I do think a course or training program can be very helpful to your job search, provided that you select the right one and that you get the most out of it.  The course that I teach, entitled Introduction to Investment Banking is really geared towards individuals who are or will be in the process of seeking jobs in investment banking or other areas of finance. We start off with an overview of the investment banking industry and the necessary foundations of accounting and finance.  We then spend the bulk of our course on the core skills required of junior investment bankers, including financial statement analysis, valuation and financial modeling.  We devote the entire last class session to recruiting and the job search, including an extensive discussion of interviewing.

Obviously an 8-class session like I teach is not inexpensive.  And while it will by no means guarantee you a job or even an interview, I do believe that it can really help your chances.  Having taken a course like this will differentiate your resume from your peers and should (provided that you pay attention in class and do the homework!) really enhance your interviewing skills.  As you probably know from reading other parts of this site, technical questions are an integral part of interviewing for investment banking positions.  Taking a course like this will introduce you to or refresh your memory of nearly all of the accounting, finance and valuation topics that you are likely to be asked about in your interviews.  And finally, having already been introduced to the practical aspects of life and work as an investment banker will set you apart and give you a leg up once you do start your job as an analyst or associate.

• - reduce the purchase price that the PE firm has to pay for the company
• - increase the amount of leverage (debt) in the deal
• - increase the price for which the company sells when the PE firm exits its investment (i.e. increase the assumed exit multiple)
• - increase the company’s growth rate in order to raise operating income/cashflow/EBITDA in the projections
  decrease the company’s costs in order to raise operating income/cashflow/EBITDA in the projections

The next step is to change the existing balance sheet of the company to reflect the transaction and the new capital structure.  This is known as constructing the “proforma” balance sheet.  In addition to the changes to debt and equity, intangible assets such as goodwill and capitalized financing fees will likely be created. 

The third, and typically most substantial step is to create an integrated cashflow model for the company.  In other words, to project the company’s income statement, balance sheet and cashflow statement for a period of time (say, five years).  The balance sheet must be projected based on the newly created proforma balance sheet.  Debt and interest must be projected based on the post-transaction debt.

Once the functioning model is created, we can make assumptions about the private equity firm’s exit from its investment.  For example, a typical assumption is that the company is sold after five years at the same implied EBITDA multiple at which the company was purchased.  Projecting a sale value for the company allows us to also calculate the value of the private equity firm’s equity stake which we can then use to analyze its internal rate of return (IRR).  Absent dividends or additional equity infusions, the IRR equals the average annual compounded rate at which the PE firm’s original equity investment grows (to its value at the exit).

While the private equity firm’s IRR is usually the most important piece of information that comes out of an LBO analysis, the analysis also has other uses.  By assuming the PE firm’s required IRR (amongst other things), we can back into a purchase price for the company, thus using the analysis for valuation purposes.  In addition, we can utilize the LBO model to analyze the trend of credit statistics (such as the leverage ratio and interest coverage ratio) which is especially important from a lender’s perspective.

Note that you will often get this same question but referring to playing cards (as in 3-Card Monte) or doors (as in Monte Hall/Let’s Make a Deal) instead of envelopes.