Citi IB Interview Questions

Calendarization converts a company's fiscal-year financials into calendar-year (January to December) figures. You weight the part of each fiscal year that falls inside the calendar year. A fiscal year is the 12-month period a company uses for its own reporting, and it often ends in a month other than December. Bankers calendarize so companies with different fiscal year-ends get compared over the same period. It comes up most in comparable companies analysis, which values a company off the multiples its peers trade at.

The inventory write-down is an expense on the income statement. It lowers net income and gets added back in cash flow from operations, because no cash leaves. On the balance sheet it lowers inventory, lowers retained earnings by the after-tax amount and raises cash by the tax saving. The dividend payment and the debt buyback at face value both skip the income statement. Each one shows up only as a cash outflow in cash flow from financing, with a matching drop on the balance sheet: retained earnings fall for the dividend, and debt falls for the buyback.

Company A's EV/EBITDA is 12.5x ($1,250mm EV ÷ $100mm EBITDA), a 0.5x (~3.8%) discount to the 13.0x peer median, likely reflecting higher leverage, lower growth, or company-specific risk factors.

Adding $100mm to EBITDA has far more impact. At exit, buyers value the business at a multiple of EBITDA. At an 8.0x exit multiple, the extra $100mm of EBITDA adds about $800mm of enterprise value. Debt stays the same, so the full $800mm goes to the equity. Paying down $100mm of debt adds only $100mm to the equity at exit.

Jane Fraser is Citigroup's CEO (chief executive officer, the top executive who runs the company day to day). She took the role in March 2021 and was the first woman to lead a major Wall Street bank. Before her, Michael Corbat was CEO from 2012 until he retired in February 2021.

Precedent transactions, also called transaction comps, value a company off the multiples acquirers paid to buy similar companies in past M&A deals. You screen those deals for industry, size, and recency. For each one you build the transaction enterprise value, what the buyer paid for the equity plus the target's net debt at the time, and divide it by that target's financials as of the announcement. Apply the resulting multiple range to your own company's metric and you get an implied enterprise value, equity value, and price per share. These are prices paid for control of an entire company, so they typically carry a control premium, the amount above the pre-deal trading price a buyer pays to own and direct the whole business. That is why the range usually sits above where similar public companies trade today.

Net income goes up $3.75. On a cash sale, cash goes up $8.75. A 50% gross margin means the good cost $5 to make or buy, so the $10 sale leaves $5 of gross profit (revenue minus cost of goods sold, the direct cost of the item that was sold). Tax at 25% takes $1.25 of that and leaves net income of $3.75. Cash runs higher because the company already paid for that $5 of cost in an earlier period. It leaves this period as a $5 reduction in inventory, and the cash flow statement adds that $5 back: $3.75 plus $5 is $8.75.

WACC, or weighted average cost of capital, is the minimum return a business must earn on its money to keep both its lenders and its owners satisfied. Each group expects a certain return. WACC blends those expectations, weighted by how much of the money each group put in.

WACC (weighted average cost of capital) is the average price a company pays for the money it uses, weighted by how much of that money comes from each source. Say you run a lemonade stand on some of your own piggy-bank money and some you borrowed from your sister. Your piggy money has a price too, because you give up other things you could do with it. Your sister wants extra back on her loan. Blend those two prices and you have the stand's WACC. The stand has to earn at least that much for the money to be worth using.

All else equal, I would lean toward Company A. Accounts receivable (AR) is money customers owe for sales the company already made, so only collection is left. Inventory is goods not yet sold. The company still has to find a buyer, set a price, and then collect. I would confirm the choice by checking A's AR aging and customer credit quality.

Cost of capital is the minimum return a company must earn on its investments to satisfy everyone who funds it: lenders (debt holders) and shareholders (equity holders). The usual measure is the weighted average cost of capital, or WACC. WACC takes the after-tax cost of debt and the cost of equity and weights each by its share of the company's total funding. Bankers use it as the discount rate for unlevered free cash flow in a DCF (discounted cash flow) valuation. It is also the hurdle rate: the minimum return a project of similar risk to the company must beat to create value.

Synergies are the extra value two companies create together beyond the sum of their standalone values. Cost synergies come from removing duplicate costs, such as overlapping headquarters, stores, plants and purchasing. Revenue synergies come from selling more, for example by cross-selling products to each other's customers or entering new regions. Name the synergies that fit your specific pair, size them roughly, and list any one-time integration costs. Treat cost synergies as more reliable than revenue synergies.