June 2023 - Page 2 of 2 - Finance Interview Coach

Published On - June 10, 2023

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

What is the Rule of 72?

The rule of 72 allows you to approximate how many years it takes to double your equity investment at a given IRR. Alternatively, the rule of 72 allows you to approximate the IRR required to double your equity investment. The formula is as follows: Number of years to double = 72% ÷ IRR OR IRR [&hell...

Published On - June 9, 2023

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

Does a dividend of $1 in year 1 or a dividend of $2 in year 3 increase IRR more, assuming entry equity of $20 and exit equity of $60 over 5 years?

An exit equity of $60 vs. an entry equity of $20 is a 3x multiple of capital ($60 / $20). Over 5 years, a 3x multiple of capital is a 25% IRR. Dividends are assumed to be reinvested at the IRR. Reinvesting $1 in year 1 at 25% IRR for 2 years would get us […]...

Published On - June 8, 2023

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

Walk me through an LBO model.

In an LBO or M&A deal, the acquiror is often allowed to write up the PP&E and / or intangible assets to fair market value. Fair market value represents what the assets would be worth if they were sold in the open market, and this value is often greater than the book value of the […]...

Published On - June 5, 2023

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

Why don’t you need a balance sheet to complete an LBO model and get a return?

To do an LBO model, we need to figure out the cash flows available for debt repayment. The amount of debt we can repay affects the ending debt balance, which impacts how much of the proceeds we get to keep when we sell the company. To get to the cash flow available for debt repayment, […]...

Published On - June 3, 2023

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

What’s the difference between a maintenance covenant and an incurrence covenant?

Maintenance covenants require the borrower to maintain a certain ratio or metric at all times. This is required by lenders because they want to make sure the company is in good shape to pay interest and pay back the principal. Common maintenance covenants include: Incurrence covenants are restrictio...

Published On - June 2, 2023

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

What’s the difference between a positive covenant and a negative covenant?

A positive covenant is when the company agrees to take certain actions for the duration of the loan. This can could include maintaining adequate insurance plans, performing plant and equipment repairs and upgrades, disclosing audit reports, or achieving a certain threshold in key financial ratios. A...

Published On - June 1, 2023

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

Explain how a revolving credit facility works.

A revolving credit facility is like a credit card or line of credit. It can be drawn anytime as long as the maximum limit is not reached. It’s commonly used to cover cash shortfalls, net working capital needs, and acquisitions. For example, if the maximum limit is $100M and if the company is short...