity interviews. Luckily, my analyst class did amazingly well in private equity recruiting, and I think it's largely because of the way the firm views recruiting.
This exercise took quite a while to think through and fill out, but once I had gone through the page and ranked the various banks at which I had an offer or was likely to receive an offer, it became very clear to me that based on the criteria I had prioritized, I needed to go to one bank in particular. I knew what I was giving up, and I knew full well what I was getting. At that point I didn't even have an offer from this bank yet, but I had final rounds scheduled.
When the time came for interviews and I was asked, "Why do you want to work here?", I began to explain how I had thought about that question quite a bit. In essence, I said something like this:
"I've thought about this in great detail, and the way I have approached it is to think about what things I really want to experience as an analyst. I know that the criteria that are important to me are [list off the things I just wrote about above]. As I've considered the various banks, yours absolutely fits those criteria the best. I would love to be here, and have no doubt in my mind that I could thrive here."
I would go on to list of specific things about the bank, such as their views on analysts, modeling, mentoring, culture, deal teams / experience, etc. It was clear to every person with which I interviewed that I had given this question substantial thought. The great thing is, I was talking about all the same reasons that they loved working at this bank, and my answers resonated strongly with the interviewers.
I received the offer and have had an absolutely fantastic first year. My point in writing all of this is to encourage those of you with interviews coming up to really put thought into what is important to you in your analyst experience and to convince yourself of the best place for you. Then, when you interview there, it will come across clearly that you have thought it through, and that you are a great fit for the job.
Showing posts with label Interview questions. Show all posts
Showing posts with label Interview questions. Show all posts
Sunday, August 29, 2010
Monday, February 16, 2009
Accepting the Offer
One of you asked, "In one of my interviews I was asked:"If I give you an offer now, will you take it?" How would you answer this question?"
The answer, like pretty much everything else in the world, is that it depends. When I was interviewing, even though I sold myself to every bank as if they were my top choice, I clearly had my top choice in mind. In fact, I ranked all the banks based on my own measures of "culture", "prestige", "exit opportunities", "analyst experience", "group / industry opportunities", etc.
I'm sure everybody has their top choice, so if you are interviewing with this bank, and they ask you the question, it's not a lie to go ahead and say that you would accept. BUT, you want to be cautious in how you answer. If you say that you would accept, take it as another chance to show that you've done your homework and understand exactly what you would be accepting.
I would say something like, "You know, I would be glad to accept that offer for a few reasons. First of all, I've taken time to meet with people at pretty much every bank on the street, and I feel like the people here not only care about the analyst experience, but they are very intelligent and will challenge me to be better. Second, it's important to me to be able to contribute a lot, and your bank is known for giving analysts lots of responsibility. I know this is a great challenge, but it's one I would gladly take on. Third, I feel like your bank is the best positioned to take advantage of the current market situation, due in large part to [XYZ]."
But, because you might get offers from banks other than your top choice, you want to be very careful not to pin yourself in a corner. Don't commit to accepting an offer just so you can get the offer. If you say you'll accept, get the offer, and then reject it, that not only reflects poorly on you, but also reflects poorly on your school, and could lead to big problems you don't want to face. In short, it would be unethical to lie, so don't do it!
If I'm not sure I'm going to accept, I would answer by saying something like this:
"You know, if I were lucky enough to receive an offer from you, I would treat it like I do any important decision [or you could say, any investment I've made or whatever] in my life. I would take some time to think about what is important to me, what the costs/benefits will be of either choice, and then I'll sleep on it. As it stands right now, I don't see any reason why I wouldn't accept, and surely interviewing with many people here today has helped me get a much better understanding for the "feel" of the firm."
If they give you the offer and press you to accept it or lose it (another variation is when they say that there are three spots and five candidates, and the first three to accept get a spot), I might reply like this:
"Frankly I would like to work for a bank that hires me because I fit the qualifications of the job and am the best person for the position, not because of my willingness to accept on the spot. Like I said, I think your bank is great and am honored to have an offer. I'd just like to think it through before I make a decision that will have a potentially huge impact on my life and career going forward."
Take this all with a grain of salt - it's all just my opinion. I think it is very unwise to accept anything on the spot unless you have already thought through the implications of taking the offer. If it's a take-it-or-leave-it deal, then I'll leave it 99% of the time unless I can think it through first. I hope this helps!
The answer, like pretty much everything else in the world, is that it depends. When I was interviewing, even though I sold myself to every bank as if they were my top choice, I clearly had my top choice in mind. In fact, I ranked all the banks based on my own measures of "culture", "prestige", "exit opportunities", "analyst experience", "group / industry opportunities", etc.
