tag:blogger.com,1999:blog-21649954899732636532024-03-05T09:39:44.366-08:00 Investment Banking Courses and Training | Investment Banking Institute in DelhiInvestment Banking Courses in Delhi. Find advanced investment banking job training certification courses,classes in Delhi and get investment Banking training Classes Call 09312222566 for free demo.Anonymoushttp://www.blogger.com/profile/15976083027389058809noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-2164995489973263653.post-48720643927122996232018-03-09T00:27:00.003-08:002018-03-09T03:23:07.619-08:00Top Investment Banking Question And Answer<div dir="ltr" style="text-align: left;" trbidi="on">
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<div style="text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b>1) What is another term for Investment Banking division?</b></span></div>
<div style="margin-left: 1in; text-align: justify; text-indent: -1in;">
<br /></div>
<div style="margin-left: 1in; text-align: justify; text-indent: -1in;">
<span style="font-family: "verdana" , sans-serif;"><a href="http://ibinstitute.in/">Investment Banking</a> is also
called Corporate Finance.</span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b>2) Why are you interested in Investment Banking?</b></span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: "verdana" , sans-serif;">This question is asked to check the candidate’s interest to know his
understanding of the Investment Banking.</span></div>
<div style="text-align: justify;">
<span style="font-family: "verdana" , sans-serif;">Therefore, you should be aware of the positive key skills and attributes
required for this job. You should also define why you think you are a best
candidate for this position.</span></div>
<div class="separator" style="clear: both; text-align: justify;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiGNCplFfrtwzhc-19PpQLHc5UNqomTg4CWCDeVxzSRAuhHth7xn5Os1Hac_-kgOU3ou3lc69qHNwbVSqb_rE5PQWTOGOItNZ9hgDBbYKem7fI6eU8mHXQkbYQ5JAHMMAA6AZ1W1pUfoZ0/s1600/Ask-clever-questions-during-job-interview.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1067" data-original-width="1600" height="425" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiGNCplFfrtwzhc-19PpQLHc5UNqomTg4CWCDeVxzSRAuhHth7xn5Os1Hac_-kgOU3ou3lc69qHNwbVSqb_rE5PQWTOGOItNZ9hgDBbYKem7fI6eU8mHXQkbYQ5JAHMMAA6AZ1W1pUfoZ0/s640/Ask-clever-questions-during-job-interview.jpg" width="640" /></a></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b>3) What is a formula to calculate working capital?</b></span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: "verdana" , sans-serif;">The formula is</span></div>
<div style="text-align: justify;">
<span style="font-family: "verdana" , sans-serif;">Working capital = Current assets – Current liabilities.</span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b>4) What is typically higher the cost of debt or the cost of equity?</b></span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: "verdana" , sans-serif;">The cost of equity is always greater than the cost of debt because the cost link
with financing debt is tax confirmable. Moreover, the cost of fair is higher
because unlike lenders, equity investors are not guaranteed to get fixed
payments.</span></div>
<div style="text-align: justify;">
<span style="font-family: "verdana" , sans-serif;">Debt is less costly because its Interest payment is considered an expense.
