Gyaanleikh

Level 1 Valuation Questions Valuation Big Picture 1. What are the three most common valuation methods? There are three primary valuation methods. The first is Discounted Cash Flow Analysis (DCF) in which we value the Cash Flows of the Business. Next, we could look at the valuations of similar Publicly Traded Businesses, which is called Trading Comparables (or ‘Trading Comps’). The final primary approach is Transaction Comparables (or ‘Precedent Transactions’) where we look at the valuations of similar businesses that have been sold in the past. 2. Which of the primary valuation methods are ‘Intrinsic’ vs ‘Relative/Market-Based?’ The DCF approach is an ‘Intrinsic’ valuation because we’re looking at the value of underlying Cash Flow. Both of the Comparables Analyses (Trading and Precedent Transactions) use peer valuations and thus are considered Relative or Market-based Valuations. 3. When we say we “triangulate” to a value, what does that mean? What methods might we use? When valuing a ...

Flipkart's Valuation Decreases by Over INR 41,000 Crore in Two Years E-commerce giant Flipkart has experienced a significant decline in valuation, dropping by $5 billion (approximately INR 41,432 crore) from January 2022 to January 2024. This decrease is attributed to equity transactions conducted by its parent company Walmart. As of January 31, 2024, Flipkart's valuation stands at $35 billion, down from $40 billion in the fiscal year ending January 31, 2022. This shift in valuation is a result of Walmart's restructuring of equity in Flipkart, with Flipkart citing the demerger of fintech firm PhonePe as a primary reason for the decline. Despite Walmart's reported valuation, Flipkart sources suggest that the actual valuation may range between $38-40 billion. Walmart's equity dealings with Flipkart reveal a dilution of 8% equity for $3.2 billion in FY2022, indicating an enterprise value of $40 billion. However, in FY2024, Walmart increased its shareholding by 10%, rea...

 Valuation in India  Valuation Methods  Valuation is a necessary and no so necessary thing. It totally depend on the situation the company is in. You may not know this, but most the valuation is done for internal management needs. But yes valuation is seen in IPO and Other Equity related activities being conducted by the company. In this blog we will understand who is eligible to do valuation according to Income Tax Act, 1961 and further amendments. There are three methods of valuation- Net Asset Value  Discounted Cash Flow  Market Comparison According to Rule 11UA of IT Act 1961, Net Asset Value that is 'NAV' can be done by a Accountant or a Merchant Banker and the methodology and format are very clearly given by the Income Tax Department of India. Whereas Discounted Cash Flow that is 'DCF' can only be done by a Merchant Banker who will adapt the best methodology known to him/her. NAV is quite a stiff but easy valuation methodology and is very well dependent on...

1. Why do companies merge? While are many reasons that companies merge the underlying driver of most M&A deals to expedite growth and/or generate cost savings to create value for the owners of the business. When people say that M&A is an ‘art’ and a ‘science’, what does that mean? The science refers to the mechanical valuation methods (Comps, DCF, etc.), but the art is in making a judgment call on valuation based on the outputs of the various valuation methodologies. 2. Who can pay more when buying a company: a Financial buyer or Strategic buyer? Why? Strategic (i.e. corporate) buyers can typically pay more than Financial (i.e. Private Equity) buyers because strategic buyers typically have overlapping operations that can be removed post-merger to generate cost savings (i.e. Synergies). 3. When are sponsors and corporate buyers on equal footing? When a Financial buyer already owns a competing asset, they can generate synergies (which justifies a higher price) and thus are on mor...

Understanding the difference between Enterprise Value and Equity Value is fundamental for anyone involved in finance, investment banking, or corporate valuation. These two metrics serve distinct purposes and offer different insights into a company's valuation. This comprehensive guide will clarify these concepts, address common points of confusion, and explain the nuances introduced by recent accounting changes. What Are Enterprise Value and Equity Value? Equity Value: A Definition Equity Value represents the value of a company available to its equity investors. It includes all the company's assets and liabilities but only accounts for what is attributable to common shareholders. In simple terms, Equity Value is the market value of a company's equity, often referred to as "Market Capitalization" or "Market Cap." Formula: Equity Value = Shares Outstanding × Current Share Price \text{Equity Value} = \text{Shares Outstanding} \times \text{Current Share Pr...

ShareChat has reduced its workforce by 200 employees, and its valuation has seen a 50% decline over the past year Bengaluru-based social media platform ShareChat has reportedly laid off 200 employees as part of a "strategic restructuring" aimed at streamlining the company's cost base. In an official statement, ShareChat mentioned the decision was driven by the need to achieve profitability within the next four-six quarters. This move follows the termination of 600 employees earlier this year as part of cost-cutting measures. The company, which faced challenges in 2023, has seen a significant reduction in its valuation from $4.9 billion last year to $1.5 billion this year, marking a substantial decrease of approximately ₹28,300 crore. ShareChat is currently seeking $50 million in new funding to recover lost valuation, backed by Google and Tamasek. The co-founders stepped down in January 2023, contributing to a gradual decline in the company's valuation despite reaching...

