Qatalyst IB Interview Questions

The two models most likely use forecast periods of different lengths, and the 20x company has the shorter one. A shorter forecast stops while the business is still growing fast, so the terminal value (the lump-sum value of every year after the forecast) has to capture that remaining growth. That needs a higher multiple. The 12x model forecasts until growth has slowed to a steady, mature rate, so its terminal value only has to price a mature business. If the horizons match, the gap must come from different terminal assumptions for growth, risk (WACC) or cash conversion, and one of the two multiples is inconsistent.

Yes, it's accretive: A's earnings per share (EPS, net income divided by shares outstanding) doubles from $0.10 to $0.20. Accretive means the buyer's EPS goes up after the deal. A and B each earn $10mm of net income (market cap divided by the P/E, or price-to-earnings, ratio). The $100mm of new debt costs $4mm a year after tax, and the $5mm of synergies (extra profit from combining the companies) adds $4mm after tax. That's $20mm of combined net income over A's 100mm shares. The share count stays put because A pays with borrowed money and issues no new stock.

By mid-to-late 2022, the median public SaaS company traded at about 5-7x next-twelve-months (NTM) revenue. Top-growth names got about 10-15x, and slow growers about 2-4x. That is far below the 2021 peak, when the median was close to 15-20x. It is roughly in line with, or a little below, the pre-COVID average of about 6-8x. So the 2022 level is low against the last two years and about normal by long-run standards.

Unlevered free cash flow is EBIT times one minus the tax rate, plus D&A, less capital expenditures, less the increase in net working capital. From revenue you subtract cost of goods sold, then operating expenses, then D&A, and that lands you on EBIT. The tax comes off EBIT itself rather than off pre-tax income, and that is what makes the figure unlevered: financing costs sit below this line, so interest is excluded. Then add D&A back, since it is a non-cash charge. Subtract CapEx and the working-capital build. Both consume real cash.

Answer in four slots, in this order. Headline: one punchy sentence on what the trend is. Drivers: the technology, regulatory and consumer shifts that explain why it is happening now. Outlook: the tailwinds (forces that speed it up) and the headwinds (risks and blockers that slow it down). Proof: two or three concrete deals and companies that show the trend is real. Pick a trend you can defend over whatever is trendiest.

Deferred revenue is the liability a company books when a customer pays cash upfront, before the product or service has been delivered. Then, as the company delivers what it owes, it recognizes that amount as revenue bit by bit, meaning it records it on the income statement. You see it a lot at subscription software companies, airlines, and publishers, which often get paid in advance.

Any mix of cash, debt, and stock makes this deal accretive. Every source costs less than B's earnings yield of 1/15 = 6.67%. Cash costs 2.4% after tax, debt costs 4.8% after tax, and A's stock costs 5.0% (1/20). The highest purchase P/E each source supports before the deal turns dilutive is about 41.7x with cash, about 20.8x with debt, and 20.0x with stock.

The deal is accretive: the buyer's earnings per share (EPS, net income divided by shares outstanding) goes up. In an all-stock deal, A pays with shares valued at 20 times earnings to buy earnings valued at 10 times. So A gets more earnings per new share than it earned per existing share.

Breakeven synergies are $10,000. Company B costs $200,000 ($40 share price × 5,000 shares), so A issues 4,000 new shares at its $50 price. The combined company earns $60,000 over 14,000 shares, about $4.29 of EPS (earnings per share). Holding A's $5 EPS takes $70,000 of net income. The gap is $10,000. This assumes A pays B's current market price with no premium or fees, and that synergies (extra profit from combining the two firms, such as cost savings) are counted after tax.

A deal is accretive when the buyer's earnings per share (EPS, net income divided by shares outstanding) go up after the deal. At a high level, that happens when the earnings yield bought from the target beats the after-tax cost of the money used to fund it. Earnings yield is the target's earnings divided by its purchase price, which is the inverse of its P/E. Assume B is bought at its 10x P/E with no premium. Then Company B yields 1 / 10x = 10%. Debt at 5% pre-tax costs about 3.75% after tax, assuming a 25% tax rate. 10% is well above 3.75%, so the deal is accretive.

Enterprise value (EV) is $1,200. The $20 of annual interest at a 10% rate implies $200 of debt ($20 ÷ 0.10). EV is equity value plus debt minus cash, and no cash is given, so EV = $1,000 + $200 = $1,200. The question's other figures aren't needed to reach the answer, but they are consistent with it.

First, check the 20x multiple for a build error. Confirm the enterprise value (EV) and the EBITDA period against the source filings. If the numbers are clean, find the business reason for the outlier. Then correct it, keep it with a footnote, or exclude it from the summary statistics with a stated reason. Tell the VP which one you chose.