BIWS 400 Exam Questions with Correct Answers| New Update 100% Verified by Experts
Let's say I'm working on an IPO for a client. Can you describe briefly what I would do? You
meet with the client and gather basic information - such as their financial details, an industry
overview, and who their customers are. You meet with other bankers and the lawyers to draft
the S-1 registration statement - which describes the company's business and markets it to
investors. You receive some comments from the SEC and keep revising the document until it's
acceptable. You spend a few weeks going on a "road show" where you present the company to
institutional investors and convince them to invest. The company begins trading on an
exchange once you've raised the capital from investors.
How do companies select the bankers they work with? Usually based on relationships.
When it comes time to do a deal, the company calls different banks it has spoken with and asks
them to "pitch" for the business. This is called a "bake-off" and the company selects the
"winner" afterward
Walk me through the process of a typical sell-side M&A deal. 1. Meet with company, create
initial marketing materials like the Executive Summary and Offering Memorandum (OM), and
decide on potential buyers.
2. Send out Executive Summary to potential buyers to gauge interest.
3. Send NDAs (Non-Disclosure Agreements) to interested buyers along with more detailed
information like the Offering Memorandum, and respond to any follow-up due diligence
requests from the buyers.
4. Set a "bid deadline" and solicit written Indications of Interest (IOIs) from buyers.
5. Select which buyers advance to the next round.
6. Continue responding to information requests and setting up due diligence meetings between
the company and potential buyers.
7. Set another bid deadline and pick the "winner."
8. Negotiate terms of the Purchase Agreement with the winner and announce the deal.
Walk me through the process of a typical buy-side M&A deal. 1. Spend a lot of time upfront
doing research on dozens or hundreds of potential acquisition targets, and go through multiple
cycles of selection and filtering with the company you're representing.
2. Narrow down the list based on their feedback and decide which ones to approach.
,3. Conduct meetings and gauge the receptivity of each potential seller.
4. As discussions with the most likely seller become more serious, conduct more in-depth due
diligence and figure out your offer price.
5. Negotiate the price and key terms of the Purchase Agreement and then announce the
transaction.
Walk me through a debt issuance deal. 1. Meet with the client and gather basic financial,
industry, and customer information.
2. Work closely with DCM / Leveraged Finance to develop a debt financing or LBO model for the
company and figure out what kind of leverage, coverage ratios, and covenants might be
appropriate.
3. Create an investor memorandum describing all of this.
4. Go out to potential debt investors and win commitments from them to finance the deal.
What's the difference between DCM and Leveraged Finance? They're similar and there is
some overlap but Leveraged Finance is more "modeling-intensive" and does more of the deal
execution with industry and M&A groups on LBOs and debt financings. DCM, by contrast, is
more closely tied to the markets and tracks trends and relevant data.
Explain what a divestiture is. It's when a company decides to sell off a specific division rather
than sell the entire company. The process is very similar to the sell-side M&A process, but it
tends to be "messier" because you're dealing with a part of one company rather than the whole
thing. Creating a "standalone operating model" for the particular division they're selling is
extremely important, and the transaction structure and valuation are more complex than they
would be for a "plain-vanilla" M&A deal.
If you owned a small business and were approached by a larger company about an acquisition,
how would you think about the offer, and how would you make a decision on what to do?
The key terms to consider would be:
1. Price
2. Form of payment - cash, stock, or debt
3. Future plans for the company vis-à-vis your own plans.
,Of course, there is much more to an M&A deal than this, but those are the key ones. To make a
decision you'd have to weigh each one - there's no "magical" way to decide. You might also
point out that if something is particularly important to you - such as retaining a role in the
company - then a difference of intentions there could be a "deal-breaker."
Let's say you could start any type of business you wanted, and you had $1 million in initial
funds. What would you do? You probably want to say that you'd think about some type of
niche business with high margins that requires little startup capital ($1 million is not enough to
build 10 factories) and ongoing maintenance - those make it harder to turn a profit and sell the
business one day.
Walk me through the 3 financial statements. "The 3 major financial statements are the
Income Statement, Balance Sheet and Cash Flow Statement. The Income Statement gives the
company's revenue and expenses, and goes down to Net Income, the final line on the
statement.
The Balance Sheet shows the company's Assets - its resources - such as Cash, Inventory and
PP&E, as well as its Liabilities - such as Debt and Accounts Payable - and Shareholders' Equity.
Assets must equal Liabilities plus Shareholders' Equity. The Cash Flow Statement begins with
Net Income, adjusts for non-cash expenses and working capital changes, and then lists cash
flow from investing and financing activities; at the end, you see the company's net change in
cash."
Can you give examples of major line items on each of the financial statements? Income
Statement: Revenue; Cost of Goods Sold; SG&A (Selling, General & Administrative Expenses);
Operating Income; Pretax Income; Net Income.
Balance Sheet: Cash; Accounts Receivable; Inventory; Plants, Property & Equipment (PP&E);
Accounts Payable; Accrued Expenses; Debt; Shareholders' Equity.
