JP Morgan Superday Prep

How many times does a ball get hit in the average game of tennis?

"At all Tier levels for all matches in both Qualifying Singles and Main Draw Singles and Doubles, six (6) balls shall be used and changed after the 1st seven (7) games and thereafter every nine (9) games." If the match were to last 29 games (6-3, 4-6, 6-4), 24 balls would be used.

where do you see the interest rate on US 10 yr treasury bonds going

1.35%

how would you value a company with negative historical cash flow

DCF, EV/Sales

Would you use EBIT or EBITDA to value a capital-intensive company?

EBITDA, since high annual depreciation or amortization

You have a 3 liter and a 5 liter bottle. How do you measure 4 liters of water exactly?

Empty the 3-liter bowl, and then transfer the 2 liters from the 5-liter bowl into it. Now fill the 5-liter bowl again, then pour water carefully from the 5-liter bowl into the 3-liter bowl until it is full - exactly one more liter. The 5-liter bowl now has exactly 4 liters.

Walk me through some of the ways you value a company.

LBO, DCF, comparable transactions, publicly traded comparable company analysis

What's the difference between LIFO and FIFO? Can you walk me through an example of how they differ?

LIFO stands for "Last-In, First-Out" and FIFO stands for "First-In, First-Out" - they are 2 different ways of recording the value of inventory and the Cost of Goods Sold (COGS). With LIFO, you use the value of the most recent inventory additions for COGS, but with FIFO you use the value of the oldest inventory additions for COGS.

Under what circumstances would Goodwill increase?

The company gets acquired or bought out and Goodwill changes as a result, since it's an accounting "plug" for the purchase price in an acquisition.

If you had a Rubik's cube with 10 little squares on each side, and peeled off the outer layer, how many little cubes would you end up with?

The whole cube is made from 10³ = 1000 small cubes, but it would not be possible to make a practical mechanism for rotating the faces.Peeling off the outer layer of cubes leaves 8³ = 512 small cubes.

if depreciation is a non cash expense, why does it affect the cash balance?

it is tax-deductible, and since taxes are a cash expense, depreciation affects cash by reducing the amount of taxes you pay

inside basis

the tax basis that a corporation has in its assets

outside basis

the tax basis that a shareholder has in the stock of the corporation

market risk premium

(rm - rf) represents the excess returns of investing in stocks over the risk free rate

JP Morgan values

- Operation Excellence: measure performance with a detailed, balanced scorecard - Exceptional Client Service: offer high-quality, competitively priced products and services, never allow short-term profit considerations to get in the way of doing what's right for the customer - A committment to integrity, fairness, and responsibility

About JP Morgan

- an international company providing financial services to consumers, small businesses, large corporations, and governments. - largest segment contributing to revenue is consumer & community banking: 41% - corporate & investment banking largest source of net income though and growing fast: 40% of revenue - Jamie Dimon: CEO and chairman - Jeremy Barnum: CFO - John Horner: Chief investment officer

Issues facing JP Morgan

- net income has been adversely impacted by a significant increase in provision for credit losses due to economic uncertainty triggered by the pandemic, even though they have had a rising revenue - if inflation and interest rates rise too quickly it can create issues with loan growth as consumers may avoid borrowing which would hurt their commercial banking - fintech is a growing threat. Banks are hindered by strict regulation that stops innovation, and fintech is not limited by this allowing them to grow, merge with social media and integrate other platforms rapidly allowing them to win significant market share, especially with millennials.

What do investment banks do?

- they offer advice to companies on mergers and acquisitions - they help companies raise capital by underwriting stock and bond issuances - they have trading operations

How is GAAP accounting different from tax accounting?

1. GAAP is accrual-based but tax is cash-based. 2. GAAP uses straight-line depreciation or a few other methods whereas tax accounting is different (accelerated depreciation). 3. GAAP is more complex and more accurately tracks assets/liabilities whereas tax accounting is only concerned with revenue/expenses in the current period and what income tax you owe.

A company has had positive EBITDA for the past 10 years, but it recently went bankrupt. How could this happen?

1. The company is spending too much on Capital Expenditures - these are not reflected at all in EBITDA, but it could still be cash flow negative. 2. The company has high interest expense and is no longer able to afford its debt. 3. The company's debt all matures on one date and it is unable to refinance it due to a "credit crunch" - and it runs out of cash completely when paying back the debt. 4. It has significant one-time charges (from litigation, for example) and those are high enough to bankrupt the company.

