Evercore interview questions & answers

Model answer

The flow

1. Story: Share a relevant personal or professional story.
2. Moment it became finance: Connect the story to your interest in finance.
3. Why this group and firm: Explain why you chose this specific group and firm.
4. What you bring on day one: Highlight the skills and strengths you contribute.

The answer

Story: "One of my greatest strengths is my analytical ability, which I honed during my time as a financial analyst intern at XYZ Corporation. During my internship, I was responsible for analyzing complex datasets to identify trends and provide actionable insights to senior management."

Moment it became finance: "This experience solidified my passion for finance, as I realized the power of data-driven decision-making in shaping business strategies. I was fascinated by how financial analysis could uncover hidden opportunities and drive growth."

Why this group and firm: "I am particularly drawn to the Mergers and Acquisitions group at your firm because of its reputation for executing high-profile deals and its commitment to excellence. Your firm’s focus on fostering a collaborative environment aligns with my values and work style."

What you bring on day one: "On day one, I would bring my strong analytical skills and attention to detail, which are crucial in evaluating potential deals and conducting due diligence. My ability to work under pressure and meet tight deadlines, as demonstrated during my internship, will enable me to contribute effectively to your team."

Why this works

• Testing analytical skills: The interviewer is assessing your ability to analyze and interpret financial data, a key skill for an investment banking analyst.
• Sanity check: A strong answer demonstrates a clear connection between past experiences and the skills required for the role.
• Weak answers: Candidates often fail by being too generic or not linking their strengths to the specific demands of the role.
• Specificity: Highlighting a particular experience and its impact shows depth and authenticity.
• Firm alignment: Demonstrating knowledge about the firm and its culture shows genuine interest and preparation.

Model answer

The flow

1. Story: Set the context of the deal you worked on.
2. The moment it became finance: Describe the financial aspect that drew you to the deal.
3. Why this group and firm: Explain why this deal was significant to your group and firm.
4. What you bring on day one: Highlight your contribution and skills demonstrated in the deal analysis.

The answer

Story: I was part of a team analyzing a potential acquisition deal where our client, a mid-sized technology company, was considering purchasing a smaller software firm to expand its product offerings. This deal was particularly interesting because it involved a high-growth industry with significant potential for synergies.

The moment it became finance: The financial aspect that drew me to this deal was the challenge of accurately valuing the target company. The software firm had a unique product with strong intellectual property but limited historical financial data. This required us to employ a combination of traditional valuation methods and more innovative approaches, such as scenario analysis and market comparables, to ensure we captured the full potential value.

Why this group and firm: This deal was significant to our group because it aligned with our firm’s focus on technology sector transactions, allowing us to leverage our expertise in tech valuations. Additionally, the deal had the potential to set a precedent for similar transactions in the industry, positioning our firm as a leader in tech M&A.

What you bring on day one: I contributed by conducting detailed financial modeling and sensitivity analysis to assess various scenarios and their impact on the valuation. I also coordinated with our industry experts to refine our assumptions and projections. My analytical skills and attention to detail were crucial in identifying key value drivers and potential risks, which ultimately helped our client make an informed decision.

Why this works

• Testing: The interviewer is assessing your ability to articulate your experience with real deals and your understanding of the financial and strategic aspects.
• Sanity check: A strong answer demonstrates a clear understanding of valuation techniques and the ability to apply them in complex scenarios.
• Weak answers fail: Candidates often fail by providing vague descriptions, lacking specific contributions, or not demonstrating a clear understanding of the financial analysis involved.
• Depth: The answer should reflect a deep engagement with the deal, showing both analytical skills and strategic thinking.

Model answer

The flow

1. Story: Share a personal experience of a stressful situation.
2. The moment it became finance: Explain how this experience led you to finance.
3. Why this group and firm: Connect your interest to the specific firm and group.
4. What you bring on day one: Highlight your skills and strategies to manage stress.

The answer

Story: During my final year at university, I was part of a team managing a student-run investment fund. We faced a particularly volatile period when the markets reacted to unexpected geopolitical events. As the team leader, I felt the pressure to make sound decisions while ensuring the team remained focused and calm.