Disclaimer: The information provided in this guide is for educational purposes only and should not be considered as professional advice. Investment banking interviews can vary in format and content, and candidates should prepare thoroughly and seek guidance from reliable sources. Investment banking interviews are renowned for their hyper-technical nature, often delving into specific calculations, financial concepts, and industry knowledge. However, with diligent study and preparation, you can navigate these interviews successfully. This guide aims to equip you with the necessary insights to ace your investment banking interview. Introduction: Getting Started Investment banking interviews typically kick off with introductory questions aimed at understanding your background and motivations for pursuing a career in finance. Walk me through your resume. Provide a concise overview of your professional journey, emphasizing relevant finance experience such as internships or coursework. Why in...

1. Walk me through a DCF analysis The steps to walk through a DCF analysis are: Project future Cash Flow until the business reaches maturity (usually 5-10 years). Calculate Terminal Value. Discount the Projected Cash Flows and Terminal Value using WACC. Work from Enterprise Value to Equity Value by subtracting Debt and adding Cash. Calculate Price per Share by dividing Equity Value by the Number of Shares. Remember to keep it high-level! 2. All else equal, which comp method (trading or transaction) will result in a higher valuation? Why? Precedent Transactions analysis typically results in a higher valuation because you have to pay a ‘Control Premium’ to acquire an entire business vs buying a smaller stake. 3. Why is the LBO valuation generally referred to as a “floor” valuation? An LBO firm typically doesn’t own a competing asset to a target company it acquires and thus can’t generate Synergies. This typically results in the lowest purchase price (vs Corporate Acquirers). To explain f...

Introduction Breaking into investment banking (IB) is no small feat, whether you're pre-MBA or post-MBA, from a target or non-target school. While high GPAs and test scores are standard, they are often not enough to stand out. Here’s a strategic approach to help you embark on a successful investment banking career. 1. Network Extensively When your application lands at an investment bank, it’s usually reviewed by a small team of bankers responsible for recruiting from specific schools. Given the competitive nature of this field, networking is crucial. Why Networking Matters: Decision-making bankers are more likely to advocate for you if they know you. Especially vital for non-target school students. Engage with alumni and other connections at your target firms. How to Network: Start reaching out to analysts and associates a few months before core recruiting starts. Look for non-target alumni if you're from a non-target school; they often help each other out. Demonstrate Interest...

1. What is the least preferred exit method in PE? The least common exit option is an IPO because of the time needed (often 6+ months from filing) and because the PE firm is often prevented from selling for 6 months post-IPO. With that said, PE firms do sometimes take companies public to exit, especially if public company valuations are very attractive. 2. What is an ‘effective’ multiple as opposed to an ‘optical’ multiple? An optical multiple shows the purchase price of a business relative to the stated profit (typically EBITDA) at the time of the acquisition. In contrast, to calculate an effective multiple, we look at purchase price relative to profit (again typically EBITDA) incorporating improvements in the business. In continuation to :  IB Interview Questions: Accounting IB Interview Questions: Accounting : Part -2 IB Interview Questions: Accounting : Part-3 IB Interview Questions: Accounting : Part-4 IB Interview Questions: Accounting : Part-5 IB Interview Questions: Level 2 ...

1. If a company with a PE of 13x buys a company with a PE of 10x in an all-stock deal, is the deal accretive or dilutive? The deal will be Accretive for the acquiring company because the value of its stock per dollar of earning is greater than that of the target company. As a result, it will need to issue fewer proportional shares per dollar of earnings to buy out the Target company’s stock. This is a question that many people simply memorize the answer to but can’t explain the ‘why’ behind the question. The short story here is that the combined share counts of the company shrink in this type of deal (because the Acquirer’s stock is more valuable), but Net Income remains the same, so as a result, Earnings Per Share increases. 2. What are the typical structures for an M&A deal? The three typical structures are asset acquisition, stock purchase, and merger. 3. What is an Acquihire? An Acquihire is an acquisition of a target company with the primary goal of bringing in the target comp...

1. On some occasions, Preferred Stock is included in the WACC formula. Why is that the case? The goal of WACC is to blend the cost of capital (i.e. the expected returns) of all of our capital providers. So if a company has Preferred Stock, we have to include the proportional costs of the Preferred Stock as well as regular Debt and Equity. 2. How do we incorporate Minority Interests into the Enterprise Value and Equity Value formulas? Why do we need to include Minority Interests in the first place? When working from Enterprise Value to Equity Value, we subtract the value of Minority Interests. When working from Equity Value to Enterprise Value, we add the value of Minority Interests. Minority interests reflect a separate ownership claim on the equity of a business and thus must be accounted for. 3. EV is Equity + Net Debt. A business has a $100 EV, $40 of Debt, and $10 of cash and generates an extra $2 of cash, what’s the EV? The overall purchase price of the business should remain the ...

