The 5 questions you're bound to be asked in a Wall Street internship interview

"Equity Value represents the value of all the assets a company has, but only to common equity investors (i.e., shareholders) in the company. Enterprise Value represents the value of only the company's core business assets, but to all investors in the company (equity, debt, preferred, etc.).

So to move from Equity Value to Enterprise Value, you subtract non-core assets, and you add items that represent other investor groups.

In practice, this means starting with Equity Value and subtracting cash (technically excess cash, but usually simplified to just cash) and other non-core assets such as short-term/long-term investments, and then adding debt, preferred stock, non-controlling interests, and other items that represent other investor groups in the company.

To move from Enterprise Value to Equity Value, you do the opposite and subtract all those items representing other investor groups and add the non-core assets such as cash, investments, etc."

"First, clarify what type of Free Cash Flow they want. Unlevered? Levered? Something else?

Assuming it's Unlevered FCF — or what's available to all investors in the company (which pairs with Enterprise Value):

Start with revenue and subtract COGS and Operating Expenses to get to Operating Income, or EBIT. Multiply by (1 - Tax Rate) to get to Net Operating Profit After Taxes, or NOPAT.

Then, add back the non-cash charges that appear on the Cash Flow Statement, primarily Depreciation & Amortization, and reflect the Change in Working Capital, which may be either positive or negative (follow the sign used on the company's CFS). And then subtract Capital Expenditures (CapEx)."

"A DCF values a company based on the Present Value of its Cash Flows and the Present Value of its Terminal Value.

First, you project a company’s financials using assumptions for revenue growth, margins, and the Change in Working Capital; then you calculate Free Cash Flow for each year, which you discount and sum up to get to the Present Value of Free Cash Flows. The Discount Rate is usually the Weighted Average Cost of Capital.

Once you have the present value of the Free Cash Flows, you determine the company’s Terminal Value, using either the Multiples Method or the Gordon Growth Method, and then you discount that back to its Present Value using the Discount Rate.

Finally, you add the two together to determine the company's implied Enterprise Value, after which you may then back into the implied Equity Value and implied share price."

"In an LBO Model, Step 1 is making assumptions about the Purchase Price, Debt/Equity ratio, Interest Rate on Debt, and other variables; you might also assume something about the company's operations, such as Revenue Growth or Margins, depending on how much information you have.

Step 2 is to create a Sources & Uses section, which shows how the transaction is financed and what the capital is used for; it also tells you how much Investor Equity (cash) is required.

Step 3 is to adjust the company's Balance Sheet for the new Debt and Equity figures, allocate the purchase price, and add in Goodwill & Other Intangibles on the Assets side to make everything balance.

In Step 4, you project out the company's Income Statement, Balance Sheet and Cash Flow Statement, and determine how much debt is paid off each year, based on the available Cash Flow and the required Interest Payments.

Finally, in Step 5, you make assumptions about the exit after several years, usually assuming an EBITDA Exit Multiple, and calculate the return based on how much equity is returned to the firm."

This list of technical questions is not exhaustive. And in recent years, interviewers have started to ask more conceptual questions as well.

So an interviewer might present a concept like Equity Value or Enterprise Value and ask you to explain how different adjustments and calculations fit in with the underlying concepts.

There also tend to be more questions related to current events. So be prepared to talk about a recent deal, too.