Debt is also given preference in a firm’s capital structure. So, in the
situation of liquidation or Bankruptcy, the debt holders get paid their fund
first before the equity holders.</span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b>5) What does WACC mean?</b></span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: "verdana" , sans-serif;">WACC stands for <b>W</b>eighted <b>A</b>verage <b>C</b>ost
of <b>C</b>apital. It is a calculation of a firm capital that is
weighted proportionally. It add every source of capital, and it takes into
account factors like depreciation, tax rates, debt, and equity.</span></div>
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<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b>6) What are the essential
qualities to become Investment Bankers?</b></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">The skill sets required to become
Investment Bankers are:</span></span></div>
<div style="text-align: right;">
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<ul style="text-align: justify;" type="disc">
<li class="MsoNormal" style="line-height: normal; mso-list: l2 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Strong significant/analytical skills</span></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l2 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Superior attention to detail</span></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l2 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Should have good work ethic</span></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l2 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Excellent spoken, verbal and written communication
skills</span></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l2 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Able to manage multiple project deadlines</span></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l2 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Positive and never give up attitude</span></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l2 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Drive and determination</span></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l2 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Efficient time management</span></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l2 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Communication ability</span></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l2 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Complete attention to detail</span></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l2 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Ability to learn quickly</span></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l2 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Able to think out of box</span></span></li>
</ul>
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<br /></div>
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<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">7) What are your long-term career
goals as an Investment Banker?</span></b><span style="font-size: 12pt;"></span></span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">This question is requested to know
whether you are serious about your career and ready to work in this filed. It
is a financial job, so it is vital for the Bank to hire a candidate <span style="mso-spacerun: yes;"> </span>who are ready to work with the same Bank for a
longer time.</span></span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">8) Discuss risks that you have taken
if your life? </span></b><span style="font-size: 12pt;"></span></span></div>
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<br /></div>
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<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">By nature, I am very traditional and
don’t like to take too much risk. However, that surely does not mean that I
never take my chances. So, when I do take chances, it is always based on the normal
analysis. It allows me to ensure success and also understand the risks involved
before taking the plunge.</span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">As an Investment Banker most of the
time you should take hard decisions. Before taking decision you need to account
political changes and the market trends. Therefore, you need to show your
ability to take estimated risks and demonstrate decent analytical skills.</span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Here, you also need to focus the
logical guess made by you while taking any risky decision. Investment Banking
is more about “roughly right” instead of “absolutely accurate.”</span></span></div>
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<br /></div>
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<br /></div>
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<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">9) What is the monetary policy? </span></b><span style="font-size: 12pt;"></span></span></div>
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<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Financial policy is a method by
which the government, Central Bank, of a country controls the supply of money.
It is the availability of money, and cost of money or rate of <span style="mso-spacerun: yes;"> </span>activity, to meet a set of objectives oriented
towards the growth and stability of the economy.</span></span></div>
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<br />
<div class="separator" style="clear: both; text-align: center;">
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</div>
<div class="separator" style="clear: both;">
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<br /></div>
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<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">10) What is Money laundering?</span></b><span style="font-size: 12pt;"></span></span></div>
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<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Money laundering is the process of
creating the appearance that large block of money obtained from criminal
activity, like terrorist activity, drug trafficking begun from a certain
source.</span></span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">11) As an Investment Banker what you
think an analyst does on a typical day?</span></b><span style="font-size: 12pt;"></span></span></div>
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<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">As an Investment Banker, I think my
working hours to be long. I need to act financial modeling, making pitch books,
doing due-diligence, and meet with clients as required.</span></span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">12) What is the difference between
Commercial and Investment Banking? </span></b><span style="font-size: 12pt;"></span></span></div>
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<br /></div>
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<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Here is some major difference
between the two:</span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">Commercial Bank:</span></b><span style="font-size: 12pt;"></span></span></div>
<ul style="text-align: justify;" type="disc">
<li class="MsoNormal" style="line-height: normal; mso-list: l6 level1 lfo2; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">It accepts deposits from customers and gives Commercial
loans using this money.</span></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l6 level1 lfo2; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Most of the loans made by Commercial Banks are held as equity
on the Bank’s balance sheet.</span></span></li>
</ul>
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<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">Investment Bank: </span></b><span style="font-size: 12pt;"></span></span></div>
<ul style="text-align: justify;" type="disc">
