Private Equity And LBO Analyst Interview Questions #3

  1. The asset's tax depreciation is $20 million over ten years, but the asset's financial statement depreciation is $10 million over ten years. Assuming a 40% tax rate, walk me through the impact of these differences on the financial statements.

  2. Assume your company paid $10 million for an asset, with $7 million financed through debt. Explain how this transaction will affect the financial statements.

  3. Assume that your company lost $10 million on an asset that was originally purchased for $20 million. Explain how this transaction will affect the financial statements.

  4. Your company charges $120 for a yearly subscription. Please walk me through the financial implications of this sale.

  5. What's the difference between gross and net revenue?

  6. What is the difference between deferred revenue and accrued revenue?

  7. What are the prepaid expenses?

  8. What do you mean by income taxes payable?

  9. What does the liabilities side of a company's balance sheet's noncontrolling interest (or minority interest) line item mean?

  10. What does the assets side of the balance sheet's investments in equity interests line item mean?

  11. Is it possible to have negative shareholder equity? What does this indicate?

  12. Tell me why would Goodwill be impaired and what does that impairment mean?

  13. What happens if accrued expenses increases by $10?

  14. Suppose if a company issues $100 of stock-based compensation on the three statements?

  15. What are two main reasons why a higher IRR is preferred over higher cash on cash returns?

  16. What are two reasons why higher cash on cash returns are preferred over higher IRR returns?

  17. Why is the income statement insufficient for valuing a business?

  18. Is there a more efficient approach to screen a transaction? IRR or CoC? why  IRR due to the time value of money

  19. Why did you want to work in private equity?

  20. What motivates you want to work in private equity?

  21. What qualities do you believe a successful private equity professional should possess?

  22. How can your previous experience help you to improve in private equity?

  23. Do you currently invest, perhaps through non-work-related means?

  24. What happened if you were part of a team and one of the members wasn't contributing properly? How does your response?

  25. Are you a risk averse or a risk seeing? What are the conditions under which you seek risk the most, and why?

  26. If you were given a million dollars, how would you spend it?

  27. Company A may make a 23 percent IRR, while Company B could make a 30 percent IRR. What are the two things you'd ask yourself before deciding which one to invest in?

  28. What are the four key drivers that change the IRR in an LBO scenario?

  29. What qualities do you look for in a management team?

  30. In PIK notes, how do you model?

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