I'm sure everybody has their top choice, so if you are interviewing with this bank, and they ask you the question, it's not a lie to go ahead and say that you would accept. BUT, you want to be cautious in how you answer. If you say that you would accept, take it as another chance to show that you've done your homework and understand exactly what you would be accepting.
I would say something like, "You know, I would be glad to accept that offer for a few reasons. First of all, I've taken time to meet with people at pretty much every bank on the street, and I feel like the people here not only care about the analyst experience, but they are very intelligent and will challenge me to be better. Second, it's important to me to be able to contribute a lot, and your bank is known for giving analysts lots of responsibility. I know this is a great challenge, but it's one I would gladly take on. Third, I feel like your bank is the best positioned to take advantage of the current market situation, due in large part to [XYZ]."
But, because you might get offers from banks other than your top choice, you want to be very careful not to pin yourself in a corner. Don't commit to accepting an offer just so you can get the offer. If you say you'll accept, get the offer, and then reject it, that not only reflects poorly on you, but also reflects poorly on your school, and could lead to big problems you don't want to face. In short, it would be unethical to lie, so don't do it!
If I'm not sure I'm going to accept, I would answer by saying something like this:
"You know, if I were lucky enough to receive an offer from you, I would treat it like I do any important decision [or you could say, any investment I've made or whatever] in my life. I would take some time to think about what is important to me, what the costs/benefits will be of either choice, and then I'll sleep on it. As it stands right now, I don't see any reason why I wouldn't accept, and surely interviewing with many people here today has helped me get a much better understanding for the "feel" of the firm."
If they give you the offer and press you to accept it or lose it (another variation is when they say that there are three spots and five candidates, and the first three to accept get a spot), I might reply like this:
"Frankly I would like to work for a bank that hires me because I fit the qualifications of the job and am the best person for the position, not because of my willingness to accept on the spot. Like I said, I think your bank is great and am honored to have an offer. I'd just like to think it through before I make a decision that will have a potentially huge impact on my life and career going forward."
Take this all with a grain of salt - it's all just my opinion. I think it is very unwise to accept anything on the spot unless you have already thought through the implications of taking the offer. If it's a take-it-or-leave-it deal, then I'll leave it 99% of the time unless I can think it through first. I hope this helps!
Thursday, February 12, 2009
Phone Interviews
One of you asked about phone interviews, so here are a few quick thoughts.
Phone interviews are usually a candidates first official interviews with a bank, and are usually conducted by people in HR. Occasionally they will be conducted by analysts or associates who are usually alumni of the school. Interview questions are just about the same on the phone as they are in person for a first round interview, so make sure you can answer the big three:
(1) Walk me through your resume / tell me your story.
(2) Why banking?
(3) Why [insert name of bank conducting interview]?
You might get a few technical questions, but especially if it's somebody from HR, you probably won't get anything too deep, so just know the basic Vault Guide stuff and you'll be fine. The big focus will be fit.
Phone interviews present unique challenges and benefits to you as the person being interviewed. For one thing, it's a lot harder to get your personality across over the phone. You have to try extra hard to be animated without sounding like a cartoon. On the phone, though, it is easy to sound like a robot so be conscious of your tone and vary it as you describe different things.
Another challenge is that you can't see your interviewer, so you don't know how they are responding to what you're saying other than how they inflect their voice. It's still a good idea to use humor and be easy going, but pay more attention than normal to how they are responding to you.
One of the benefits of a phone interview is that you can have all of your information right there in front of you. You should never be stumped by a question on a phone interview. Usually before an interview, I'll get out my phone interview resume. This is my normal resume, but with examples of different stories or qualities that are related to every bullet. It's actually about three pages long, but I never have to scramble to come up with a story to tell about X experience because I have it right there in front of me.
I'll also have all of the information about the company, including awards they've won, their stock price, recent deal information, and my reasons for wanting to work at that bank. I have a calculator there, a blank page with a pen, and the name of my interviewer all right in front of me (side note - if you use the calculator, make sure to do it quietly - you don't want them thinking you're not paying attention. Same goes with using a computer - don't type while you're on the phone because it's distracting and they can hear it.
Normal principles of good interviewing still apply. I even will wear my suit for the phone interview because it helps me to remember to be professional and not too casual. Make sure you have a reliable number for them to call, and don't have a stupid voice mail message, just in case you miss their call.
Good luck with the interviews!