<li class="MsoNormal" style="line-height: normal; mso-list: l5 level1 lfo3; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">It acts as an intermediary between companies and
investors.</span></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l5 level1 lfo3; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">It does not accept deposits, but rather sells
Investments, advises on M&A, hold loans debt/equity which is
originated by the Bank.</span></span></li>
</ul>
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<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">13)</span></b><span style="font-size: 12pt;"> <b>What is a deferred tax asset?</b></span></span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">A negotiated tax asset is created
when any business pays more tax to the IRS than that is reported on their
income statement. It is created from net operating losses and differences
in revenue acceptance.</span></span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">14) What is a fairness opinion?</span></b><span style="font-size: 12pt;"></span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">A fairness opinion is an seprate
assessment. It is issued by an Investment Bank. It mainly includes price
offered in a tie-up or gain. It provides a fixed fee, typically by an
institution which is not involved in the transaction.</span></span></div>
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<br /></div>
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<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">15) What is Beta?</span></b><span style="font-size: 12pt;"></span></span></div>
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<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Beta is a measure of the riskiness
of specific stock. It is calculated as the clearance between stock’s return and
the total honesty market return divided by the change of the return given by
market. By default, beta is 1.0.</span></span></div>
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<ul style="text-align: justify;" type="disc">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiUaUT0rok8Goxb_KUEVOflZlpR0HVwZ5IDpA7PwLgCwrLd087FEPp72dOGHFZs5wRjbgDJFtqAGiPCtt7bqWn_MRBEHZXQsa7QhyphenhyphenOoM1r3sxkWSikZ_zLuxzOk1wcQp95lj9mi-SOLeqA/s1600/banner-img2.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"></a>
<li class="MsoNormal" style="line-height: normal; mso-list: l1 level1 lfo4; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Stock with beta > 1 is considered riskier compare to
market.</span></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l1 level1 lfo4; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">A stock with beta < 1 is considered less risky. </span></span></li>
</ul>
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<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">16)</span></b><span style="font-size: 12pt;"> <b>When should need to value a company using a revenue
multiple vs. EBITDA?</b></span></span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">A firm with negative profit and
EBITDA will be likely to have meaningless EBITDA multiples. That is because
revenue multiples are more insightful in EBITA.</span></span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">17) Why would two companies
merge?</span></b><span style="font-size: 12pt;"></span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Some Important reasons behind the
merger of two companies are:</span></span></div>
<ol start="1" style="text-align: justify;" type="1">
<li class="MsoNormal" style="line-height: normal; mso-list: l4 level1 lfo5; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Increasing capabilities</span></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l4 level1 lfo5; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Gain a competitive advantage over larger market share</span></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l4 level1 lfo5; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Diversifying products or services</span></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l4 level1 lfo5; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Significant cost cutting of merged entity.</span></span></li>
</ol>
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<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">18) What is CAPM?</span></b><span style="font-size: 12pt;"></span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">CAPM is the Capital Asset Pricing
Model. It is designed to find the expected return on Investment. It allows
estimating discount rate for a company’s cash flows.</span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
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<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">19) How to calculate beta for a
specific company?</span></b><span style="font-size: 12pt;"></span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Calculating betas for historical returns
is a calculation of future beta because of estimation errors. The betas of
comparable companies are inaccurate because of different rates of leverage.</span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">For that you lever the betas of
these comparable companies as such:</span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">β Unlevered = β(Levered) / [1+
(Debt/Equity) (1-T)]</span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Then, you need to average unlevered
beta is calculated, deliverd this beta at the target firm’s capital structure:</span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "verdana" , sans-serif;">β Levered = β(Unlevered) x [1+(Debt/Equity) (1-T)]</span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">20) What makes a good financial
model?</span></b><span style="font-size: 12pt;"></span></span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Building a financial require lots of
practices. The finest <a href="https://financial-modelling-courses.blogspot.in/">financial model</a> is one that identifies all the important
drivers of the business. It is always carefull and precise. The model should
able to handle dynamic scenarios of built-in analysis and error checking.</span></span><br />
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<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">21)</span></b><span style="font-size: 12pt;"> <b>What is the main difference between cash-based and accomadation
accounting?</b></span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Cash-based is known as revenue and
expenses when cash is received or paid out. On the other end, Build Up
accounting recognizes revenue when collection is reasonably certain and
recognizes expenses when they are incurred instead of when they are paid out in
cash</span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">22) What is the formula to calculate
Enterprise Value?</span></b><span style="font-size: 12pt;"></span></span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">The formula to calculate Enterprise
value is:</span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Market value of equity + debt +
preferred stock + minority interest cash.</span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">23) What is the difference between
enterprise value and equity value?</span></b><span style="font-size: 12pt;"></span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">Enterprise Value:</span></b><span style="font-size: 12pt;"></span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">It is the value of the operations of
a company attributable to all providers of capital. It is also important to
think of Enterprise value as the incorporation value. The main need for
enterprise value is to create valuation ratios/metrics.</span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">Equity Value:</span></b><span style="font-size: 12pt;"> a component of enterprise value which represents only the
proportion of value attributable to shareholders.</span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">24) What is the meaning of goodwill?
