Author: Rajul Raman

One of the most common questions you will be asked during an investment banking or finance interview is “How do you value a company?” The question can seem broad and vague, however, it is useful for various purposes such as tax reporting, raising capital, or selling and acquiring a company. 

Hence, it is essential to have a clear understanding of the concept and the ability to articulate it well during the interview. 

What is a company’s value?

According to the Harvard Business Review, company valuation or business valuation is the process of calculating the total economic value or worth of a business and its assets.

How to calculate a company’s value?

A straightforward way to calculate a company’s value can be Assets – Liabilities, which is also known as the Book Value. However, this method doesn’t account for the entirety of a business’s financial health. Hence, there exist a few specific models to assign a value to a company. The four major ones are Multiples, Market Capitalisation, Discounted Cash Flow, and Precedent Transactions.

1. Multiples Model:

This approach uses industry-wide financial metrics used by similar companies to value a company. The formula is:

The metrics commonly used are financial ratios namely, Price-to-Earning ratio, Price-to-Sales ratio and Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA). For example, to calculate the value of company X in the banking sector using this method, one could take the average of say, the EBITDAs of other significant companies in the same industry and multiply that by X’s annual revenue. 

This approach rests on the assumption that companies that have similar revenues and earnings drivers should be worth about the same.

2. Market Capitalisation Model:

This is one of the simplest methods to calculate a company’s value. Market Value Capitalisation measures a company’s value based on stock price and shares outstanding. The formula is: 

This method, however, works only for publicly-traded companies. For example, in January 2022, Apple became the first company in the world to be valued at $3 trillion based on this method.

The drawback of using market capitalisation is that it is deciphered based only on equity. However, most companies’ capital consists of debt and equity. 

3. Discounted Cash Flow Model:

Discounted Cash Flow (DCF) is a business valuation technique based on future growth potential. It predicts a company’s value based on what can be the ROI for the company. The formula is:

Here’s what it means:

CF = Cash flow during a given year (can include as many years as you’d like, simply follow the same structure).

r = discount rate also called the weighted average cost of capital (WACC). This is the rate that a business expects to pay for its assets. You can read in detail about the WACC here.

The advantage of the DCF method is that it is based on a company’s potential to generate liquid assets. However, the obvious shortcoming of this approach is that is somewhat dependent on the assumptions made about future growth and discount rates. So, it should be used when future cash benefits can be forecasted using reasonably accurate numbers and methods. 

4. Precedent Transactions Model:

Also called the Transactions approach, this method compares the company in question to other similar businesses that may have been sold or acquired. This analysis aims to estimate the worth of a share of stock in the case of an acquisition.

What Next?

After you have sharpened your understanding of each method, its benefits and drawbacks, you should be able to exhibit to the interviewer that you can also implement any of these methods if needed. 

To do so, you must present examples – either real-time ones, if you have been involved in the valuation of a company in the past or those based on your independent analysis of a company. In the case of the latter, you can base your research on a specific industry instead of trying to understand multiple companies. Then you should use the quantitative methods above to explain how you calculated the worth of the particular company. 

Career coach and strategist Jena Dunay’s video explains how you can answer the “How do you value a company” question in further detail.

Conclusion

As an aspiring investment banker or financial analyst, you must know how to value a company. At the interview, your job is to demonstrate that you clearly understand the concept and can put it into motion. The best way to do so is through examples of using either the Market Cap, Multiples, Discounted Cash Flow or Precedent Transactions Method. Since you know beforehand that you will be asked this question, you can gain an edge by solidifying your knowledge of it as well as by presenting it coherently. 

Investment banking is a much sought after career choice. While it comes with a sparkling set of rewards, it’s no secret that the job is demanding and high-stakes. Hence, to grab such an opportunity, one has to excel at the interview and stand out. Your resume, technical skills, and knowledge of finance are vital to the job application process but the interview is your one chance to make a long-lasting impression. These interviews also require weeks’ worth of preparation as they involve both technical and behavioural questions. So, once you get the interview call, here are 3 questions that you must ace in order to get the job of your choice:

1. A Guesstimate Question

As the name suggests, this is a question that requires making an educated estimate. To do so, you need a process that combines guesswork and calculation. 