When would a company collect cash from a customer and not record it as revenue?

1. Web-based subscription software. 2. Cell phone carriers that sell annual contracts. 3. Magazine publishers that sell subscriptions.

5 questions to answer in most M&A transactions

1. will the buyer be able to step up the tax basis of the assets to reflect the purchase price? 2. will a seller recognize taxable gain or will it be able to defer some or all of its gain? 3. if a seller recognizes gain or loss how will that gain or loss be calculated? 4. is there anything about the target's tax attirubtes or the nature of the target's business that needs to be taken into account in projecting the target's tax liability going forward? is there any other tax-efficient way to sell the business

two companies are identical in earnings, growth prospects, leverage, returns on capital, and risk. Company A is trading at a 15 P/E multiple, while the other trades at 10 P/E. which would you prefer as an investment?

10 P/E: an investor would rather pay less per unit of ownership

What is the sum of the numbers from one to 100?

5050 you use the formula S = n/2[2a + (n-1) x d]

Recent deals for JP Morgan

55ip: a fintech that provides automated tools to financial advisors to help them reduce investors tax liabilities. Gives JP the capability to deliver their model portfolios and their asset management capabilities in a new way. Announced: Dec. 2020 Structure of the deal: buyout most likely OpenInvest & Frank: both fintech start-ups which will allow JP to compete with other fintechs InstaMed: back in 2019, allows JPMorgan to expand into the US healthcare payments market Not a deal but in Aug 2021 JP received regulatory approval to obtain full ownership of its China securities joint venture JP Morgan Securities (China) Co. which allows the opportunity to expand into the $53 trillion financial market

what was JP Morgans P/E ratio in the past quarter?

9.99 trailing, 13.21 forward

can you describe how swaps work

A swap is an agreement for a financial exchange in which one of the two parties promises to make, with an established frequency, a series of payments, in exchange for receiving another set of payments from the other party

What's the probability that a pregnant woman has a baby boy?

About 51% due to the sex ratio

what are the three top stocks to buy now? why?

Accenture because it's doubling down on cloud and cyber business, and has high exposure to digital innovation and AI. NextEra Energy because of the push by governments for renewable energy, and the approved 2022 agreement to acquire 50% interest in a very large portfolio of long term contracted renewable projects. ConocoPhillips because it has consistent dividend growth and current yields stand at 2.51%. they beat recent EPS by 0.25c, and the stock has been delivering an 83% return to shareholders this year. and just two days ago it completed a $9.5Bn acquisition of Shell's permian assets. C3.ai: it has partnerships in a range of industries, including with Shell and General Motors, since 2019 it has doubled it's revenue and while it does have a negative EV/EBITDA that doesn't necessarily mean much because it is still starting up.

What's the difference between accounts receivable and deferred revenue?

Accounts receivable has not yet been collected in cash from customers, whereas deferred revenue has been. Accounts receivable represents how much revenue the company is waiting on, whereas deferred revenue represents how much it has already collected in cash but is waiting to record as revenue.

What are assets on the balance sheet of a financial institution?

Assets are items that a financial institution owns, so this includes loans, securities, and reserves.

How do you calculate unlevered beta for a company from levered

B unlevered = B(levered)/(1 + (1-T) x (debt/equity)

What's the difference between cash-based and accrual accounting?

Cash-based accounting recognizes revenue and expenses when cash is actually received or paid out; accrual accounting recognizes revenue when collection is reasonably certain (i.e. after a customer has ordered the product) and recognizes expenses when they are incurred rather than when they are paid out in cash.

Where do you see the banking industry in 50 years time?

China will likely overtake the US in terms of the size of their domestic banking sectors, emerging economies banking sectors are expected to outgrow those in the developed economies by a large margin, India has the potential to become the third largest domestic banking sector by 2050, and Brazil will likely be in the top 5. Fintech will spur a need for traditional banks to transfer to digital faces in order to stay afloat.

How long does it usually take for a company to collect its accounts receivable balance?

Generally the accounts receivable days are in the 30-60 day range

You're in the middle of an urgent task and someone more senior demands some instant information. What do you do?

