1. EBITDA to UFCF.
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UFCF = EBITDA - taxes on EBIT - capex - increase in NWC.
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Goldman Sachs Investment Banking Interview Questions
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2. 10% interest expense on $100 of debt with a 40% tax rate - walk through the statements.
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IS: interest -10, taxes -4, NI -6. CFS: NI -6 (interest paid in cash) -> cash -6. BS: cash -6, RE -6 -> balances.
3. Company A trades at 20x EV/Revenue with a forward EV/Revenue of 20x; Company B trades at 20x with a forward multiple of 10x. Which company is growing faster and what is each growth rate?
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Holding EV constant: A's revenue is flat (0% growth). B's forward multiple is half its current, so revenue doubles - 100% growth. B is growing faster.
4. Accounts receivable goes up by $2 - walk through the 3 statements (40% tax).
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Assuming $2 of revenue was earned on credit: IS revenue +2, taxes +0.8, NI +1.2. CFS: NI +1.2, increase in AR -2 -> cash -0.8. BS: cash -0.8, AR +2 -> assets +1.2; RE +1.2 -> balances.
5. Net debt of $500M and EBITDA of $250M - what is the net leverage ratio? A acquires B at 3x EV/EBITDA; B has $50M EBITDA - what is pro forma net leverage?
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Net leverage = 500 / 250 = 2.0x. Purchase price = $150M; if funded entirely with debt/cash: pro forma net debt $650M, EBITDA $300M -> ~2.17x (if B has no existing net debt). If funded with stock: $500M / $300M = ~1.67x.
6. Easy merger math: A (15x P/E) acquires B (20x P/E) - all stock accretive or dilutive? If 100% debt-financed at 10% interest and 40% tax? Calculating the weighted average cost in an all-debt deal.
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All stock: dilutive (15x < 20x). All debt: after-tax cost = 10% x 60% = 6% vs. B's earnings yield of 5% -> dilutive. Weighted average cost of acquisition = Σ(% of each funding source x its after-tax cost) - for all debt, simply 6%.
7. Cap rate compression (real estate technical).
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Cap rate = NOI / value. Compression means cap rates fall, so the same NOI is worth more (e.g., NOI $5M at a 6% cap = $83.3M; at 5% = $100M, +20%). Drivers: lower interest rates, stronger investor demand, lower perceived risk, higher expected NOI growth. Underwriting compression boosts projected returns but is aggressive; conservative models assume flat or expanding exit caps.
8. Two companies have the same EV, but one is 50% debt / 50% equity and the other 100% equity. You're a PE firm - which company would you acquire?
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All else equal, the 50/50 company: the control premium is paid only on the equity portion (existing debt is refinanced or assumed at roughly par), so the total purchase price is lower. E.g., EV $1,000 with a 30% premium: 50/50 -> equity $500 x 1.3 = $650 + $500 debt = $1,150; 100% equity -> $1,300. (Check that refinancing costs, change-of-control provisions and debt terms don't offset the saving.)
9. Why would a company merge with/acquire another company?
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Reasons to acquire: (1) Synergies - cost (overlapping SG&A, procurement, facilities) and revenue (cross-selling, pricing, distribution); (2) faster growth than organic (enter new markets/geographies/products); (3) gain market share / eliminate a competitor / consolidation; (4) acquire technology, IP, talent or capabilities (build vs. buy); (5) vertical integration of supply chain; (6) diversification of revenue; (7) target is undervalued; (8) use excess cash or an overvalued stock currency; (9) accretion to EPS; (10) defensive reasons.
10. How would you value minority interest (noncontrolling interest)?
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If the subsidiary is publicly traded, use market value: NCI % x subsidiary market cap. If private, estimate the subsidiary's equity value using multiples (e.g., sub net income x P/E or sub EBITDA x EV/EBITDA less its net debt) and multiply by the % not owned. Book value of NCI from the balance sheet is a fallback. Noncontrolling (minority) interest is the portion of a subsidiary not owned by the parent when the parent owns more than 50% and consolidates it. Because 100% of the sub's revenue/EBITDA is consolidated into the parent's financials, you add NCI to Enterprise Value so the numerator (EV) and denominator (EBITDA) are consistent. NCI appears in the equity section of the balance sheet, and the NCI share of net income is subtracted to get net income attributable to parent. (Equity investments <50% are the opposite: subtracted from EV because their EBITDA is not consolidated.)
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