How is it calculated?</span></b><span style="font-size: 12pt;"></span></span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">It is the type of intangible asset.
It is created in an gain and reflects the value of a company which is not accepted
from its other belonging and other bond. Goodwill is calculated by subtracting
the book value from the equity purchase price paid for the share of the
company.</span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">However, the rules of accounting
clearly state that that goodwill should be compensated in each period. Goodwill
also depends on company’s balance sheet.</span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">25) When should a company issue
equity, rather than debt, to fund its operations?</span></b><span style="font-size: 12pt;"></span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">In following situations company
issue equity instead of Debt.</span></b><span style="font-size: 12pt;"></span></span></div>
<ul style="text-align: justify;" type="disc">
<li class="MsoNormal" style="line-height: normal; mso-list: l3 level1 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">If the company feels that stock price is bloated, It
may raise a large amount of capital relative to the percent of ownership
sold.</span></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l3 level1 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">If the company plan on investing in new projects it may
not produce immediate or dependable cash flows to make interest payments.</span></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l3 level1 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">In the situation, when a company wants to adjust its
capital structure or pay down debt.</span></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l3 level1 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">In the case, where company’s owners want to sell off a
portion of their ownership.</span></span></li>
</ul>
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<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">26) What is ‘Mergers and
Acquisitions?</span></b><span style="font-size: 12pt;"></span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Mergers and acquisitions is a term
that refers to the merger of companies or assets. It includes a number of
different transactions, such as mergers, acquisitions, unification, tender
offers, purchase of assets and management acquisitions.</span></span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">27) What is a swap? </span></b><span style="font-size: 12pt;"></span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Swap is a difference in interest
rates on loans between two currencies. It is deposited or charged to the
account when client rollovers a deal position for the next day. Swap can be
both positive as well as negative.</span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">28) Why do you need to subtract cash
from the enterprise value formula?</span></b><span style="font-size: 12pt;"></span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Cash gets subtracted when
calculating the value of the firm as it is considered a non-operating asset.
Further, cash is always included in equity value.</span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">29) What is DCF? </span></b><span style="font-size: 12pt;"></span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">A discounted cash flow is short
known as DCF. It is a valuation method used to estimate genius of an
Investment opportunity. It can be performed by using free cash flow projections
and discounts them to get present value. It is also used to evaluate the
potential for the specific Investment. If the value arrived using DCF analysis.
