Investment Banking

Identify the key components of an income statement, balance sheet, and cash flow statement.

Explain the accounting equation (Assets = Liabilities + Equity) and the principle of accrual accounting.

Describe how the three financial statements are interconnected.

Trace the impact of a single business transaction (e.g., a credit sale) through all three financial statements.

Distinguish between recurring and non-recurring items on an income statement.

Interpret a real company's three financial statements to form a preliminary assessment of its financial health.

Set up a financial model with best-practice formatting for inputs, calculations, and historical data.

Input a company's historical income statement and balance sheet data into the model.

Build a revenue forecast using appropriate drivers (e.g., volume, price, growth rate).

Project Cost of Goods Sold (COGS) and operating expenses (SG&A, R&D) based on historical margins or other drivers.

Construct a supporting schedule for Property, Plant & Equipment (PP&E) including capital expenditures and depreciation.

Construct a supporting debt schedule with interest expense calculations based on beginning and ending debt balances.

Calculate historical working capital turnover ratios (DSO, DSI, DPO).

Project future working capital balances (Accounts Receivable, Inventory, Accounts Payable) using driver-based assumptions.

Link the PP&E and debt schedules to the projected balance sheet.

Project retained earnings based on net income and dividend assumptions.

Build the Cash Flow from Operations section, starting with net income and adjusting for non-cash charges and changes in working capital.

Build the Cash Flow from Investing and Financing sections, linking them to the PP&E and debt schedules.

Link the closing cash balance from the cash flow statement to the cash account on the balance sheet.

Implement a balance check to ensure the balance sheet always balances.

Resolve circular references that arise from interest calculations using an iteration toggle or copy-paste method.

Create scenario toggles to analyze the model under base, upside, and downside cases.

Perform quality control checks to audit the model for errors and ensure logical consistency.

Calculate Unlevered Free Cash Flow (UFCF) from the integrated financial statement model.

Define and calculate Enterprise Value and Equity Value, and explain the components of the bridge between them.

Explain the conceptual basis of intrinsic value as the present value of future cash flows.

Calculate the Cost of Equity using the Capital Asset Pricing Model (CAPM).

Determine the Cost of Debt for a company using the yield on its outstanding bonds or analysis of comparable debt.

Calculate the Weighted Average Cost of Capital (WACC) and analyze how capital structure changes affect it.

Distinguish between levered and unlevered beta and explain the rationale for unlevering and relevering beta.

Explain the purpose and rationale behind comparable company analysis (trading comps).

Select an appropriate peer group of comparable public companies for a given target.

Gather and normalize financial data for the peer group, adjusting for non-recurring items.

Calendarize financial data to align fiscal year-ends across the peer group.

Calculate key valuation multiples for the peer group, such as EV/Revenue, EV/EBITDA, and P/E.

Derive an implied valuation range for a target company by applying peer group multiples.

Explain the purpose and rationale behind precedent transaction analysis (deal comps).

Identify and source relevant M&A transactions involving companies similar to the target.

Explain what a control premium is and why precedent transaction multiples are often higher than trading multiples.

Calculate key transaction multiples (e.g., EV/EBITDA, Offer Price/EPS) for the precedent deals.

Derive an implied valuation range for a target company by applying precedent transaction multiples.

Analyze the key differences in output between trading comps and precedent transactions.

Link the Unlevered Free Cash Flow projections from the 3-statement model into the DCF analysis.

Calculate the terminal value using both the Gordon Growth (Perpetuity) Method and the Exit Multiple Method.

Discount the projected free cash flows and terminal value to the present using WACC to arrive at Enterprise Value.

Perform a sensitivity analysis on key DCF assumptions (WACC, growth rate, exit multiple) to create a valuation range.

Identify and articulate the key advantages and limitations of a DCF analysis.

Analyze the strategic and financial rationale for a potential M&A transaction.

Model the sources and uses of funds for a transaction, including different forms of consideration (cash, stock).

Model the impact of revenue and cost synergies on the pro forma financial statements.

Create a pro forma income statement for the combined entity, including purchase accounting adjustments like goodwill and incremental D&A.

Calculate pro forma shares outstanding and pro forma earnings per share (EPS).

Perform an accretion/dilution analysis by comparing pro forma EPS to the acquirer's standalone EPS.

Explain the economic rationale of a leveraged buyout and identify characteristics of an ideal LBO candidate.

Construct a sources and uses of funds table for an LBO transaction.

Build a simplified LBO model that projects cash flows available for debt repayment.

Create a debt schedule incorporating a 'cash flow sweep' for optional debt repayments.

Model the exit from the investment and calculate returns for the private equity sponsor using IRR and MoM multiple.

Perform sensitivity analysis on key LBO drivers such as entry/exit multiples and leverage levels.

Summarize valuation outputs from comps, precedents, and DCF analysis in a 'football field' chart.

Formulate a cohesive investment thesis based on a synthesis of valuation, strategic rationale, and risk assessment.

Determine which valuation method is most appropriate and defensible given a specific company and market context.

Describe the key components and purpose of an investment banking pitchbook.

Structure a key recommendation slide for a pitchbook, summarizing the investment thesis, valuation, and supporting arguments.