The moment it became finance: This experience taught me the importance of staying informed and making data-driven decisions. It was then that I realized my passion for finance, particularly in high-stakes environments where strategic thinking and composure are crucial.

Why this group and firm: I am drawn to [Firm Name] because of its reputation for handling complex transactions in volatile markets. The [Specific Group] is known for its innovative approach and resilience, which aligns with my experience and aspirations. I am eager to contribute to a team that thrives under pressure and consistently delivers exceptional results.

What you bring on day one:

• Analytical Skills: I bring strong analytical skills, honed through my academic background and practical experience in managing investments.
• Stress Management Techniques: I employ techniques such as prioritization, time management, and mindfulness to stay focused and calm.
• Team Collaboration: My experience as a team leader has equipped me with the ability to maintain team morale and productivity during challenging times.
• Adaptability: I am quick to adapt to changing circumstances, ensuring that I can respond effectively to market volatility.

Why this works

• Testing resilience: The interviewer wants to see if you can handle pressure, a crucial skill in investment banking.
• Sanity check: A strong answer acknowledges the reality of stress and provides concrete strategies for management.
• Weak answers fail: Candidates who only mention stress without offering solutions or who lack specific examples appear unprepared.

Model answer

The flow

1. Project Revenue and Expenses: Estimate future revenue and operating expenses.
2. Calculate EBIT: Subtract operating expenses from revenue.
3. Adjust for Taxes: Calculate taxes and subtract from EBIT to get NOPAT.
4. Add Non-Cash Charges: Include depreciation and amortization.
5. Adjust for Changes in Working Capital: Account for changes in current assets and liabilities.
6. Subtract Capital Expenditures: Deduct capital expenditures to get Unlevered Free Cash Flow (UFCF).

The answer

Project Revenue and Expenses: To calculate unlevered free cash flows, start by projecting the company's revenue and operating expenses over the forecast period. For example, let's assume the revenue is projected to grow at 5% annually from $100 million, and operating expenses are 60% of revenue.

Calculate EBIT: Subtract operating expenses from revenue to get Earnings Before Interest and Taxes (EBIT). For instance, if revenue is $100 million, operating expenses would be $60 million, resulting in an EBIT of $40 million.

Adjust for Taxes: Calculate taxes based on the EBIT. Assuming a tax rate of 30%, taxes would be $12 million ($40 million * 30%). Subtract taxes from EBIT to obtain Net Operating Profit After Taxes (NOPAT), which would be $28 million.

Add Non-Cash Charges: Include non-cash charges such as depreciation and amortization. Suppose depreciation is $5 million; add this back to NOPAT, resulting in $33 million.

Adjust for Changes in Working Capital: Consider changes in working capital. If current assets increase by $2 million and current liabilities increase by $1 million, the net change in working capital is $1 million. Subtract this from the previous total, yielding $32 million.

Subtract Capital Expenditures: Finally, subtract capital expenditures. If capital expenditures are $10 million, the unlevered free cash flow is $22 million ($32 million - $10 million).

Why this works

• Testing Understanding: The interviewer is evaluating your grasp of financial concepts and your ability to apply them in a structured manner.
• Sanity Check: A strong answer will include realistic assumptions and calculations, demonstrating an understanding of financial dynamics.
• Common Pitfalls: Weak answers often overlook non-cash charges or changes in working capital, leading to inaccurate UFCF calculations.
• Trade-offs: Candidates should recognize the trade-off between growth assumptions and capital expenditures, which can significantly impact UFCF.
• Communication: Clear communication of each step shows the ability to convey complex financial concepts succinctly.

Model answer

The flow

1. Choose method: Select the appropriate valuation method for NOLs.
2. Build inputs: Determine the key inputs needed for the chosen method.
3. Calculate value: Compute the present value of the NOLs using the inputs.
4. Bridge to equity value: Adjust enterprise value to reflect NOLs' impact on equity value.
5. Sanity-check against comps: Compare with similar companies to ensure reasonableness.

The answer

1. Choose method: To value Net Operating Losses (NOLs), I would use the Discounted Cash Flow (DCF) method. This approach allows us to estimate the tax shield benefit the NOLs provide by reducing future taxable income.