Cash Flow Statement: Net Income; Depreciation & Amortization; Stock-Based Compensation;
Changes in Operating Assets & Liabilities; Cash Flow From Operations; Capital Expenditures;
Cash Flow From Investing; Sale/Purchase of Securities; Dividends Issued; Cash Flow From
Financing.
How do the 3 statements link together? "To tie the statements together, Net Income from
the Income Statement flows into Shareholders' Equity on the Balance Sheet, and into the top
line of the Cash Flow Statement. Changes to Balance Sheet items appear as working capital
, changes on the Cash Flow Statement, and investing and financing activities affect Balance Sheet
items such as PP&E, Debt and Shareholders' Equity. The Cash and Shareholders' Equity items on
the Balance Sheet act as "plugs," with Cash flowing in from the final line on the Cash Flow
Statement."
If I were stranded on a desert island, only had 1 statement and I wanted to review the overall
health of a company - which statement would I use and why? You would use the Cash Flow
Statement because it gives a true picture of how much cash the company is actually generating,
independent of all the non-cash expenses you might have. And that's the #1 thing you care
about when analyzing the overall financial health of any business - its cash flow.
Let's say I could only look at 2 statements to assess a company's prospects - which 2 would I use
and why? You would pick the Income Statement and Balance Sheet, because you can create
the Cash Flow Statement from both of those (assuming, of course that you have "before" and
"after" versions of the Balance Sheet that correspond to the same period the Income Statement
is tracking).
Walk me through how Depreciation going up by $10 would affect the statements. Income
Statement: Operating Income would decline by $10 and assuming a 40% tax rate, Net Income
would go down by $6.
Cash Flow Statement: The Net Income at the top goes down by $6, but the $10 Depreciation is
a non-cash expense that gets added back, so overall Cash Flow from Operations goes up by $4.
There are no changes elsewhere, so the overall Net Change in Cash goes up by $4.
Balance Sheet: Plants, Property & Equipment goes down by $10 on the Assets side because of
the Depreciation, and Cash is up by $4 from the changes on the Cash Flow Statement.
Overall, Assets is down by $6. Since Net Income fell by $6 as well, Shareholders' Equity on the
Liabilities & Shareholders' Equity side is down by $6 and both sides of the Balance Sheet
balance.
If Depreciation is a non-cash expense, why does it affect the cash balance? Although
Depreciation is a non-cash expense, it is tax-deductible. Since taxes are a cash expense,
Depreciation affects cash by reducing the amount of taxes you pay.
Let's say I'm working on an IPO for a client. Can you describe briefly what I would do? You
meet with the client and gather basic information - such as their financial details, an industry
overview, and who their customers are. You meet with other bankers and the lawyers to draft
the S-1 registration statement - which describes the company's business and markets it to
investors. You receive some comments from the SEC and keep revising the document until it's
acceptable. You spend a few weeks going on a "road show" where you present the company to
institutional investors and convince them to invest. The company begins trading on an
exchange once you've raised the capital from investors.
How do companies select the bankers they work with? Usually based on relationships.
When it comes time to do a deal, the company calls different banks it has spoken with and asks
them to "pitch" for the business. This is called a "bake-off" and the company selects the
"winner" afterward
Walk me through the process of a typical sell-side M&A deal. 1. Meet with company, create
initial marketing materials like the Executive Summary and Offering Memorandum (OM), and
decide on potential buyers.
2. Send out Executive Summary to potential buyers to gauge interest.
3. Send NDAs (Non-Disclosure Agreements) to interested buyers along with more detailed
information like the Offering Memorandum, and respond to any follow-up due diligence
requests from the buyers.
4. Set a "bid deadline" and solicit written Indications of Interest (IOIs) from buyers.
5. Select which buyers advance to the next round.
6. Continue responding to information requests and setting up due diligence meetings between
the company and potential buyers.
7. Set another bid deadline and pick the "winner."
8. Negotiate terms of the Purchase Agreement with the winner and announce the deal.
Walk me through the process of a typical buy-side M&A deal. 1. Spend a lot of time upfront
doing research on dozens or hundreds of potential acquisition targets, and go through multiple
cycles of selection and filtering with the company you're representing.
2. Narrow down the list based on their feedback and decide which ones to approach.
,3. Conduct meetings and gauge the receptivity of each potential seller.
4. As discussions with the most likely seller become more serious, conduct more in-depth due
diligence and figure out your offer price.
5. Negotiate the price and key terms of the Purchase Agreement and then announce the
transaction.
Walk me through a debt issuance deal. 1. Meet with the client and gather basic financial,
industry, and customer information.
2. Work closely with DCM / Leveraged Finance to develop a debt financing or LBO model for the
company and figure out what kind of leverage, coverage ratios, and covenants might be
appropriate.