Generally, it is higher than the current cost of the Investment.</span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">30) What is a leveraged buyout?</span></b><span style="font-size: 12pt;"></span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Leverage buyout is a term, which
refers to the use of borrowed money to buy or invest in another firm. In some
cases, the ratio of debt to equity can be as high as 90-10.</span></span><br />
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<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">31) Explain a fixed interest
Investment</span></b><span style="font-size: 12pt;"></span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Fixed interest Investments is a
long-term debt security. It promises a return of all Investments at their ability
date.</span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">32) What are things that affect the
health of a stock portfolio?</span></b><span style="font-size: 12pt;"></span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">The health of a stock portfolio
always depends on its constituents and the parallel between them. For example,
investors can search for stock that is negatively tie-in to protect their
market portfolio.</span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><b><span style="font-size: 12pt;">33) What are main valuation
methodologies?</span></b><span style="font-size: 12pt;"></span></span></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; text-align: justify;">
<span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">There are three widely used
valuation methods.</span></span></div>
<ol start="1" style="text-align: justify;" type="1">
<li class="MsoNormal" style="line-height: normal; mso-list: l0 level1 lfo7; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Comparable company analysis</span></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l0 level1 lfo7; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Precedent transaction analysis and</span></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l0 level1 lfo7; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "verdana" , sans-serif;"><span style="font-size: 12pt;">Discounted cash flow analysis.</span></span></li>
</ol>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
</div>
Anonymoushttp://www.blogger.com/profile/15976083027389058809noreply@blogger.com016c, Main Patel Rd, Block 8, South Patel Nagar Market, New Delhi, Delhi 110008, India28.644846062417368 77.16999292722903228.643104062417368 77.167471427229032 28.646588062417369 77.172514427229032tag:blogger.com,1999:blog-2164995489973263653.post-32213191113975590572018-02-02T22:00:00.000-08:002018-02-02T22:00:59.901-08:00What is Financial Modelling?<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="" style="clear: both; text-align: center;">
Financial Modelling is an exercise wherein an analyst prepares a
detailed company specific financial statement forecast for some decision
making purposes like valuation, financial statement analysis, M&A
and project financing.
<br /><br />
In other words, Financial Modelling is the process to make Financial
Statement projections with the help of assumptions. Any model which does
not include the projections of Income statement, Balance sheet and cash
flow statement is not a financial model. A financial model must include
the projections of three financial statements.
<br /><br />
A standard financial model will include Historical financial statements,
Historical analysis, assumptions, working schedule for projection of
Revenue, expense, basic & diluted EPS, working capital, capital
expense, depreciation & amortization, shares & equity, debt
& cash flow statement.
<br /><br />
</div>
<h2 itemprop="alternativeHeadline">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgfYqsBrACfjJa-wCuscmSpVdL7KYmZ8tr5HX-RMECnJ8ZTwoqZkXiU3l79EcB3RJNWMxDv9l3TCM2tqA_E5d2rXc6J-vX2GovlQ1oinqjhD9uIPVzBCHRI_YmkoL2xyyxyn9NB5UP-bRI/s1600/01.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="300" data-original-width="900" height="106" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgfYqsBrACfjJa-wCuscmSpVdL7KYmZ8tr5HX-RMECnJ8ZTwoqZkXiU3l79EcB3RJNWMxDv9l3TCM2tqA_E5d2rXc6J-vX2GovlQ1oinqjhD9uIPVzBCHRI_YmkoL2xyyxyn9NB5UP-bRI/s320/01.jpg" width="320" /></a> Steps in financial modelling:</h2>
<ol>
<li> Understand the objective of Financial Model.</li>
<li> Understand the business of company, revenue drives and projection parameters</li>
<li>Collect 3 to 5 years historical financial statements from Annual report of company</li>
<li>Clean the historical financial statements from non-recurring items and prepare a non-GAAP or pro forma
financial statement before you do the historical analysis</li>
<li>Based on company specific drivers and projection parameters, perform historical analysis for each item of
Income statement, Balance sheet and cash flow statement.</li>
<li>Based on management guidelines, historical analysis, research reports, market consensus and your
objective and knowledge about the business take your assumptions for all items of IS, BS, CFS and SOCE.</li>
<li>Based on assumptions & schedules, prepare a robust dynamic integrated Financial statement model of
the company.</li>
<li>Perform ratio analysis to test the strength and weakness of company health</li>
<li>Financial model will take its final shape after scenario analysis. We have to test the changes in the results
if our assumptions goes wrong.</li>
</ol>
The accuracy of Financial model will depend on the accuracy of assumptions. If assumptions are wrong
then financial model will also give you incorrect cash flows, profits and asset & liabilities.
So accuracy of assumptions will depend on your knowledge of Business and availability of information
and source of those information like research reports and databases and software like Thomson research
and Bloomberg.
<br /><br />
Financial model can be prepared in just 2 hours or it can take several weeks. It will depend on the
scale of business and availability of information about the company.
<br /></div>
Anonymoushttp://www.blogger.com/profile/15976083027389058809noreply@blogger.com0