Here are some examples of guesstimate questions:

• How much sunflower oil is used in India in one year?
• How many hairstylists or barbers do you estimate there are there in this city? 
• Find the amount of chocolate used in India in a day
• Guesstimate the number of cigarettes consumed in the US in a month
• How many tennis balls can fit in a bus?
• How many refrigerators are sold in London in a month?

From a cursory glance, these questions might appear impossible to answer. Yet, there’s a strategy to them. The interviewer is not as focused on the right solution but instead on your problem-solving process. A job in investment banking requires you to think strategically, analytically, and critically, often on your feet. Hence, these questions are aimed at deciphering how well you can do that. Here’s a detailed guide on answering guesstimate questions remarkably.

2. What is the Weighted Average Cost of Capital (WACC)?

Investopedia defines the Weighted Average Cost of Capital (WACC) as a firm’s average cost of capital from all sources, including common stock, preferred stock, bonds, and other forms of debt.

As an investment banker, this metric is useful for many reasons:

• In cases like mergers and acquisitions, the WACC can help weigh the cost against the benefits. A merger would be considered beneficial if it can generate a higher return than its WACC. 
• A lower WACC is better as it signals that the company can attract investments at a lower cost. 
• The finance team can also use the WACC when evaluating a project or planning to make an investment. For example, if the company’s investment in new machinery has a lower rate of return than its WACC, the company should consider other uses for that money.

During IB interviews, it’s not only important to know the textbook definition of WACC but also its implications and hypothetical scenarios where it might be used.

3. Why do you want to work in investment banking?

This is one of the most important questions in your investment banking interview. What you need to answer this is a clear, well-articulated, and goal-oriented answer. There is no right answer here, however, you must be able to connect the dots between what you have done and what your aspirations are. You should also talk about the skills you will be able to gain from working in this industry and the contributions you will be able to make. 

Not all aspects of this answer have to be work-related per se. You should also use this opportunity to talk about networking and relationship-building within the company and with your clients. Interviewers appreciate it when you are thinking about the impact you can make in their organisation and community. 

This is also an excellent chance to highlight your transferable skills, especially if you are not from a finance background. However, do remember the good ol’ “Show don’t tell.” For each skill that you mention, demonstrate examples of when you were able to put it to test, whether it is for a leadership position at the university level or your discipline for a craft. 

Conclusion

Be it JPMorgan or Goldman Sachs or any investment bank of your choice, all interviewers pay disproportionate focus on the interview process. Hence, you must ensure that you spend considerable time researching and understanding this step of the job application. Each company also has its own resources to guide you on how to prepare for the interview. With that in your back pocket and concrete answers to the above three questions, you will be well on your way to landing that dream investment banking job!

Every year, Morgan Stanley – one of the world’s leading financial services companies – recruits over 1,500 interns from nearly 40 countries and a pool of tens of thousands of candidates. But, according to one of their former recruiters, “The students who go the extra mile always attract more attention.”

The financial services giant, which reported $48.2 billion in annual earnings in the fiscal year, 2020, is, no wonder, selective about its interns and employees. But the process doesn’t necessarily have to be intimidating when your foundation and groundwork are solid. We help you achieve that in the following 3 ways:

1. Sharpen Your Social Skills

Before we highlight what can differentiate your application in order to get an interview call, remember that you might have an opportunity to make an impression even before you apply. You can find out about the various networking events that Morgan Stanley may hold at your campus through their Campus Application Center.

While being around hard-core professionals at this stage might seem daunting, remember, that this is your chance to stand out. Developing and practising your social skills can significantly help you in this area. How do you approach someone you don’t know? What is your body language? Are you maintaining eye contact? Are you sharing your ambitions and asking them about their experiences? You’ll be in a better position to ace and feel comfortable at networking events once you have practised effective communication. 