3. Create an investor memorandum describing all of this.
4. Go out to potential debt investors and win commitments from them to finance the deal.
What's the difference between DCM and Leveraged Finance? They're similar and there is
some overlap but Leveraged Finance is more "modeling-intensive" and does more of the deal
execution with industry and M&A groups on LBOs and debt financings. DCM, by contrast, is
more closely tied to the markets and tracks trends and relevant data.
Explain what a divestiture is. It's when a company decides to sell off a specific division rather
than sell the entire company. The process is very similar to the sell-side M&A process, but it
tends to be "messier" because you're dealing with a part of one company rather than the whole
thing. Creating a "standalone operating model" for the particular division they're selling is
extremely important, and the transaction structure and valuation are more complex than they
would be for a "plain-vanilla" M&A deal.
If you owned a small business and were approached by a larger company about an acquisition,
how would you think about the offer, and how would you make a decision on what to do?
The key terms to consider would be:
1. Price
2. Form of payment - cash, stock, or debt
3. Future plans for the company vis-à-vis your own plans.
,Of course, there is much more to an M&A deal than this, but those are the key ones. To make a
decision you'd have to weigh each one - there's no "magical" way to decide. You might also
point out that if something is particularly important to you - such as retaining a role in the
company - then a difference of intentions there could be a "deal-breaker."
Let's say you could start any type of business you wanted, and you had $1 million in initial
funds. What would you do? You probably want to say that you'd think about some type of
niche business with high margins that requires little startup capital ($1 million is not enough to
build 10 factories) and ongoing maintenance - those make it harder to turn a profit and sell the
business one day.
Walk me through the 3 financial statements. "The 3 major financial statements are the
Income Statement, Balance Sheet and Cash Flow Statement. The Income Statement gives the
company's revenue and expenses, and goes down to Net Income, the final line on the
statement.
The Balance Sheet shows the company's Assets - its resources - such as Cash, Inventory and
PP&E, as well as its Liabilities - such as Debt and Accounts Payable - and Shareholders' Equity.
Assets must equal Liabilities plus Shareholders' Equity. The Cash Flow Statement begins with
Net Income, adjusts for non-cash expenses and working capital changes, and then lists cash
flow from investing and financing activities; at the end, you see the company's net change in
cash."
Can you give examples of major line items on each of the financial statements? Income
Statement: Revenue; Cost of Goods Sold; SG&A (Selling, General & Administrative Expenses);
Operating Income; Pretax Income; Net Income.
Balance Sheet: Cash; Accounts Receivable; Inventory; Plants, Property & Equipment (PP&E);
Accounts Payable; Accrued Expenses; Debt; Shareholders' Equity.
Cash Flow Statement: Net Income; Depreciation & Amortization; Stock-Based Compensation;
Changes in Operating Assets & Liabilities; Cash Flow From Operations; Capital Expenditures;
Cash Flow From Investing; Sale/Purchase of Securities; Dividends Issued; Cash Flow From
Financing.
How do the 3 statements link together? "To tie the statements together, Net Income from
the Income Statement flows into Shareholders' Equity on the Balance Sheet, and into the top
line of the Cash Flow Statement. Changes to Balance Sheet items appear as working capital
, changes on the Cash Flow Statement, and investing and financing activities affect Balance Sheet
items such as PP&E, Debt and Shareholders' Equity. The Cash and Shareholders' Equity items on
the Balance Sheet act as "plugs," with Cash flowing in from the final line on the Cash Flow
Statement."
If I were stranded on a desert island, only had 1 statement and I wanted to review the overall
health of a company - which statement would I use and why? You would use the Cash Flow
Statement because it gives a true picture of how much cash the company is actually generating,
independent of all the non-cash expenses you might have. And that's the #1 thing you care
about when analyzing the overall financial health of any business - its cash flow.
Let's say I could only look at 2 statements to assess a company's prospects - which 2 would I use
and why? You would pick the Income Statement and Balance Sheet, because you can create
the Cash Flow Statement from both of those (assuming, of course that you have "before" and
"after" versions of the Balance Sheet that correspond to the same period the Income Statement
is tracking).
Walk me through how Depreciation going up by $10 would affect the statements. Income
Statement: Operating Income would decline by $10 and assuming a 40% tax rate, Net Income
would go down by $6.
Cash Flow Statement: The Net Income at the top goes down by $6, but the $10 Depreciation is
a non-cash expense that gets added back, so overall Cash Flow from Operations goes up by $4.
There are no changes elsewhere, so the overall Net Change in Cash goes up by $4.
Balance Sheet: Plants, Property & Equipment goes down by $10 on the Assets side because of
the Depreciation, and Cash is up by $4 from the changes on the Cash Flow Statement.
Overall, Assets is down by $6. Since Net Income fell by $6 as well, Shareholders' Equity on the
Liabilities & Shareholders' Equity side is down by $6 and both sides of the Balance Sheet
balance.
If Depreciation is a non-cash expense, why does it affect the cash balance? Although
Depreciation is a non-cash expense, it is tax-deductible. Since taxes are a cash expense,
Depreciation affects cash by reducing the amount of taxes you pay.
