In the spirit of adding some interactivity to this site, please post your comments and suggestions. Also, feel free to post your questions about investment banking and I will try my best to answer them.
-Andrew
420 thoughts on “Comments / Suggestions / Questions…”
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Andrew,
I must say this is an extremely positive start. I guess a logical next step would be to help former students connect with the relevant recuiters. Probably create a little awareness about this program amongst the recuiters.
Nonetheless, this is a very positive step in the right direction.
Thank you and all the best
Fardeen
Great site! I found your comments on ibankingoasis.com and entered your site and must say it’s perfect! Very value adding info (esp. that I’m not ibanker and don’t have many friends there).
I’d appreciate even more technical questions & answers. I found this part extremely useful (and very well explained).
Hi Andrew,
How do top tier hedge funds and private equity firms view analysts from top restructuring groups like lazard or blackstone. Are they still given the opportunity to join l/s, activist funds (not just distressed debt or credit)? How are they viewed relative to M&A and lev fin analysts? These groups are not as talked about on these forums because there aren’t very many analysts coming out of these two groups each year, but id still like to know the types of places to which they go.
Tom,
Analysts from top restructuring groups (Lazard and Blackstone) tend to be viewed very favorably. Having done both restructuring and M&A, I can tell you that restructuring (specifically debtor side restructuring – which is advising the distressed/bankrupt company) is far more interesting than most M&A. From a junior banker perspective, there’s more to learn, more financial analysis and you tend to be more involved with your client. You tend to develop a better understanding of valuation and capital structure. Also, in a bankruptcy, because a lot of your work is automatically subject to review by the court and by the creditors, the quality of work tends to be higher than in M&A. All of these factors make you very desirable to analytically oriented HFs.
The downside of restructuring is its very cyclical nature. In order to show well interviewing for top PEs and HFs, you need good deal flow and good modeling experience. Over the past 3 years, you would likely have gotten much better deal and modeling experience doing lev fin or M&A at a top bank than in restructuring because there were so few bankruptcies. My view is that the next few years will be the opposite (but that’s just a guess).
Thank you for that !
Its a real gold mine
This is an incredible site! Comprehensive, detailed, and gets to the core of the issue. I must say, this is a far better product than anything which Vault Guide has put out.
Andrew,
Congratulations ! Your website is great. Throughout this website you talk about how most tasks people will learn on the job. So who would you recommend to take the classes you teach? who are they aimed for? Would you recomend them for sophomores and juniors in college? Is it worth it to spend over a thousand dollars in something you’ll be teached on the job for free?
Although I have a job lined up for next year, I wish this site was around earlier. Like the people who posted before me, this is definitely a huge value-add. I am curious why you decided to exit when you were already at such a high level position and things should be getting smoother. My best guess is because of a lifestyle or family decision. One of my professors did something similar, leaving the industry to teach students like myself and spend more time with his kids. Best to you and your new ventures.
Alf,
Thanks for your kind words. The classes that I teach are geared mostly towards people trying to get jobs in banking. We do get a fair amount of people that are still in college as well as some currently in MBA programs. The classes really serve 4 purposes for the students that are currently in school (undergrad or MBA):
1. By taking the class, you will get a feel for what banking is really like, which may affect (positively or negatively) whether or not you want to pursue it. Better to figure that out sooner rather than later!
2. You will learn things (e.g. valuation and modeling) that you can put as bullet points on a resume. These bullets have helped people get interviews.
3. Assuming you pay attention in class, you will be able to talk about these topics in an interview. This helps you differentiate yourself in interviews from your peers who likely have no similar experience. I have gotten a lot of positive feedback from students who have taken my classes who have said that the knowledge that they learned in class helped them in interviews. Taking such a class is also a sign that you are really serious about banking. I do think that differentiating yourself will be even more important over the coming recruiting cycles if the job market continues to worsen.
4. When you do get a job in banking, you will be one small step ahead of your peers who have never done a model or done a valuation. And you may have a better feel for what to expect on the job. We do spend time in class talking about life as an analyst/associate, what makes a good analyst/associate, etc.