2. Ensure the Basics are Extraordinary 

The only surefire way to get an interview call is to apply. And to do it extremely well. For this reason, you should allow yourself a couple of weeks to get the online application in place even if you only need a resume and cover letter. Both these elements must be impactful. 

We have detailed the process to create the perfect resume in this article. In your cover letter, tell the recruiter why you are interested in joining Morgan Stanley and your chosen business area.

The company itself shares the following tips on crafting a powerful cover letter:

• “Write it like a letter—include your address, Dear Sir/Madam (or better still, the name of the person, if you know who the interviewer is), and make sure to end it with a closing (“Yours faithfully,” etc).”
• The first paragraph should outrightly mention why you’re writing the letter. Mention the position you are applying for and if you learned about it through a recruiting event.
• The middle 2-3 paragraphs should explain why Morgan Stanley—your reason for choosing the division, what about the company interests you, and why you might be a good fit.
• Close the cover letter by thanking the recruiter and stating that you are looking forward to a positive response.
• Needless to say, proofread the letter like it’s the most important document you will ever write and don’t use one-size-fits-all prototypes for all positions.
• Don’t hesitate to include experiences or skills that make you unique.

3. Actively Reach Out and Display Resourcefulness

Often as young individuals, we may hesitate to reach out to those who are more accomplished than us. But the only thing stopping us is our mental block. As an aspiring investment banker, your biggest resource is your university’s career services department as well as LinkedIn. Networking at university events is one part of the process but what else can you do to show that you have gone the extra mile?

Think about, what have I got to lose? If you reach out politely to a current or former Morgan Stanley employee, the worst that could happen is that you never hear back. But the best possible scenario, even if one person gets back to you, is that you can gain access to real-time information and experiences. Morgan Stanley recruiters highly value this skill of resourcefulness. 

A leading Morgan Stanley recruiter says, “I like to see that students have reached out to their college or university alumni who now work at Morgan Stanley. It shows they’re resourceful, have initiative, and are self-starters. You can also ask alumni questions you might feel uncomfortable asking a recruiter.”

Conclusion

A foot in the door at Morgan Stanley is a dream for many would-be investment bankers but a reality for a selected few. The difference isn’t necessarily your credentials or background but how well you can express your strengths and convince the recruiter that you are driven like none other. Exceptional communication skills, a stellar and honest resume and cover letter, and self-motivation or resourcefulness can help you navigate that gap to reach the next stage of getting hired at Morgan Stanley.

True to its name, Goldman Sachs is the gold of the investment banking industry. It is one of the world’s largest financial institutions with specialisations in: investment banking, global markets, asset management, and consumer and wealth management. Next only to JPMorgan, it commands 9% of the world’s investment banking revenue.

So it’s no wonder that Goldman Sachs received a record-high of 236,000 applications . And its acceptance rate for these is roughly 1.5%. As for more advanced roles, the company gets 1 million applications for mid level jobs each year.

This can be highly intimidating for someone looking to start their career at Goldman Sachs. But while there’s power in numbers, your chances are also greatly influenced by your profile, preparation, and perseverance. So, here we share some key tips on how to ace these to finally land that sought-after IB job at Goldman Sachs:

1. Research Company Background:

First things first, you should research what the company is looking for. This comes directly from their website and from those who work/have worked at Goldman Sachs.  

The company is very particular about candidates following its application checklist. This can help you understand which elements they’re looking for so can you use them to your maxmimun advantage. 

The Goldman Sachs application checklist has the following:

• Contact Information
• Education History
• Examination Results
• Work Experience
• Motivation for Applying
• Language Skills
• CV/Resume
• Honours, certificates, technical or other skills
  

They also clearly state on their website that “When we review applications, we look for creative, team-oriented candidates who will bring intensity and integrity, intellectual curiosity, and leadership potential to our team.” 