Get an immediate estimate of the time required to do the information. if there isnt enough time then I will immediately tell my boss, "in order for me to complete the job within the deadline I will need......some help from another team member" if that's not possible then I will tell him how much time I realistically need for the job. If he insists to do it in less. I will say, "I will do my best to complete it within the time you have asked, however, can only commit........... (my estimate). I will keep you updated on the progress."

Why JP Morgan?

I have had finance centered internships and have worked in both venture capital and an investment group so I know that investing is what i want to pursue. Speaking with banks with much leaner teams, and smaller boutiques, I know that I want to be a part of a larger company where I can interact and learn from a range of experts with diverse backgrounds. I know that JP Morgan invests in new tools and trainings each year and has managed to merge commercial banking and investment banking in ways that other investment groups haven't, so I think that the experience I would have as an intern here would be invaluable, and something I cannot get anywhere else. At JP Morgan I would be exposed to a dynamic and fast paced environment, and it would offer me a career and experience that is incredibly stimulating and interesting, and will provide a catalyst for a successful investment banking career.

Describe a time you led a team and dealt with a difficult individual in that team.

I think the most relevant example of this is in my ____ internship, I recently was putting together a large spreadsheet with extensive data and had a partner who was supposed to be splitting work 50/50, unfortunately I have worked with this team member before and I knew his work style was to put things off until the date of the deadline and figuring that he would not be able to complete his work I prepped for this in advance.....

What's the square root of two?

I would find the square root of 4 which is 2, then divide that in half and you'll know that the square root of 2 is about 1 but knowing that this is on the low side because the square root of 1 is 1

How would you value the pizza shop on the corner?

I would look at precedent transactions and compare to other pizza shops, a DCF is also a good way to value it.

walk me through how depreciation going up by $10 would affect the statements

IS: operating income would decline by $10 and assuming a 40% tax rate net income would go down by $6 BS: plants, property, and equipment goes down by $10 on the assets side bc of depreciation, and cash is up by $4 from the changes on the CF statement. CF: the net income at the top goes down by $6, but the $10 depreciation is added back so overall CF from operations goes up by $4

You're about to give a PowerPoint presentation in a meeting and you notice it has a mistake in it. What do you do?

If you have time, fix the error. If you only notice it at the last second, give the presentation anyway. Be truthful and give the correct information. At worst, the audience consider you sloppy for not checking your presentation thoroughly. Which will be somewhat true. At best, they will respect your courage for not misleading them with false data, in spite of personal risk.

describe a recent news article that interested you and how does that affect JPM

Jack dorsey stepping down from twitter, that raised stock prices until the new CEO's past statements about free speech came up and then Twitter dropped more. Another one is Nvidia being sued by the SEC for their arm acquisition, stating that it could monopolize. JPM has over 17mil shares in NVDA, so if their stock falls due to this lawsuit that affects JPM.

What's your greatest achievement?

My greatest achievement is sector leader

What does negative Working Capital mean? Is that a bad sign?

Not necessarily. It depends on the type of company and the specific situation - here are a few different things it could mean: 1. Some companies with subscriptions or longer-term contracts often have negative Working Capital because of high Deferred Revenue balances. 2. Retail and restaurant companies like Amazon, Wal-Mart, and McDonald's often have negative Working Capital because customers pay upfront - so they can use the cash generated to pay off their Accounts Payable rather than keeping a large cash balance on-hand. This can be a sign of business efficiency. 3. In other cases, negative Working Capital could point to financial trouble or possible bankruptcy (for example, when customers don't pay quickly and upfront and the company is carrying a high debt balance).

How many trees are there in Central Park?

Segment New York into blocks using the number of streets and avenues. Calculate separately the area of the parks Assume a certain number of trees per block and separately for the parks Multiply and sum up

What would you do if you knew your boss to completely wrong about a work issue?

Speak with the boss privately to make them aware of any concerns they might have overlooked, come prepared to back up my concerns, but if it's not a very large work issue I might not do anything particularly if there are larger work projects or deadlines approaching. If it is something that a client would see directly then I would approach and bring it up, but otherwise no mention.

There are two firms. One has 100% equity and the other has 50% equity and 50% debt. Which one will have the lowest WACC? Why?

The 50/50 one because debt is cheaper than equity and you get a tax shield

What is the biggest risk you have ever taken in your life?