Phone interviews are usually a candidates first official interviews with a bank, and are usually conducted by people in HR. Occasionally they will be conducted by analysts or associates who are usually alumni of the school. Interview questions are just about the same on the phone as they are in person for a first round interview, so make sure you can answer the big three:
(1) Walk me through your resume / tell me your story.
(2) Why banking?
(3) Why [insert name of bank conducting interview]?
You might get a few technical questions, but especially if it's somebody from HR, you probably won't get anything too deep, so just know the basic Vault Guide stuff and you'll be fine. The big focus will be fit.
Phone interviews present unique challenges and benefits to you as the person being interviewed. For one thing, it's a lot harder to get your personality across over the phone. You have to try extra hard to be animated without sounding like a cartoon. On the phone, though, it is easy to sound like a robot so be conscious of your tone and vary it as you describe different things.
Another challenge is that you can't see your interviewer, so you don't know how they are responding to what you're saying other than how they inflect their voice. It's still a good idea to use humor and be easy going, but pay more attention than normal to how they are responding to you.
One of the benefits of a phone interview is that you can have all of your information right there in front of you. You should never be stumped by a question on a phone interview. Usually before an interview, I'll get out my phone interview resume. This is my normal resume, but with examples of different stories or qualities that are related to every bullet. It's actually about three pages long, but I never have to scramble to come up with a story to tell about X experience because I have it right there in front of me.
I'll also have all of the information about the company, including awards they've won, their stock price, recent deal information, and my reasons for wanting to work at that bank. I have a calculator there, a blank page with a pen, and the name of my interviewer all right in front of me (side note - if you use the calculator, make sure to do it quietly - you don't want them thinking you're not paying attention. Same goes with using a computer - don't type while you're on the phone because it's distracting and they can hear it.
Normal principles of good interviewing still apply. I even will wear my suit for the phone interview because it helps me to remember to be professional and not too casual. Make sure you have a reliable number for them to call, and don't have a stupid voice mail message, just in case you miss their call.
Good luck with the interviews!
Tuesday, September 23, 2008
Valuation Methods
Here's a common question:
"How do you value a company?"
There are a ton of ways to answer this. I'll just list a few ways to do it:
1. Discounted Cash Flow
2. Comparable Transactions
3. Comparable Companies
4. LBO valuation
5. Sum-of-the-parts
6. Liquidation value
There are even more but usually if you list five or six that is enough to sound smarter than the average American (one of many things that you could say to sound smarter than the average American I guess).
More interview questions to come...
"How do you value a company?"
There are a ton of ways to answer this. I'll just list a few ways to do it:
1. Discounted Cash Flow
2. Comparable Transactions
3. Comparable Companies
4. LBO valuation
5. Sum-of-the-parts
6. Liquidation value
There are even more but usually if you list five or six that is enough to sound smarter than the average American (one of many things that you could say to sound smarter than the average American I guess).
More interview questions to come...
Thursday, September 18, 2008
Question about depreciation
Another classic question that I've gotten a few times is something like this:
"Imagine that you have a company and suddenly you find out that you reported your depreciation expense incorrectly. You now have an additional $10 million in depreciation. How would this change be reflected in all three financial statements?"
I've actually received some form of this question about six times as I've interviewed. As always, you want to keep things simple and just go through everything methodically. Here's how I might go about answering this:
"I'll start with the income statement. Your depreciation expense will increase by $10 million, which will decrease your operating income by $10 million. Assuming (to make life easier) that you have a 40% tax rate, then your net income will decrease by $6 million after accounting for the tax shield you get from added depreciation expense.
"This net income will flow onto the statement of cash flows, so the net income will be decreased by $6 million. But, you will add back the $10 mm in depreciation so your net change in operating cash flows will be a positive $4 million.
"On the balance sheet, your accumulated depreciation increases by $10mm, so your net PP&E will decrease by $10mm. The cash balance increases by $4 million (from the cash flow statement), so the asset side of the balance sheet nets to a negative $6mm. No cash is actually paid out, but in essence your tax shield increases by $4mm so your cash position increases. On the liability/equity side, your net income, which decreased by $6mm, flows into retained earnings and therefore balances with your assets."
One time at Lazard I was asked, "You have been depreciating your assets using a double-declining method, but you now change to a straight-line method. What does this do to the financial statements?"
This question is similar but there's just one more little caveat. Can you think of it?
I've got a pretty cool pdf file that shows how all of the financial statements are connected. I'll post it on here soon.
"Imagine that you have a company and suddenly you find out that you reported your depreciation expense incorrectly. You now have an additional $10 million in depreciation. How would this change be reflected in all three financial statements?"
