Equity Research Interview Questions All Answers Correct

Equity Research Interview Questions All Answers Correct what is the difference between equity value and enterprise value? ️Enterprise value = Market value of common stock + market value of preferred stock + market Value of debt + minority interest - cash & investments Equity value = market capitalization + Stock options + value of equity issued from convertible securities - proceeds from conversion of convertible securities enterprise value helps investors get complete picture of company's current financial affairs equity value helps investors shape future decisions Equity Value = enterprise value - net debt What are the most common ratios used to analyze a company? ️#1 - Solvency Ratio Analysis Current Ratio Quick Ratio Cash Ratio #2 Turnover Ratios Receivables turnover Days receivables Inventory turnover days inventory accounts payable turnover days payable cash conversion cycle #3 Operating Efficiency Ratio Analysis Asset Turnover Ratio Net Fixed Asset Turnover Equity Turnover #4 Operating Profitability Ratio Analysis Gross Profit Margin Operating Profit Margin Net Margin Return of Total Assets Return on Equity Dupont ROE #5 Business Risk Operating Leverage Financial Leverage Total Leverage #6 Financial Risk Leverage Ratio Debt to Equity Ratio Interest Coverage Ratio Debt Service Coverage Ratio #7 External Liquidity Risk Bid-Ask Spread What is financial modeling and how is it useful in equity research? ️financial modeling projects financials of a company in a very organized manner. as companies only provide historical financial statements, a model helps understand fundamentals of the company - ratios, debt, eps, and other parameters in financial modeling, you forecast the balance sheet, cash flows, and income statement of the company for future years How do you do a discounted cash flow analysis in equity research ️- starts with populating historical financial statements of company in standard format -project three statements using step by step financial modeling technique -three statements are supported by other schedules like debt and interest schedule, plant and machinery & depreciation schedule, working capital, shareholders equity, intangible and amortization schedules etc. -once forecast is done, you move to valuations of firm using DCF approach -with DCF youre required to calculate Free cash flow to firm or free cash flow to equity and find present value of these cash flows to find the fair valuation of the stock What is free cash flow to firm ️excess cash that is generated after taking into consideration the working capital requirements as well as the cost associated with maintaining and renewing the fixed assets. free cash flow to firm goes to the debt holders and the equity holders FCFF = EBIT x (1-tax rate) + non cash charges + changes in working capital - capital expenditure What is free cash flow to equity? ️measures how much cash a firm can return to its shareholders and is calculated after taking care of taxes, capex and debt cash flows FCFE = net income + depreciation and amortization + changes in WC + capex + net borrowings Whats earning season? how would you define it? ️companies announce a specific date when they declare their quarterly or annual results, offering a dial in number to discuss the results -one week prior to date, job is to update spread sheet to reflect key estimates and metrics like EBITDA, EPS, Free Cash flow -on day of declaration, swiftly summarize key points How do you do sensitivity analysis using excel? ️-use base case assumptions of growth rates, WACC and other inputs, which result in base valuation of firm -however, in order to provide clients with better understanding of assumptions and impact on valuations, youre required to prepare sensitivity table -sensitivity analysis is popularly done to measure effect of changes in WACC and Company's growth rate on share price What is the restricted list and how it affects the work you do? ️when investment banking team is working on a deal that the team has covered, reports, models and estimates are not allowed to be