FT Partners IB Interview Questions

Use EV / NTM Revenue. Fraud prevention companies are mostly high-growth software businesses, and many peers are unprofitable or run thin margins, so EBITDA and earnings multiples come out negative or meaningless across the peer set. Revenue is positive and comparable for every peer. Forward (next-twelve-months) revenue captures the growth that drives value in this sector.

Value usually goes up. A lower tax rate increases after-tax free cash flow, the cash the business generates for all investors after taxes and reinvestment. It also pushes WACC up slightly, because the interest tax shield (the tax saved by deducting interest) shrinks and after-tax debt gets more expensive. For a profitable company, the cash flow gain is much larger than the small rise in the discount rate, so the net effect is a higher valuation.

A short 3-5 year explicit forecast for a mature, stable business like Coca-Cola, and a long 10-plus year forecast for a high-growth business like Tesla. A DCF projects free cash flow explicitly until the company reaches a steady state, then collapses everything after that into a single terminal value. Coca-Cola sits near steady state today, so a few years gets you there. Tesla's margins, reinvestment needs, and business mix are still far from settled, and a perpetual growth assumption only becomes credible after a decade or more.

Precedent transactions usually price higher because the buyer is purchasing 100% of a company. It pays a control premium for the right to direct the business, and in a negotiated deal or an auction it typically hands the seller part of the synergies it expects from the combination. Trading comps price a small, non-controlling stake at whatever the market pays on a given day, so that price typically carries no payment for control or for synergies. Both sets are normally struck on the same LTM EBITDA and the same enterprise value basis. The gap is what is being bought, not how the multiple is computed.

A private company has no stock price, so you cannot measure its Beta directly. You estimate it from a set of comparable public companies. Unlever each comp's Beta to strip out the effect of its debt, take the median unlevered Beta, then relever that figure at the private company's target debt-to-equity ratio and tax rate. The result is the levered Beta you plug into CAPM to get the private company's cost of equity.

Net income falls $22.5mm, cash falls $2.5mm, and PP&E (property, plant and equipment, the line where the machine sits on the balance sheet) is up $80mm at the end of Year 1. That assumes a 25% tax rate, interest paid in cash, and no debt repaid during the year. Depreciation of $20mm ($100mm spread evenly over 5 years) plus $10mm of interest cuts pre-tax income by $30mm. The 25% tax saving brings the after-tax hit to $22.5mm. Add back the $20mm of non-cash depreciation and cash is down $2.5mm. The $100mm purchase and the $100mm of new debt cancel out.

A discount rate is the percentage you use to turn money you expect in the future into what it is worth today. Future money is worth less than money in your hand now, for two reasons. Money you have now can be invested and grow. And a promise of future money might not be kept in full. The higher the discount rate, the less that future money is worth today.

In Year 0, the customer pays $10mm upfront. Cash rises by $10mm and deferred revenue (a liability for service still owed) rises by $10mm. Nothing hits the income statement yet. In Years 1 and 2, the company earns half the contract each year. It recognizes $5mm of revenue and $1mm of after-tax net income per year. Deferred revenue falls by $5mm each year, and cash falls by $4mm each year as the company pays the related costs and taxes.

You would examine revenue growth trajectory and recurring mix, gross margin levels and scalability, operating leverage across R&D and S&M, EBITDA margin progression toward profitability, projection reasonableness versus market growth, and industry-specific factors like regulatory tailwinds, churn, and capitalized software.

The three are the income statement, the balance sheet, and the cash flow statement. They connect through two hand-offs. Net income, the bottom line of the income statement, starts the cash flow statement and also builds retained earnings inside equity on the balance sheet. Ending cash, the bottom line of the cash flow statement, becomes the cash line among assets on the balance sheet. That shared wiring is why a change in one statement moves the other two.

Cost of equity is the yearly return shareholders require to own a company's stock. Bankers usually estimate it with CAPM (the capital asset pricing model): the risk-free rate plus beta times the equity risk premium. Beta often comes from comparable companies. You unlever those betas, then relever at the target's own mix of debt and equity. Investors set this return. ROE is an accounting result and WACC blends debt and equity, so neither one is cost of equity.

Audit the comps sheet across seven dimensions: peer comparability, calendarized financial data consistency, EV bridge completeness, diluted share count accuracy, numerator/denominator alignment on multiples, private company discount application, and use of median over mean with outliers flagged.