PJT Partners IB Interview Questions

Enterprise value is 600, EBITDA is 60 and debt is 300. Write EV and debt in terms of EBITDA: EV = 10 × EBITDA and Debt = 5 × EBITDA. Plug both into EV = Market Cap + Debt − Cash, so 10 × EBITDA = 400 + 5 × EBITDA − 100. That gives EBITDA = 60, debt = 300 and EV = 600.

Pick one sector you actually follow and give two or three trends. For each one, say what drives it and what it means for M&A (mergers and acquisitions) or capital raising. Power and utilities is a strong example. Electricity demand is rising after years of flat growth, mainly from data centers and electrification. Meeting it takes very large capital spending, and that drives equity raises, asset sales and partnerships.

The enterprise value is $100mm. Enterprise value is what the whole business is worth to everyone with a claim on it, so you add up the market value of each claim. A distressed company's debt trades well below face value, the amount owed at maturity. The senior secured loans are worth $70mm (70 cents on the dollar). The bonds are worth $15mm (15 cents on the dollar). Add the $15mm of equity: $70mm + $15mm + $15mm = $100mm, assuming no cash on the balance sheet.

The main short-term levers are to turn owned assets into cash, spend less cash on assets, and hold less cash in working capital. In practice: do sale-leasebacks on owned property or equipment, defer discretionary capex, and tighten working capital by collecting from customers faster, paying suppliers later, and holding less inventory. Each lever costs something later, such as new lease payments or older equipment, so use it with care.

Ignoring taxes and distress costs, investors are indifferent. The dividend pays $3.00 a share, and the share price falls by $3.00, from $7.50 to $4.50. Enterprise value stays at 100 because the business has not changed. Each shareholder still holds $7.50 of total value: $4.50 in stock plus $3.00 in cash.

Junior creditors are lenders repaid only after more senior lenders. In a restructuring (a reorganization of a distressed company's debts, often in Chapter 11 bankruptcy) they often sit at or below the point where the company's value runs out, so priority does little for them and they raise recovery through leverage. They argue for a higher enterprise value, attack the senior lenders' liens and claims, and use their votes, objections and litigation to threaten delay and cost. Seniors often pay them a tip (a small equity stake, warrants or cash) to get a quick consensual plan. That is the holdup value juniors trade on.

A sponsor is the private equity firm that buys the company in a leveraged buyout (LBO), a purchase funded largely with debt. Its return comes from three drivers: EBITDA growth, multiple expansion, and debt paydown from free cash flow. Growing EBITDA (earnings before interest, taxes, depreciation and amortization, a rough measure of operating cash profit) raises what the company is worth. Multiple expansion means selling at a higher price per dollar of EBITDA than you paid. Debt paydown means the company's free cash flow (the cash left after interest, taxes, capital spending and cash tied up in day-to-day operations) repays the loans, so more of the sale price goes to the sponsor. In the model, those drivers come from the purchase price, the amount of debt (leverage), the sales growth and margin projections, and the exit multiple and hold period (the years owned before selling).

Neutral: the deal is neither accretive nor dilutive. A trades at 10x earnings and pays 10x earnings for B. Each new share A issues brings in exactly as much earnings per share as A's existing shares already earn, so combined EPS (earnings per share) stays the same. This ignores synergies, fees, and any change in financing or taxes.

The income statement covers a period of time. Revenue minus expenses equals net income, the company's accounting profit for that period. The balance sheet is a snapshot at one point in time. It lists what the company owns (assets) and how those assets are funded (liabilities and shareholders' equity), and it must always balance: Assets = Liabilities + Equity. The cash flow statement also covers a period. It starts with net income, then adjusts for non-cash items and changes in working capital. That reconciles accounting profit to the actual change in cash across operating, investing and financing activities.

The deal is accretive. A's standalone EPS (earnings per share: net income divided by shares outstanding) is $100mm / 10mm shares = $10.00. After the deal, pro forma net income is $156mm on 13mm shares, so pro forma EPS is $12.00. That is 20% accretion: the buyer's EPS goes up. Dilution would mean it goes down.

Pick a company you know well and follow one order: what it sells and how it makes money, then growth and margins, then cash flow, then the balance sheet. End with one point of view. Take Apple in fiscal 2023. Revenue was about $383 billion. Roughly half came from iPhone, and about a fifth came from higher-margin Services. Gross margin was about 44% and operating margin about 30%. Apple generated roughly $100 billion of free cash flow and returned most of it to shareholders, mainly through buybacks.

Because the objective is to maximise the value of the firm. Minimising WACC is not that objective; it is a means to it. WACC, the weighted average cost of capital, is the blended required return on the company's debt and equity, and the value created by what the money buys can exceed the value lost to a slightly higher discount rate. If a company can borrow to fund a positive-NPV use, an acquisition, a plant, a buyback at a depressed price, or simply a maturity it has to repay, that debt is worth issuing even though the WACC curve has turned up.