Goldman Sachs IB Interview Questions

Dilutive, before synergies and other deal adjustments. In an all-stock deal, a buyer with a lower P/E (share price divided by earnings per share) issues shares valued at a low multiple to buy earnings priced at a higher one. Its earnings per share (EPS) fall. Synergies, or paying partly with cash or debt, can make the deal accretive, meaning EPS rise. A lower purchase price reduces the dilution.

Shareholders have limited liability, so their losses stop at what they paid. That makes equity work like a call option on the company's assets, with a strike price equal to the debt. In bankruptcy the assets may be worth less than the debt today. The case is not resolved yet, though, and asset values still have time to move. So there is some chance equity ends up with something, and the market puts a positive price on that chance.

The discount rate accounts for the time value of money, a risk premium for the uncertainty of each coin flip, and the opportunity cost of deploying capital here instead of the next-best alternative investment.

I follow U.S. healthcare services, where GLP-1 adoption is driving pharma M&A for manufacturing capacity (Novo/Catalent ~$16.5B), Medicaid redeterminations are pressuring safety-net providers toward restructuring, and FTC scrutiny on PE roll-ups is shifting sponsor exits toward continuation vehicles.

A company usually goes public to raise new capital for growth and to give its existing shareholders (founders, employees, and venture capital or private equity investors) a liquid, tradable stock they can sell. Public stock also works as currency for acquisitions and employee pay, and it makes later fundraising easier. The company pays for this. It takes on underwriting fees, much heavier disclosure duties, and quarterly scrutiny, and it usually dilutes its existing owners.

I'd walk through five connected layers—growth, inflation, Fed policy, credit conditions, and deal activity—showing how sticky above-target inflation keeps rates elevated, widens spreads, raises cost of capital, compresses valuations, and ultimately constrains M&A and LBO volume.

Walk through a deal using six parts: situation/context, deal structure and premium, valuation multiples versus comps, strategic rationale including synergies and accretion/dilution, financing and key terms, and your opinion backed by at least one specific number.

Project unlevered free cash flows, discount them and a terminal value back to the present using WACC to get enterprise value, then subtract net debt and divide by diluted shares to find implied share price.

A convertible bond combines straight debt and an embedded equity conversion option. Conceptually, you can think of it as bond value plus option value, but in practice I would value it with a binomial or trinomial lattice that jointly models stock-price evolution, credit risk, conversion behavior, and any call/put features. As a cross-check, I would also look at the straight-bond value and the conversion value to understand the bond floor and parity.

Valuation rises. When accounts payable (AP) days move from 60 to 90, the company pays its suppliers 30 days later. The AP balance steps up and releases cash once, in the year the change happens. That one-time lift to unlevered free cash flow (the cash the business makes before any payments to lenders or shareholders) increases the present value. Once days hold at 90, the extra cash does not repeat each year.

In 2018, anchoring to the ~2.9% 10-Year Treasury plus a ~3–4% risk premium gives a ~6–7% national cap rate; compressing 150–200 bps for NYC yields an approximate cap rate of 4–5%.

Price-to-book equals P/E multiplied by return on equity: P/B = P/E × ROE. Earnings per share (EPS) cancels out of the product. So a company trades at a high multiple of its book value when investors pay a high multiple for its earnings, when it earns a high return on its equity, or both. Book value is the shareholders' equity on the balance sheet. ROE is net income divided by that equity.