2. Build inputs:

• Future Taxable Income: Estimate the company's future taxable income over the period the NOLs can be utilized.
• Tax Rate: Use the applicable corporate tax rate to determine the tax savings.
• Discount Rate: Select an appropriate discount rate, typically the company's Weighted Average Cost of Capital (WACC), to present value the future tax savings.

3. Calculate value:

• For each year, calculate the tax savings by multiplying the NOL amount utilized by the tax rate.
• Discount these tax savings to the present value using the WACC.
• Sum the present values to get the total value of the NOLs.

For example, if a company has $100 million in NOLs, expects $20 million in taxable income annually, and has a tax rate of 25% and WACC of 10%, the annual tax savings would be $5 million ($20 million * 25%). The present value of these savings over five years would be calculated as:

$$PV = \sum_{t=1}^{5} \frac{5}{(1+0.10)^t}$$

Calculating this gives a present value of approximately $18.95 million.

4. Bridge to equity value: Adjust the enterprise value by adding the present value of the NOLs to reflect their contribution to equity value. This adjustment is crucial as it directly impacts the shareholders' equity.

5. Sanity-check against comps: Compare the NOL valuation with similar companies that have utilized NOLs. Ensure the assumptions, such as tax rates and discount rates, align with industry standards and that the valuation is reasonable.

Why this works

• Testing understanding: The interviewer assesses the candidate's understanding of NOLs and their impact on valuation.
• Sanity check: A strong answer includes a comparison with industry comps to validate the assumptions and results.
• Common pitfalls: Weak answers may overlook the importance of using a proper discount rate or fail to consider the limitations on NOL utilization, such as expiration periods or taxable income constraints.

Model answer

The flow

1. Define the IRR concept → understand its purpose.
2. Calculate IRR → identify the discount rate.
3. Compare IRR to WACC → assess project viability.
4. Interpret results → recommend action.

The answer

1. Define the IRR concept: The Internal Rate of Return (IRR) is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. It represents the expected annualized rate of return of a project or investment.

2. Calculate IRR: To calculate the IRR, we need to find the rate that equates the present value of future cash flows to the initial investment. Suppose we have an investment with the following cash flows:

• Initial investment: $100,000
• Year 1 cash flow: $30,000
• Year 2 cash flow: $40,000
• Year 3 cash flow: $50,000

The IRR is the rate $r$ that satisfies the equation: $$ 0 = -100,000 + \frac{30,000}{(1+r)^1} + \frac{40,000}{(1+r)^2} + \frac{50,000}{(1+r)^3} $$ Using a financial calculator or software, we find that the IRR is approximately 14%.

3. Compare IRR to WACC: The IRR of 14% should be compared to the company's Weighted Average Cost of Capital (WACC). If the IRR exceeds the WACC, it indicates that the project is expected to generate value for the company. Let's assume the WACC is 10%.

4. Interpret results: Since the IRR of 14% is greater than the WACC of 10%, the project is likely to be a sound investment, as it is expected to generate returns that exceed the cost of capital. Therefore, I would recommend proceeding with the investment.

Why this works

• Understanding IRR: The interviewer is testing whether you grasp the fundamental concept of IRR and its role in investment decisions.
• Comparative analysis: A strong answer compares IRR to WACC, demonstrating the ability to assess project viability.
• Quantitative reasoning: Calculating IRR shows quantitative skills and familiarity with financial formulas.
• Decision-making: A strong candidate provides a clear recommendation based on the IRR analysis.
• Weak answers: Failing to compare IRR to WACC or not providing a recommendation shows a lack of understanding of how IRR informs investment decisions.

Model answer

The flow

1. Income Statement: Recognize interest expense and depreciation.
2. Cash Flow Statement: Record cash impact of interest and depreciation.
3. Balance Sheet: Reflect changes in assets, liabilities, and equity.

The answer

1. Income Statement

• Interest Expense: The company incurs a 10% annual interest expense on $1000 of debt, which is $100. Since this is right after the purchase, we assume this is for a full year.
• Depreciation Expense: The manufacturing equipment worth $500 is depreciated over 5 years, resulting in an annual depreciation expense of $100.
• Net Income: Since there are no revenues or other expenses mentioned, the net income is negative due to the expenses: $0 - $100 (interest) - $100 (depreciation) = -$200.

