Moelis IB Interview Questions

We use EV/Revenue when earnings-based multiples like EV/EBITDA are meaningless—typically for unprofitable or early-stage companies—because Revenue is almost always positive and capital-structure-neutral, though it implicitly embeds assumptions about future margins.

Debt varies by seniority, maturity, rate type, covenants, and lender base; firms layer different tranches to minimize weighted average cost, manage refinancing and interest-rate risk, maximize borrowing capacity beyond any single lender's limits, and balance covenant flexibility against execution certainty.

Build it bottom-up as volume times price, off the grove itself. Volume is planted acres times trees per acre, times the share of trees old enough to bear fruit, times yield per bearing tree, less an allowance for crop loss from freeze, drought, disease and fruit drop. Set price separately for each channel the farm sells into, since fruit sent to a juice processor typically fetches a different price per box than fruit sold into the fresh grocery market. Both are grower prices, what the farm receives, not what a shopper pays at the store.

The most common multiples (a company's value divided by one of its financial figures) are EV/Revenue, EV/EBITDA and EV/EBIT on the enterprise value side, plus P/E (price to earnings) and P/BV (price to book value) on the equity value side. Bankers use EV/EBITDA most. Enterprise value (EV) is what the whole business is worth to lenders and shareholders together, so it gets divided by figures that come before interest is paid: revenue, EBIT (operating income) and EBITDA (earnings before interest, taxes, depreciation and amortization, a rough proxy for operating cash flow). Equity value is what the shareholders' stake alone is worth, so it gets divided by figures that belong to shareholders: net income for P/E, and book value (the shareholders' equity on the balance sheet) for P/BV.

The beta of a casino game is zero because its outcomes are purely random and have no correlation with the stock market, meaning it carries no systematic risk—only idiosyncratic, uncompensated risk with a negative expected return.

Valuation would usually increase because lower taxes boost after-tax free cash flows. There is a partial offset because the after-tax cost of debt rises as the interest tax shield shrinks, which can push WACC slightly higher, but in most cases the higher cash flows are the dominant effect.

Net income falls $15, cash rises $5, net PP&E falls $20, retained earnings fall $15. Depreciation is a non-cash charge that spreads the cost of a long-lived asset over its useful life, so the $20 charge takes $20 off pre-tax income and, at a 25% tax rate, $15 off net income. Cash rises $5 anyway, because the company pays $5 less in tax. The balance sheet holds: assets fall $15 (cash +$5, PP&E -$20) against retained earnings down $15.

Compute Net Income as (Revenue × Operating Margin − Interest Expense) × (1 − Tax Rate), divide by shares outstanding to get EPS, then multiply EPS by the P/E ratio to derive the implied share price.

The terminal value is 772.5, calculated by growing the last discrete period's UFCF of 75 by 3% to get 77.25, then dividing by (13% − 3%) = 10% using the Gordon Growth Model.

Assuming a $10.00 share price, diluted shares are 1,580mm (1,500mm basic + 60mm net new from options via treasury stock method + 20mm RSUs), giving a diluted equity value of $15.8 billion.

The share price is $60.00. Revenue of $3,000 at a 50% gross margin gives $1,500 of gross profit. Take out $950 of SG&A and EBIT is $550. Total interest of $150 leaves $400 pre-tax, and a 25% tax rate leaves $300 of net income, which is $3.00 of earnings per share across 100 shares. Twenty times $3.00 is $60.00. A P/E is price over earnings per share, so price equals the multiple times EPS.

Revenue minus COGS minus OpEx gives EBIT; tax-effect EBIT to NOPAT, add back D&A, subtract CapEx and increases in NWC to get UFCF. To get Levered FCF / FCFE, either subtract after-tax interest and then add net borrowing, or more simply go from Net Income: Net Income + D&A - CapEx - ΔNWC + Net Borrowing.