As you correctly wrote, classes such as the one that I teach are not inexpensive. It’s obviously up to each individual to decide if they think they will get enough value out of it. Where I think they help most, is for people who or on the border-line of being able to get a job or internship (say, at a good but non-target school, or at a target school with good but not great GPA). Second, for people who have a great shot at a banking job/internship, I think a class like this can be the difference between say, a top-tier bulge bracket/boutique and a lower-tier one.
Hi Andrew,
I was just wondering how the questions asked for Full-time interviews be different if one has prior internships. Also how would you advise I handle a situation wherein I have a top tier BB internship but no offer. Great website by the way. Cheers
Ovim,
Having done an internship(s), you’re likely to get asked about your experiences in those internships during your full-time interviews. Specifically, they’ll want to know what you learned, what you did, if you worked on any transactions, etc. An interviewer will expect you to know more than a candidate without internship experience, which should obviously help you assuming you can talk intelligibly about it.
I’m assuming you’re asking how to you answer the question, “Why didn’t you get a full-time offer from the bank with which you did the internship?” when you interview for full-time positions with other banks. If I misunderstood your question, let me know. Without knowing any specifics, it’s a little bit difficult to give advice. If you were the only one of your internship class not to get a F-T offer then the question is obviously tougher to answer than if only half of your class got offers. If they gave out only a few offers because it’s a tough market right now, you can say that. If you didn’t get as good an experience as others because you got unlucky with staffing, or if you didn’t get along with folks or if there were other personal reasons, then it’s trickier. If you want a better answer, feel free to email me with more specifics of your situation.
Hi Andrew- Can you tell me more about opportunities at boutique investment banks? I just joined one this year and it is very VERY small, specializing in SPACs and I am worried exit opportunities may be marginalized because of this. Also, if you had majored in Finance at a reputable undergrad business school, is an MBA thus unnecessary?
Alice,
It’s really tough to generalize about boutiques because there are so many of them and so many different types. If you have specific questions about boutiques let me know I will try my best to answer you. As far as maximizing your exit opportunities from banking, you will need to have good deal flow experience and to develop your hard skills such as valuation and modeling (I’m assuming you are an Analyst?). I’m not sure how much of that experience you will get if your bank focuses on SPACs. You probably will develop a good understanding of the equity markets and IPO process but I don’t know if you will learn the type of skills you would get at an investment bank that focuses on more traditional products.
For other readers, SPACs (Special Purpose Acquisition Corporations) are shell companies with no operations that go public with the intent of using the money raised to aquire businesses with operations.
With regards to your question regarding the MBA, most people get an MBA not for the knowledge but primarily for the job opportunities. If, for example, you are an Analyst at a bank and you get promoted to Associate and want a career in investment banking then there is really little reason to go back and get an MBA. If, on the other hand, you want to switch industries or the degree will otherwise help you further your career, then it may likely be worth it.
What are EOP assets? In the document I am reading, which does not explain the term, they are compared to RAP assets. Only the latter term was I able to find a definition for on the web.
Thank you.
Jeremy,
The only acronyms I know of that might apply to assets are: RAP = “Regulatory Accounting Principles” and EOP = “End of Period.”
Hi Andrew,
Wonderful site. Thanks for your work!
Just another question:
In practice, how investment bank choose valuation method among P/E, EV/EBITDA and P/B? for example, I heard that P/B is always used to valuate banks. and for companies with different capex, EV/EBITDA is preferred than P/E. but could you explain the ground rules for those 3 methods or recommend some articals/books? Thank you!
Oliver
Andrew, I found the contents on your site to be quite helpful throughout the recruiting process. Your explanations of technicals were easy to understand for even a career switcher like me. I am thankful to have landed a summer associate position with one of the hottest IB shops in Los Angeles. I have just ordered the Scoopbooks IB text and am considering WSP’s self study course to prepare for the summer. any thoughts?
