Verity Knowledge Solutions Investment Banking Analyst Interview Questions and Answers

Line items in an Income Statement include revenues, expenses, gains, and losses.

• Revenue: Sales of goods or services

• Cost of Goods Sold (COGS): Direct costs related to producing goods sold

• Gross Profit: Revenue minus COGS

• Operating Expenses: Costs related to running the business (e.g. salaries, rent)

• Operating Income: Gross profit minus operating expenses

• Interest Expense: Cost of borrowing money

• Net Income: Total profit after all expenses and taxes

• Other Income/Expenses: Non-operati...read more

Share buybacks impact financial statements by reducing outstanding shares, increasing EPS, and affecting cash flow.

• Share buybacks reduce the number of outstanding shares on the balance sheet.

• This can increase earnings per share (EPS) as the same amount of earnings is distributed among fewer shares.

• On the income statement, share buybacks can lead to higher EPS and potentially higher stock prices.

• Share buybacks can also impact the cash flow statement by reducing cash reserves u...read more

Bonus share issue impacts financial statements by increasing equity on balance sheet, reducing retained earnings, and affecting earnings per share.

• Increase in equity on balance sheet due to additional shares issued at no cost

• Reduction in retained earnings as company's profits are distributed among more shareholders

• Impact on earnings per share as number of shares outstanding increases

The 3 financial statements are Income Statement, Balance Sheet, and Cash Flow Statement. Key ratios include ROE, ROA, and Current Ratio.

• Income Statement shows a company's revenues and expenses over a period of time.

• Balance Sheet provides a snapshot of a company's financial position at a specific point in time.

• Cash Flow Statement tracks the flow of cash in and out of a company.

• Key ratios like Return on Equity (ROE), Return on Assets (ROA), and Current Ratio are used to analyze...read more

Investment banking involves providing financial advisory services to corporations, governments, and other institutions for raising capital, mergers and acquisitions, and other financial transactions.

• Helps companies raise capital through issuing stocks or bonds

• Assists in mergers and acquisitions by providing valuation and negotiation services

• Provides financial advisory services for various transactions such as IPOs, debt offerings, and restructuring

• Offers risk management and h...read more

Beta and alpha are measures of a stock's volatility and performance compared to a benchmark index.

• Beta measures the volatility of a stock in relation to the overall market. A beta of 1 means the stock moves in line with the market, while a beta greater than 1 indicates higher volatility and less than 1 indicates lower volatility.

• Alpha measures the excess return of a stock compared to its expected return based on its beta. A positive alpha indicates the stock outperformed its ...read more

Comparable company analysis involves evaluating a company's value by comparing it to similar companies in the same industry.

• Identify comparable companies based on industry, size, growth prospects, and financial metrics.

• Collect data on key financial metrics such as revenue, EBITDA, and multiples like P/E ratio.

• Calculate valuation multiples for the comparable companies and apply them to the target company to estimate its value.

• Adjust for differences in size, growth, and risk fa...read more

Beta is a measure of a stock's volatility in relation to the market. There are three types of beta: levered beta, unlevered beta, and adjusted beta.

• Beta measures a stock's volatility in relation to the market. A beta of 1 means the stock moves in line with the market, while a beta greater than 1 is more volatile and less than 1 is less volatile.

• Levered beta includes the effects of debt on a company's capital structure.

• Unlevered beta removes the effects of debt and reflects th...read more