These 3 qualities are crucial to them so start looking for examples in your professional experience where you have demonstrated these traits:

• Integrity: Integrity is easier to display during the interview, particularly when answering behavioural questions. But for the application itself, you can use the “Motivation for applying” section to show these skills. Look for examples of impressive work ethic, accountability, managing challenging situations and so on.
• Intellectual curiosity: Find examples where you have exhibited a desire to learn. This could be a certificate program outside school or university. It can be an Investment Banking course or something entirely unique, as long as you can show how it helped you better yourself. Or it could be a skill your acquired acquiring by going out of your way. Maybe you travelled across 10 countries to learn about their cultures. Think of what helps you stand out.
• Leadership potential: At an entry level, you might be worried about showcasing your leadership potential but it can stem from starting a club at college or university, leading a project at an internship, or an initiative for your community.

This is also the ideal time to reach out to current and former Goldman Sachs employees in your network or even through emailing for informational interviews. Ask them questions about company culture, values, and what they look for in employees. This will help you understand how to craft the perfect application and subsequently, excel at your interview. 

2. Create an Impressive Resume 

Before the actual interview, your resume is the primary way for Goldman recruiters to evaluate your profile. So, you must spend considerable time fine tuning it. Remember, they don’t only care about your technical skills or having a finance degree. In fact, a major misconception about roles at Goldman Sachs is that you need a finance degree. That is not true. They welcome unique applications with open arms. As they also mention on the website, they are looking for “creative and team-oriented” individuals. 

This must be reflected in your resume through examples of transferable skills. These will vary based on the role you are applying for. Some jobs might place high value on communication and creativity while others on negotiation and leadership. Don’t be afraid to highlight your uniqueness. The keywords that a job description includes should also be mentioned and evenly spread out through your resume.

Goldman Sachs shares these helpful pointers on what to include in your resume. Further, recruiters at the firm have shared these quick tips on creating a remarkable resume:

• Keep it one page long
• Add relevant experience (internships or jobs)
• Add achievements around education
• Highlight situations where you have demonstrated leadership skills
• Give yourself time! Resumes aren’t overnight projects. You will need time to craft an amazing resume

3. Ace the Video Interview

The video interview is a golden chance to show a slice of your personality to the recruiters. Goldman Sachs conducts video interviews to understand candidates on a deeper level. The questions at this stage are almost 80% behavioural and the rest focus on why do you want to work at Goldman Sachs or a particular division. Some tips to crack the video interview are:

• Research: ensure that you research the company, the role/s you are applying for, and the industry in general
• In-person Interview: treat the video interview like a normal in-person interview to prepare better
• Formal attire: your outfit should be formal but should also make you feel comfortable
• Body language: have a good posture, smile, and practice ways that make you feel confident
• Be concise: you should provide details in your answers but don’t tell irrelevant stories. You can finish the interview before the given time.
• Mock interviews: you should practise questions before the final video interview.

4. Seal it with an Epic In-Person Interview

According to Goldman recruiters, interview questions are mostly situational or behavioural. In fact, they mention that they’re not too worried about your technical expertise as they have the tools to help you learn. But they deeply care about your attitude and interest in working at Goldman Sachs. 

So, practise your soft skills answers as much as technical ones. Ultimately, they are looking for real-time examples of teamwork, problem-solving, critical thinking, and your thought process. Their website also mentions, “Consider preparing examples which could set you apart from other applicants. Interviewers like to understand what motivates you, why you are interested in their company, and why your experiences make you their ideal candidate.” 

Further, if you have community service experience, mention that in your answers as the company is actively looking for people who give back to their community. It shows that such an applicant would add value to their company and community as well.

It’s also important that you have solid, specific, and compelling answers to why you want to work at Goldman Sachs. This helps the recruiter understand that you have researched the company and are genuinely interested in working there.

Finally, don’t forget to come up with your own questions that you want to ask the interviewer. This sheds light on things you care about and how keen you are to learn about the company. 

Conclusion

You will need rigorous preparation and practice to land a role at Goldman Sachs. The process begins with first ensuring that you are ready to put in all the effort that’s needed. With that dedication in place, you need to dig deep into the company and what they look for, craft the most outstanding resume, and crack all video and in-person interviews. It is an uphill climb but your hard work will magnanimously pay off!