Oliver,
Different valuation metrics are used in different industries. For example, EV/EBITDA is most important for valuing industrial, consumer and other manufacturing companies. Retailers tend to be valued on an Adjusted EV/EBITDAR basis (R=Rent). As you correctly point out, banks are valued primarily on a Price/Book Value basis. Looking at EBITDA makes no sense for valuing banks because for banks, interest is their operations, while for for other types of companies, interest only reflects capital structure. Similarly, P/BV is a poor metric for a consumer or technology company that has a lot of intangible assets (trademarks, patents, etc.) that are not reflected in book value.
The bottom line is as an investment banker, you tend to look at a variety of multiples when doing valuation but you rely on the ones that are most used in the industry for which you are analyzing. Unfortunately, I don’t know of any books that go into detail about which multiples to use in which industry. Most of the well known valuation books out there focus more on DCF valuation than on relative valuation (using multiples). If you have access to equity research reports, that would be a good source as they will often contain valuations.
EC,
Congrats on your offer. I haven’t read the Scoopbooks text yet. I have been meaning to take a look at it but it seems to be backordered right now. While I haven’t seen the WSP materials either, I have heard good things about it. I wouldn’t make yourself too crazy trying to be prepared for your summer internship. Most banks will give you some training and you should learn what you need to learn on the job once you get there.
Andrew,
Excellent site! Very comprehensive information. The insightful details in Banking Lifestyle definitely will filter out anyone with unrealistic expectations about an ibanking career.
How quickly do these ibanking analysts or bankers burnout? Do they usually switch to another finance field before that happens?
Corinne,
Thanks for your kind words about the site. With regards to people burning out, it really varies by person. Some analysts burn out before a year is up and others never burn out, get promoted to associate and stay for a career in banking. Some do burnout and quit without another job because they just can’t take it anymore, but most switch before they reach that point. It’s tough to generalize, other than to say that the lifestyle of an analyst is pretty tough.
I love your blog. It’s given me some valuable insight into investment banking. I had one question though. I am a sophomore who is doing a summer analyst program at a bulge bracket in wealth management this summer. How easy, if at all, is it to switch into investment banking/research/trading in a bulge bracket from wealth management?
Hi, I have got a question related to Diluted Shares Outstanding. Why should we include the diluted figures when calculating Market Equity Value for Trading Multiples analysis? Because my interpretation is that when these options or covertibles were excercised the market will automatically adjust the stock price (due to the dilution effect caused) , so, by multiplying the stock price by the # of fully diluted shares outstanding wouldn’t result in overestimating the value of a company?
Tks.
Robert
David,
Thanks. If your question is if you do an internship in wealth management this summer, will you be able to switch into IB/ER/Trading for next summer’s internship or full-time when you graduate, then the answer should be yes. If your question is if you go into wealth management full-time, will you be able to switch, then the answer is it will be much more difficult (though not impossible). Get as much out of your internship this summer as you can, but definitely target the field you really want to go after for next year’s (junior year) internship.
Robert,
The best answer I can give you is that the “market” already prices in the future effect of dilution. This is why equity research analysts publish EPS estimates based on fully diluted shares. In theory at least, there should not be an impact on stock price when options or other dilutive securities are exercised exactly because the market has already accounted for the dilutive effects. This would seem to fall under the paradigm of all public information being already priced into the stock. If it worked the way you described, I would think there would be an arbitrage opportunity to short the stock in advance of options being exercised.
Andrew, thanks! One more quick question: so why when we grab the Market Cap of a company (from bloomberg, Thomson, etc) they just consider the basic shares outstanding x price per share?
Robert,
You’ll have to ask Bloomberg or Thomson that question. It is obviously a slightly easier (and more common) calculation. What we typically do in investment banking is use the Treasury Stock method of calculating dilution but there are methods one could use to account for potential dilution. Keep in mind, we are just approximating the potential dilutive effect because we don’t know how many options will actually be exercised until they are exercised sometime in the future. If you want to understand this better, I would suggest a valuation book such as Damodaran which does dicuss this topic.