2. Cash Flow Statement

• Operating Activities: Add back non-cash depreciation of $100 to the net income of -$200, resulting in -$100 from operations.
• Financing Activities: There is no cash impact from the interest expense as it is accrued, not paid immediately.
• Investing Activities: The purchase of equipment and steel is financed entirely by debt, so there is no immediate cash outflow.
• Net Change in Cash: The net change in cash is $0 since the operations and financing activities net out to zero.

3. Balance Sheet

• Assets:
• PP&E: The equipment is recorded at $500. After depreciation, it is $400.
• Inventory: Steel is recorded as inventory at $500.
• Total Assets: $400 (PP&E) + $500 (Inventory) = $900.
• Liabilities:
• Debt: The full $1000 of debt is recorded as a liability.
• Equity:
• Retained Earnings: The net income of -$200 reduces equity.
• Total Equity: Starting equity of $0 minus $200 net income = -$200.
• Balance Check: Assets ($900) = Liabilities ($1000) + Equity (-$200).

Why this works

• Testing Understanding: This question tests the candidate's ability to understand the interconnectedness of financial statements and how transactions affect them.
• Sanity Check: A strong answer ensures that the balance sheet balances after accounting for all transactions, which is a key sanity check.
• Weak Answer Pitfall: A weak candidate might miss the depreciation or interest expense, fail to reconcile the cash flow statement, or not ensure the balance sheet balances.
• Attention to Detail: Correctly handling the timing of interest and depreciation reflects attention to detail and understanding of accounting principles.

Model answer

The flow

1. Calculate EBITDA: Start with revenue and subtract COGS and operating expenses, excluding depreciation and amortization.
2. Calculate EBIT: Subtract depreciation and amortization from EBITDA.
3. Calculate Net Income: Subtract interest and taxes from EBIT.
4. Rank Variations: Compare the figures obtained for EBITDA, EBIT, and Net Income across the variations.
5. Verify Balances: Ensure that the calculations align with the accounting principles.

The answer

1. Calculate EBITDA

• Variation A: Revenue = $500,000; COGS = $200,000; Operating Expenses = $100,000
• EBITDA = $500,000 - $200,000 - $100,000 = $200,000
• Variation B: Revenue = $600,000; COGS = $250,000; Operating Expenses = $120,000
• EBITDA = $600,000 - $250,000 - $120,000 = $230,000
• Variation C: Revenue = $550,000; COGS = $220,000; Operating Expenses = $110,000
• EBITDA = $550,000 - $220,000 - $110,000 = $220,000

2. Calculate EBIT

• Variation A: Depreciation and Amortization = $30,000
• EBIT = $200,000 - $30,000 = $170,000
• Variation B: Depreciation and Amortization = $40,000
• EBIT = $230,000 - $40,000 = $190,000
• Variation C: Depreciation and Amortization = $35,000
• EBIT = $220,000 - $35,000 = $185,000

3. Calculate Net Income

• Variation A: Interest = $20,000; Taxes = $30,000
• Net Income = $170,000 - $20,000 - $30,000 = $120,000
• Variation B: Interest = $25,000; Taxes = $35,000
• Net Income = $190,000 - $25,000 - $35,000 = $130,000
• Variation C: Interest = $22,000; Taxes = $32,000
• Net Income = $185,000 - $22,000 - $32,000 = $131,000

4. Rank Variations

• EBITDA: B (230,000) > C (220,000) > A (200,000)
• EBIT: B (190,000) > C (185,000) > A (170,000)
• Net Income: C (131,000) > B (130,000) > A (120,000)

Why this works

• Testing Understanding of Financial Metrics: The interviewer is assessing your ability to calculate and interpret key financial metrics like EBITDA, EBIT, and Net Income.
• Sanity Check: A strong candidate will ensure that the calculations align with the accounting principles and that the variations are logically ranked.
• Common Mistakes: Weak answers often result from incorrect calculations, misunderstanding of the metrics, or failure to properly rank the variations based on the figures obtained.
• Analytical Skills: This exercise tests your ability to analyze financial data and draw meaningful conclusions from it.