I've actually received some form of this question about six times as I've interviewed. As always, you want to keep things simple and just go through everything methodically. Here's how I might go about answering this:
"I'll start with the income statement. Your depreciation expense will increase by $10 million, which will decrease your operating income by $10 million. Assuming (to make life easier) that you have a 40% tax rate, then your net income will decrease by $6 million after accounting for the tax shield you get from added depreciation expense.
"This net income will flow onto the statement of cash flows, so the net income will be decreased by $6 million. But, you will add back the $10 mm in depreciation so your net change in operating cash flows will be a positive $4 million.
"On the balance sheet, your accumulated depreciation increases by $10mm, so your net PP&E will decrease by $10mm. The cash balance increases by $4 million (from the cash flow statement), so the asset side of the balance sheet nets to a negative $6mm. No cash is actually paid out, but in essence your tax shield increases by $4mm so your cash position increases. On the liability/equity side, your net income, which decreased by $6mm, flows into retained earnings and therefore balances with your assets."
One time at Lazard I was asked, "You have been depreciating your assets using a double-declining method, but you now change to a straight-line method. What does this do to the financial statements?"
This question is similar but there's just one more little caveat. Can you think of it?
I've got a pretty cool pdf file that shows how all of the financial statements are connected. I'll post it on here soon.
Wednesday, September 17, 2008
What a week
The past week has been one for the ages. We will probably never see another span of carnage on Wall Street like we have seen for the past 10 days. With Fannie and Freddie going under, followed by Lehman, Merrill, and now AIG, the entire finance world is changing. And with Morgan Stanley and Goldman down well over 20% today, who knows if they will even outlast this crazy time.
With all of this turmoil, it becomes even more necessary to have a great resume and be ready for interviews. A quick update - my kidney stone is no longer in my body, but the effects of the little rock are still being felt today. Kidney stones suck!! Also, I got some offers - one at another bulge bracket bank and one from a top boutique. So that was GREAT news given the other things going on this week. Now the tough part is deciding where to go. I am definitely blessed to have options this year.
So I thought I would write about some of the other interview questions I've faced over the past few months, as well as some of the ways I've answered these questions. Keep in mind that I'm not an expert and could very well miss some things. That said, I've received an offer from every firm with which I've interviewed, both for internships or full-time, so I feel like I can at least take a crack at some of these questions.
The most common technical question I've gotten at every bank I've interviewed with is "walk me through a DCF." I think everybody knows in their mind what a discounted cash flow model does, but what I've found is that there's a certain way to answer this question that makes your life easier. When I first started interviewing I really wanted to show people that I know what I'm talking about, and I went into great detail about every part of a DCF calc. What happened though was that I would get bogged down in the details and end up not sounding very smart.
Now when I answer this question, I like to begin with a very simple answer and allow the interviewer to drill down however he/she would like to. For example I might say something like this:
"The goal of a DCF model is to derive the enterprise value of the firm. I do this by calculating the unlevered free cash flows of the firm, then project them forward for about five years (or whatever time horizon you are looking at). I then calculate a terminal value (TV), and discount the TV and the FCFs back to the present value at the cost of capital to get my enterprise value."
Done. At this point, the interviewer knows that I understand the DCF, and they are free to ask me deeper questions. Some interviewers I've had will stop me as I go along to ask questions, but most let me go to this point and then say something like, "Ok great. Can you tell me how you would calculate the free cash flow of a company?"
"Sure. Starting with EBITDA, you subtract D&A, then multiply by (1-tax rate) to get rid of the tax cash, then add back D&A, take out CAPEX and the change in net working capital, and you have free cash flows."
"And what is net working capital?"
"Current assets less current liabilities."
"Great. How do you calculate a terminal value?"
"Well it depends on the deal. If it's a strategic deal, you'll probably use a perpetuity model since they want the asset for the long term. If it's a financial deal the sponsor will want to sell in the terminal year and you'll use a multiple, like EV/EBITDA."
You get the picture. I just give the answers in a way that shows that I know what I'm saying but I don't try to tell it all at once. They might ask you about how to calculate a discount rate (use WACC), how to calculate WACC, how to get CAPM, and even how to unlever/relever beta. Whatever it is, just be ready for it, but start basic and work your way into the nitty gritty.
One more question about accretion/dilution that I got this summer was something like this: "If you own a company and want to do a quick back-of-the-envelope calculation of acc/dil, how would you do it given a particular target? In other words, what information would you need to do a quick calc?"
"Well a P/E ratio would be great."