What is the IRR formula? Generally speaking?
Why did you leave the IBanking profession?
Rebecca,
There is no formula for IRR (unlike NPV). We need to use Excel or a calculator to figure out IRR. IRR is calculated by solving for “r” in the equation: CF1/(1+r)^1+CF2/(1+r)^2+CF3/(1+r)^3+…+CFt/(1+r)t. This assumes periodic cash flows but it gets more complicated for non-periodic cash flows. Luckily Excel can handle this using the XIRR function.
Hi, do u know where I can find more of those accounting technical questions found under your IB Technical questions Miscellanous section. really need to practice more on those numerical questions for IB interviews. Thank you
Judy,
I’ve actually been meaning to post a few more questions like that. Check back over the next week or two and hopefully I’ll get to it. The bottom line is that all of the questions, like the one to which you are referring (how does $10 of depreciation affect your 3 financial statements) test your understanding of how the 3 financial statements (income statement, balance sheet, cash flow statement) fit together. The only internet site that I’ve ever seen other examples of questions is the site: http://www.wallstreetoasis.com. There were a couple of threads on interview technical questions that you can search for.
Hi Andrew,
Thanks for replying. I have a question on calculating EPS when doing acquisition. I will like to know how to calculate step by step if the acquiror is using cash ( debt) to acquire the target company especially how the equation looks like with the interest expense and tax. I tried searching online but didn’t find anything on that. Thank you.
Judy,
I assume you are asking about EPS with regards an accretion/dilution analysis? In an all-cash transaction, share count (the denominator) doesn’t change. Pro forma Net income (the numerator) would have to be adjusted down for the increased interest expense (if the buyer was issuing debt to finance the acquisition) on an after-tax basis (interest expense times 1 minus the tax rate). Pro forma net income also has to be adjusted for other things (expected synergies, new amortization, etc.) same as for a stock deal.
Hey Andrew,
I came across a link to this particular thread on wallstreetoasis.com and I am really grateful I’ve found it. It’s extremely helpful in furthering my unferstanding of valuation metrics.
I was just wondering if you were going to post any examples of these methods used in practice?
Thanks a lot,
Christian
Hey Andrew,
First off, THANK YOU!
i’ve benefitted tremendously from your website!
I just had a quick question though.
I am in a unique position, as I was fortunate enough to enter the banking industry as an intern right out of high school through networking.
And i have just finished my first year and have returned to the BB for another internship.
Assuming that my past two years of experience along with the help from your website gets my internships for my sophomore and junior years… i will have 4 internships to put on my resume.
Some people have noted that it may not be necessarily beneficial to put that much…
What do you think? is it overkill? Should i just put two or three?
Thanks in advance.
Sincerely,
Jon
Christian,
I’ve thought about putting up some valuation templates and other models on the site but haven’t decided whether or not to do so. I need to put some thought as to what else I want to do with this site.
Jon,
I would put all of the internships on your resume. I really don’t see any downside to it. I think it shows (1) that you are very committed to the industry and (2) that you have even more experience than your average peer.
Hi Andrew,
I have a technical question related to the impact on taxes when adjusting historical financials for non-recurring/extraordinary items that you may be able to help me with. Let’s take a generic example:
EBIT ——> $ 300
Interest ——> ($ 1000)
Pre-Tax income —> ($ 700)
Taxes ——> $ 200
Net Income ——> ($ 500)
Suppose we have to adjust EBIT for two non-recurring items (pre-tax): (1). $ 400 one-time lawsuit expense; (2). $ 200 one-time restructuring expense.
Now, the Pre-Tax income should be ($ 100) – once we added back $ 600 to EBIT. So, with those ajustments (reducing losses from -$700 to -$100), how would we adjust the positive $ 200 on the Tax line to reflect the tax impact due to normalization adjustments?
Let’s assume a marginal tax rate of 35%.
I appreciate your help.