1. What is the P/E of Cash and Debt? The P/E of Cash and Debt reflects the inverted after-tax cost of Cash and Debt in an M&A deal. 2. Does an Asset or Stock deal typically create a Deferred Tax Liability? A Stock Deal typically creates a Deferred Tax Liability because in a Stock Deal there isn’t a step-up in basis for Tax purposes, which creates a disconnect between GAAP and IRS Tax Expense. 3. Is Goodwill amortization tax-deductible in an Asset Sale? Stock Sale? Goodwill amortization is tax-deductible in Asset Sale but not in a Stock Sale . 4. Do buyers generally prefer asset sales or stock sales? Why? Buyers often prefer Asset Sale structures because the Asset sale structure creates a step-up in basis. The increase in basis creates to tax savings via increased Depreciation and Amortization expense over time, which arises from the Purchase Price Allocation process. In continuation to :  IB Interview Questions: Accounting IB Interview Questions: Accounting : Part -2 IB Intervi...

Strategies and Tips to Excel in the Technical Interview Round for Investment Banking Roles Introduction Technical interviews are a critical component of the recruitment process for investment banking positions. To succeed in these interviews, you need a solid grasp of finance concepts, valuation methods, and financial modeling. In this comprehensive guide, we will provide you with the strategies and tips to excel in the technical interview round, increasing your chances of securing your dream job in investment banking. Understanding the Importance of Technical Interviews Investment banks use technical interviews to assess your knowledge of financial concepts, your ability to apply them to real-world scenarios, and your analytical skills. Here's how you can prepare effectively: 1. Master the Core Finance Concepts Before you step into your technical interview, ensure you have a strong understanding of fundamental finance concepts, including: Financial statements and ratios Valuation ...

Introduction: Valuing a business that is currently in the red poses a unique set of challenges for investors and analysts. While it may seem counterintuitive to assign a value to a company that is not yet profitable, there are several methodologies that can provide insights into its potential future performance. In this blog post, we'll explore two primary approaches for valuing money-losing businesses: Comparable Analysis and Discounted Cash Flow (DCF) analysis. Comparable Analysis for Loss-Making Businesses: EV/Revenue Multiples: In comparable analysis, one common metric is the Enterprise Value (EV) to Revenue ratio. This multiple helps assess the company's valuation relative to its revenue, even if it is not yet profitable. Investors often look at how other similar businesses are valued based on their revenue rather than profitability. Understanding Industry Benchmarks: When employing EV/Revenue multiples, it's crucial to compare the target company with industry peers. I...

Navigating the Technical Maze: A Comprehensive Guide to Technical Questions in Investment Banking Interviews Investment banking interviews are known for their rigorous nature, demanding a blend of financial expertise and problem-solving prowess. While behavioral questions assess your cultural fit and interpersonal skills, technical questions delve into your grasp of fundamental investment banking concepts and your ability to apply them in real-world scenarios. What are Technical Questions? Technical questions are designed to evaluate your understanding of investment banking principles and your capacity to utilize this knowledge to solve complex financial problems. These questions typically cover a broad spectrum of topics, including: Financial statement analysis Valuation methodologies (DCF, comparable companies, precedent transactions) Corporate finance concepts (mergers and acquisitions, leveraged buyouts, capital structure) Market microstructure and trading strategies Risk managemen...

1. What is an LBO? LBO stands for ‘Leveraged’ Buyout which is an acquisition of a company in which a meaningful portion of the deal funding comes from Debt. 2. Why do PE firms acquire with Debt as opposed to purchasing outright with equity? By using leverage, Private firms can increase the return on the money they invest by putting less money upfront, while still capturing the cash flow and appreciation of the business over time. 3. What are the underlying value creation drivers in an LBO? The primary value creation drivers are Purchase Price, EBITDA growth, and Cash Flow. Secondary drivers include the level of Debt at purchase, the interest rate on the Debt, and the Exit multiple. The latter group are secondary as they are all typically not within the control of the PE firm. 4. What is the difference between a levered and unlevered return? The Unlevered return on any asset reflects the pure profit (ideally Cash Flow), excluding the impact of Debt, generated by the Asset relative to th...

1. Walk me through an LBO? There are six major steps to answer this question: Calculate Purchase Price (or ‘Enterprise Value) Determine Debt and Equity Funding Project Cash Flows Calculate Exit Sale Value (or ‘Enterprise Value’) Work to Exit Owner Value (or ‘Equity Value’) Assess Investor Returns (IRR or MOIC) Remember to initially keep your answer high-level and let the interviewer pull you into the details. 2. If IRR is time-weighted, why do we use MOIC? IRR can be easily distorted by factors like an early exit. And at the end of the day, PE firms are paid based on absolute dollars returned to investors. So, PE firms look at the MOIC in conjunction with dollars invested to assess the absolute dollars returned for a deal. 3. How can you buy a company for $500M, then sell it for $500M 5 years later, but triple your investment? I can borrow $400M of the Purchase Price and invest $100M of Equity. Then I use the cash flows of the business to pay off $100M of debt. I exit with a $500M Sale...