"That's right. So lets say your company has a P/E of 18 and the target's P/E is 21. Will the deal be accretive or dilutive? Why?"
"Dilutive because their P/E is higher than mine. In essence I would have to pay more per dollar of earnings than my own company is worth, so the EPS would decline."
Here are a few more random interview questions:
"What's the square root of 2,025?" (The answer doesn't have to be right on - it's 45 - but you just have to be close. They want to see how you can out loud reason through some mental math)
"What is 2/3 + 3/4?" (Just take a deep breath and think back to seventh grade - you can do this!)
"So you worked a little in a fund. Pitch me a stock." (On this one I pretty much always go with my favorite stock that I've bought - PARL - because it's an interesting company to talk about. I would suggest that you are ready to talk about a few investment ideas, and also that you pick companies that the interviewers have never heard of. You don't want to say "GM" and then find out that you're talking to the MD on that account)
"If you had $1 Billion to invest for your school, how would you do it?" (Again you can pretty much say whatever you want, but don't be stupid and say 'Short Goldman with the whole fund because I don't believe in the pure play model!' Just be rational with how you answer most questions and you'll be fine)
I'll be posting more questions/answers in the next little while. Sorry again for the long delay. I'm working at Treasury so you can all imagine what a week it's been around here with Fannie, Freddie, Lehman, Merrill, and AIG all blowing up. Anyway, keep the comments coming about the types of posts you'd like to see.
With all of this turmoil, it becomes even more necessary to have a great resume and be ready for interviews. A quick update - my kidney stone is no longer in my body, but the effects of the little rock are still being felt today. Kidney stones suck!! Also, I got some offers - one at another bulge bracket bank and one from a top boutique. So that was GREAT news given the other things going on this week. Now the tough part is deciding where to go. I am definitely blessed to have options this year.
So I thought I would write about some of the other interview questions I've faced over the past few months, as well as some of the ways I've answered these questions. Keep in mind that I'm not an expert and could very well miss some things. That said, I've received an offer from every firm with which I've interviewed, both for internships or full-time, so I feel like I can at least take a crack at some of these questions.
The most common technical question I've gotten at every bank I've interviewed with is "walk me through a DCF." I think everybody knows in their mind what a discounted cash flow model does, but what I've found is that there's a certain way to answer this question that makes your life easier. When I first started interviewing I really wanted to show people that I know what I'm talking about, and I went into great detail about every part of a DCF calc. What happened though was that I would get bogged down in the details and end up not sounding very smart.
Now when I answer this question, I like to begin with a very simple answer and allow the interviewer to drill down however he/she would like to. For example I might say something like this:
"The goal of a DCF model is to derive the enterprise value of the firm. I do this by calculating the unlevered free cash flows of the firm, then project them forward for about five years (or whatever time horizon you are looking at). I then calculate a terminal value (TV), and discount the TV and the FCFs back to the present value at the cost of capital to get my enterprise value."
Done. At this point, the interviewer knows that I understand the DCF, and they are free to ask me deeper questions. Some interviewers I've had will stop me as I go along to ask questions, but most let me go to this point and then say something like, "Ok great. Can you tell me how you would calculate the free cash flow of a company?"
"Sure. Starting with EBITDA, you subtract D&A, then multiply by (1-tax rate) to get rid of the tax cash, then add back D&A, take out CAPEX and the change in net working capital, and you have free cash flows."
"And what is net working capital?"
"Current assets less current liabilities."
"Great. How do you calculate a terminal value?"
"Well it depends on the deal. If it's a strategic deal, you'll probably use a perpetuity model since they want the asset for the long term. If it's a financial deal the sponsor will want to sell in the terminal year and you'll use a multiple, like EV/EBITDA."
You get the picture. I just give the answers in a way that shows that I know what I'm saying but I don't try to tell it all at once. They might ask you about how to calculate a discount rate (use WACC), how to calculate WACC, how to get CAPM, and even how to unlever/relever beta. Whatever it is, just be ready for it, but start basic and work your way into the nitty gritty.
One more question about accretion/dilution that I got this summer was something like this: "If you own a company and want to do a quick back-of-the-envelope calculation of acc/dil, how would you do it given a particular target? In other words, what information would you need to do a quick calc?"
"Well a P/E ratio would be great."
"That's right. So lets say your company has a P/E of 18 and the target's P/E is 21. Will the deal be accretive or dilutive? Why?"
"Dilutive because their P/E is higher than mine. In essence I would have to pay more per dollar of earnings than my own company is worth, so the EPS would decline."