Hi Andrew,
Thanks for the posting the accounting questions, it’s great to double check my understanding about doing equipment adjustments with your example.
I have a suggestion regarding specific valuation templates, I was wondering if you can show a LBO template or it’s basic step-by step calculations as I got asked basic calculations for Accretion & Dilution using debt or stock and was alittle unprepared at first.
I will like to know if asked to go from Net Income to cash flow, what is the question asking? is it based on accounting or saying NI plus D&A minus account payable and receivable?
What are the limitations of Beta? is that refering to Beta is based on historical data hence not as accurate to current cost of equity calculation?
Thank you very much!
Albert,
Knowing only the information you posted, I would use the effective tax rate of 28.6%. After the non-recurring adjustments, EBT = -100, Taxes = -28.6 and NI = -71.4. Or you could do the same thing using the 35% statutory rate if you thought that was a better assumption. Your analysis does beg the question: what difference does it make? Any multiple (e.g. P/E ratio) or growth rate calculated on the adjusted net income will be “not meaningful.”
Judy,
As I mentioned in a comment to someone else’s post above, I may try to post some model examples at some point in the future. As for step-by-step instructions, you’ll have to take my class!
With regards to your question about going from net income to cash flow, it could be either . You have to ask the person posing the question what they want.
Regarding Beta, the answer is that the CAPM doesn’t really work. What academics have found over past 20 years or so is that Beta is a very poor predictor of stock returns.
hi. i am from singapore. i know the standard length for resume is 1 page. Does this apply to boutiques as well even though they stated they want a detailed resume. pl advise.
Soon Chye,
I am far less knowledgable about recruiting in Asia, but I would still advise keeping your resume to 1 page for boutiques. If you are an experienced banker then you can have a 1-page or multi-page transaction list attached to your resume.
Is it an end to the application for IBs if you got a Second Lower Honors instead of the minimum Second Upper Honors required?
In addition, someone told me it is still possible if you have some exceptional interest which I dont have it.
Many people would apply to IB graduate programs but majority will get rejected. Can you recommend which field in banking to go which is closer to what IB dept do? We cannot just be waiting for the limited chances available.
Please advise.
Very informative site!!
I’ve got a question: the usual part of successful candidate’s profile of many IBs is analytical, numerical and modeling skills. What is meant by modeling skills? What kind of models shold i know to increase my chances? Finacial models or some kind of modeling in Excel?
Thanks a lot,
Steve
Hi Andrew,
The best website ever! Thank you for all the amazing information.
My question is: Is would be OK to include an internship experiences at an irrelevant devision? I’m undergrad and have worked for an operations team in a BB. I also have worked for an asset management company and financial product team at another BB. I’m updating my resume for IBD industry and wondering whether I should include the operations experience on my resume.
Thank you very much,
Sue
Steve,
Modeling skills in investment banking refer to the ability to build a set of projections in Excel for a company’s income statement, balance sheet and cash flow statement. The real key to this skill is to understand how to properly link the 3 financial statements together. It really is not important at all to have these skills when recruiting for analyst positions, though it is good to have an understanding of what it entails. For associate positions, it is more important to have these basic skills.
Freshie,
I’m not sure I understand your questions but I’ll take a shot. First, if your grades are great, it doesn’t mean you don’t have a shot at investment banking but it does make recruiting tougher. You’ll have to do a good job of explaining why your grades are what they are and more importantly, you’ll have to do an even better job of networking and selling yourself. As far as other fields within finance that might lead to investment banking later on, you might want to consider corporate banking, equity research, asset management or finance/corporate development within a large company.
Sue,
I would include all of your internships on your resume if you are still in undergrad, even if one is less relevant. Once you’ve had a few years of full-time work experience, then I would take out the less relevant internships. I think any work experience when you are in undergrad is good for your resume, and even more so if it is at a name brand financial institution. It’s just one more thing that might catch the eye of someone reading your resume. Plus, that you’ve done 3 real internships helps shows that you have a certain work ethic and interest in finance.