Here are a few more random interview questions:
"What's the square root of 2,025?" (The answer doesn't have to be right on - it's 45 - but you just have to be close. They want to see how you can out loud reason through some mental math)
"What is 2/3 + 3/4?" (Just take a deep breath and think back to seventh grade - you can do this!)
"So you worked a little in a fund. Pitch me a stock." (On this one I pretty much always go with my favorite stock that I've bought - PARL - because it's an interesting company to talk about. I would suggest that you are ready to talk about a few investment ideas, and also that you pick companies that the interviewers have never heard of. You don't want to say "GM" and then find out that you're talking to the MD on that account)
"If you had $1 Billion to invest for your school, how would you do it?" (Again you can pretty much say whatever you want, but don't be stupid and say 'Short Goldman with the whole fund because I don't believe in the pure play model!' Just be rational with how you answer most questions and you'll be fine)
I'll be posting more questions/answers in the next little while. Sorry again for the long delay. I'm working at Treasury so you can all imagine what a week it's been around here with Fannie, Freddie, Lehman, Merrill, and AIG all blowing up. Anyway, keep the comments coming about the types of posts you'd like to see.
Saturday, September 6, 2008
Ouch
Well as if things couldn't get any weirder, check this out.
And, by the way, I'll be posting later on today about resumes. Sorry for the long breaks between posts.
So on Thursday night I took a bus from DC to New York because I had final rounds at a bank. I stayed with a good friend who just started at a bulge bracket bank and has been working like crazy. He didn't even get home till after 3am and that has been par for the course for him since he's started. I guess that's what you have to expect. The amazing thing is that in addition to all the work he's doing, he's made time to build some sweet models in preparation for private equity interviews coming in a few months. Props to him!
So I had the final rounds on Friday. It was pretty standard - there were six interviews of about a half an hour each. Three of them were with managing directors, one with a principal, and two with associates. Like other places, the associates and the principal gave me pretty technical interviews, and the managing directors just wanted to hear about my life, talk about their past experiences, and answer questions about the firm.
The technical stuff was actually pretty challenging - probably the toughest I've ever had. They based a lot of the questions off of what's on my resume, so one of the first things an associate asked me about was accretion/dilution. This girl was sharp - she worked at Miller Buckfire doing restructuring, then went to Goldman's sponsers group for two years, then went to McKinsey for two years advising on corporate finance, then finally went to Harvard Business School and on to her current job. Nice background. She had me walk her through different scenarios such as 100% cash, 50/50, and 100% stock, and asked me to talk about what would make the deal accretive or dilutive in each scenario. The only thing I needed her help on was remembering how assets are written up or down in a purchase and how that can affect accretion or dilution.
She then asked me about a DCF model I built over the summer. Usually I've just been asked how to walk through a DCF, which I did for her. But along the way she would ask me things like, "So on this deal, what were the COGS? What were the revenue drivers? What kind of operating expenses were there? When talking about discounting, she wanted to know what discount rate I used and why/how I got to that rate. She asked if we discounted at beginning/end of year or if we used the mid-year convention. I said mid-year because cash flows don't all come at the beginning or end of the year, so mid-year tends to smooth it out. She said that was right and said, "What about the terminal value?" I answered, "Well that one you discount from the end of year because you want to discount the full last year before you sell." She responded, "Exactly right - that's a very common mistake so good job." Whew!
The other associate I interviewed with gave me a case study. He said something like, "Assume you have a company that owns 15 coal refineries in North America, the rights to build more refineries in 10 other places, and then you own an electrical power plant in South Africa where the price of electricity swings 1000% percent a day. How would you value this company?"
I said I would do a sum-of-the-parts, which was correct, but then he wanted to know how I would value each piece. The coal refineries are pretty solid so I said I would use a traditional DCF with steady-state assumptions. The rights to build were dependent on how rare they are, so I said I would have to use some comps and decide what the real estate was worth, as well as finding out how feasible it would be to build. Lastly, the South African asset could be valued using a DCF, but you would have to use a really high discount rate to account for the swings in value. I also said you could use comps to see what other people are discounting similar assets at.
He seemed to be ok with my answers, and I took another deep breath. Thank goodness!
Overall the rest of the time I was just asked to walk through my resume. One guy asked me what my two greatest strengths are as an analyst. I said my initiative and ability to learn quickly. I wasn't really asked anything else other than things specific to my resume. Luckily I have enough varied financial experience that it usually provides plenty to talk about over a half an hour and the interviewers don't have the time to get crazy with thier questions.
This firm is pretty selective so they were only interviewing one other guy with me. They sent the two of us along with four analysts out to lunch after our interviews. That was a cool experience because we just got to shoot the breeze with the analysts and ask them what it was "really" like working there. From what I can tell it sounds like an awesome place.
So sorry if you aren't all interested in what a final round interview is like, but I thought I would share some of the questions that were covered. I was hoping for some brain teasers but I didn't get any.
Anyway, the crazy stuff happened after I left the interview. I got back on the bus to go down to DC, and immediately my lower abdomen on the right side started to hurt. My back was also sore, but I figured that it was the horrible seats on the bus more than anything else. The girl I was sitting next to could tell that I was in a lot of pain and kept asking me if I was alright.
A few times I went in the bathroom stall at the back of the bus and just sat there because it was more comfortable than my reclined seat. I was in the worst pain I've ever felt - it was excruciating. And there was nothing I could do to alleviate it - no matter how I stood or sat the pain was still almost unbearable. I didn't know what to do - I couldn't go anywhere and I was on a bus going down a highway. Finally after three hours we stopped to drop some people off in Baltimore. I grabbed my stuff and just got off the bus. I ran to a taxi near the bus stop and said, "Take me to the hospital!" I think it kind of startled the taxi driver because he drove like a maniac on the way over - I guess he didn't want me to die in the back of his cab.
I got to the hospital and there were probably 80 people waiting in front of me. Some of them had already been there for eight hours. I signed in and told the nurse that I was in terrible pain. She put me at the top of the priority list, but I knew that even at the top of that list I would still be waiting for a while. I got some blood drawn and gave a urine sample, then just sat and waited to be called. About four hours later they called me back. After sitting there waiting for another hour in the hospital bed, they finally came in and gave me some medicine to ease the pain. Wow - that was the worst 5-6 hours of my life by far. Nothing I've ever felt compares with that pain.
I got a CT scan and it turns out that I have a kidney stone! I thought those only appeared in older people, but apparently somehow I got a kidney stone. I've heard it said that the pain is comparable to giving birth, so to all of you women out there, I bow down and thank you for that wonderful service you provide to humanity. You are amazing to handle that multiple times!
I finally was released at about 3:30 am and was wondering how I was going to get back to DC. When I ran off the bus I wasn't really thinking ahead about the fact that after I left the hospital I would still be an hour away from DC. Luckily, my dad had made a few calls in the meantime and some guys from my church, whom I had never met before, just showed up and took me all the way home. People in the Church are just like that - willing to help a total stranger. It's amazing.
So now I'm at home with some narcotics and things are better than yesterday. The stone is still inside of me somewhere but the doctor said that the worst pain comes when the stone moves from your kidney to your bladder, so hopefully the worst part is over for me.
This isn't really what I expected to do during over the weekend, but I've also learned to expect crazy stuff to come up all the time.
Let me know if you like hearing about interviews and I'll post some more questions from various interviews I've had over the past few months.
And, by the way, I'll be posting later on today about resumes. Sorry for the long breaks between posts.
So on Thursday night I took a bus from DC to New York because I had final rounds at a bank. I stayed with a good friend who just started at a bulge bracket bank and has been working like crazy. He didn't even get home till after 3am and that has been par for the course for him since he's started. I guess that's what you have to expect. The amazing thing is that in addition to all the work he's doing, he's made time to build some sweet models in preparation for private equity interviews coming in a few months. Props to him!
So I had the final rounds on Friday. It was pretty standard - there were six interviews of about a half an hour each. Three of them were with managing directors, one with a principal, and two with associates. Like other places, the associates and the principal gave me pretty technical interviews, and the managing directors just wanted to hear about my life, talk about their past experiences, and answer questions about the firm.
The technical stuff was actually pretty challenging - probably the toughest I've ever had. They based a lot of the questions off of what's on my resume, so one of the first things an associate asked me about was accretion/dilution. This girl was sharp - she worked at Miller Buckfire doing restructuring, then went to Goldman's sponsers group for two years, then went to McKinsey for two years advising on corporate finance, then finally went to Harvard Business School and on to her current job. Nice background. She had me walk her through different scenarios such as 100% cash, 50/50, and 100% stock, and asked me to talk about what would make the deal accretive or dilutive in each scenario. The only thing I needed her help on was remembering how assets are written up or down in a purchase and how that can affect accretion or dilution.
She then asked me about a DCF model I built over the summer. Usually I've just been asked how to walk through a DCF, which I did for her. But along the way she would ask me things like, "So on this deal, what were the COGS? What were the revenue drivers? What kind of operating expenses were there? When talking about discounting, she wanted to know what discount rate I used and why/how I got to that rate. She asked if we discounted at beginning/end of year or if we used the mid-year convention. I said mid-year because cash flows don't all come at the beginning or end of the year, so mid-year tends to smooth it out. She said that was right and said, "What about the terminal value?" I answered, "Well that one you discount from the end of year because you want to discount the full last year before you sell." She responded, "Exactly right - that's a very common mistake so good job." Whew!
The other associate I interviewed with gave me a case study. He said something like, "Assume you have a company that owns 15 coal refineries in North America, the rights to build more refineries in 10 other places, and then you own an electrical power plant in South Africa where the price of electricity swings 1000% percent a day. How would you value this company?"
I said I would do a sum-of-the-parts, which was correct, but then he wanted to know how I would value each piece. The coal refineries are pretty solid so I said I would use a traditional DCF with steady-state assumptions. The rights to build were dependent on how rare they are, so I said I would have to use some comps and decide what the real estate was worth, as well as finding out how feasible it would be to build. Lastly, the South African asset could be valued using a DCF, but you would have to use a really high discount rate to account for the swings in value. I also said you could use comps to see what other people are discounting similar assets at.
He seemed to be ok with my answers, and I took another deep breath. Thank goodness!
Overall the rest of the time I was just asked to walk through my resume. One guy asked me what my two greatest strengths are as an analyst. I said my initiative and ability to learn quickly. I wasn't really asked anything else other than things specific to my resume. Luckily I have enough varied financial experience that it usually provides plenty to talk about over a half an hour and the interviewers don't have the time to get crazy with thier questions.
This firm is pretty selective so they were only interviewing one other guy with me. They sent the two of us along with four analysts out to lunch after our interviews. That was a cool experience because we just got to shoot the breeze with the analysts and ask them what it was "really" like working there. From what I can tell it sounds like an awesome place.
So sorry if you aren't all interested in what a final round interview is like, but I thought I would share some of the questions that were covered. I was hoping for some brain teasers but I didn't get any.
Anyway, the crazy stuff happened after I left the interview. I got back on the bus to go down to DC, and immediately my lower abdomen on the right side started to hurt. My back was also sore, but I figured that it was the horrible seats on the bus more than anything else. The girl I was sitting next to could tell that I was in a lot of pain and kept asking me if I was alright.
A few times I went in the bathroom stall at the back of the bus and just sat there because it was more comfortable than my reclined seat. I was in the worst pain I've ever felt - it was excruciating. And there was nothing I could do to alleviate it - no matter how I stood or sat the pain was still almost unbearable. I didn't know what to do - I couldn't go anywhere and I was on a bus going down a highway. Finally after three hours we stopped to drop some people off in Baltimore. I grabbed my stuff and just got off the bus. I ran to a taxi near the bus stop and said, "Take me to the hospital!" I think it kind of startled the taxi driver because he drove like a maniac on the way over - I guess he didn't want me to die in the back of his cab.
I got to the hospital and there were probably 80 people waiting in front of me. Some of them had already been there for eight hours. I signed in and told the nurse that I was in terrible pain. She put me at the top of the priority list, but I knew that even at the top of that list I would still be waiting for a while. I got some blood drawn and gave a urine sample, then just sat and waited to be called. About four hours later they called me back. After sitting there waiting for another hour in the hospital bed, they finally came in and gave me some medicine to ease the pain. Wow - that was the worst 5-6 hours of my life by far. Nothing I've ever felt compares with that pain.
I got a CT scan and it turns out that I have a kidney stone! I thought those only appeared in older people, but apparently somehow I got a kidney stone. I've heard it said that the pain is comparable to giving birth, so to all of you women out there, I bow down and thank you for that wonderful service you provide to humanity. You are amazing to handle that multiple times!
I finally was released at about 3:30 am and was wondering how I was going to get back to DC. When I ran off the bus I wasn't really thinking ahead about the fact that after I left the hospital I would still be an hour away from DC. Luckily, my dad had made a few calls in the meantime and some guys from my church, whom I had never met before, just showed up and took me all the way home. People in the Church are just like that - willing to help a total stranger. It's amazing.
So now I'm at home with some narcotics and things are better than yesterday. The stone is still inside of me somewhere but the doctor said that the worst pain comes when the stone moves from your kidney to your bladder, so hopefully the worst part is over for me.
This isn't really what I expected to do during over the weekend, but I've also learned to expect crazy stuff to come up all the time.
Let me know if you like hearing about interviews and I'll post some more questions from various interviews I've had over the past few months.
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