The biggest risk I took was adding on some of my recent internships, not knowing if I had the full time to dedicate or if I would become too overwhelmed with academics doing multiple degrees and that would impact my work in these internships. However, I made sure as I began the school year to keep a very systematic and ordered schedule in order to keep track of activities, meetings, and deadlines in order to ensure that I stayed caught up.

Which books do you like reading?

Tuesdays with Morrie, The Magic Strings of Frankie Presto, the Last Lecture

If cash collected is not recorded as revenue, what happens to it?

Usually it goes into the Deferred Revenue balance on the Balance Sheet under Liabilities.

How do you work out the best discount rate to use in a DCF?

WACC for unlevered, cost of equity levered

What's the square root of 0.1?

We can do 0/1 = 1/10th, so sqrt(1/10) = (sqrt1)/(sqrt 10) = 1/sqrt 10, and we know that the sqrt 9 = 3 so sqrt 10 is close to 3 so it's about 1/3rd for the sqrt of 0.1

what's the connection between interest rates and equity prices

When interest rates are rising, both businesses and consumers will cut back on spending. This will cause earnings to fall and stock prices to drop. On the other hand, when interest rates have fallen significantly, consumers and businesses will increase spending, causing stock prices to rise.

what do you think this job will entail?

a lot of financial modeling to support analysts and associates, exposure to a wide variety of deal types, direct experience with LBOs and M&As.

Where do you see yourself in five years' time?

as an associate at JP morgan

How many windows are there in NYC

clarify the question: do you mean only building windows, or are you also thinking subways, computers, and exhibits? If just buildings - divide into 3 categories, residential, retail, office. make sure to give a roadmap - give assumptions like I am assuming x million people, if there is an average of X residential areas with X windows in each that will give ___. Then there's an average of X windows for every office building, so multiply that by the number of X buildings and you get ___. Etc.

what is more expensive, debt or equity

cost of equity

Within WACC, what is Cost of Equity and how do you calculate it?

cost of equity = beta + risk free rate (risk free premium)

Pick an industry, tell me how it's been doing for the past 5 years and how you think it will do for the next 10.

healthcare, it is generally a very stable growth industry, except for during the pandemic when many medical device and equipment companies in particular struggled due to the decrease in elective procedures. Diagnostic companies performed well, and sustained double digit organic sales growth in many cases. In the next 10 years, I think that for at least the next year or two the industry will be stabilizing and returning to a normal baseline as elective procedures begin again and diagnostic sales associated with COVID-19 decline. Through 2020 spending in this industry decreased by 2.6%, but the long term outlook is expected to rise with a CAGR of 4% compared to 2.8% in the past 5 years. Global spending will remain around 10.3% as a share of GDP.

Tell me about a class you did poorly in.

honors gen chem

You're the CEO of a company. Would you rather raise debt, or equity? Why?

it depends on if it is a beginning company or an established one. If it is established, I would rather raise debt because while the payments do need to be made on time, it is tax deductible, and generally it allows for more rapid growth than what would be otherwise possible.

describe a task that really tested your analytical abilities

large data sheet of R1 & R2 universities for start up

what happens when inventory goes up by $10

no change to IS, BS inventory goes up by $10 but cash is down by $10 so it balances out, CF inventory goes down as does the net change in cash at the bottom

What does PIK interest mean? How does it work?

paid in kind so it enables a company to defer interest payments until the bond matures.

What does JP Morgan's investment bank do

provides corporate strategy and structure advisory, equity and debt markets capital raising services, cash securities, risk management solutions, prime brokerage, and research

What is the risk free rate

reflects yield to maturity of a default free government bonds - treasury bonds are the preferred proxy for the risk free rate for US companies

what is the most valuable statement?

the CF statement because it gives a true picture of how much cash the company is actually generating.

if I could only look at 2 statements to assess a company's prospects, which 2 would i use and why?

the IS and BS, because you can create the CF statement from both of those

tax basis

the carrying cost that an asset has on the tax balance sheet of a business

walk me through the 3 financial statements

the three major financial statements are the income statement, balance sheet, and cash flow statement. the income statement is profitability of a company over a period of time, giving the revenue and expenses, and going to the net income. The balance sheet shows the company's assets - its resources such as cash, inventory, and PP&E, as well as its liabilities and shareholders' equity. the cash flow statement begins with net income, adjusts for non cash expenses and working capital changes, then lists cash flow from investing and financing activities and then you see the net change in cash.

how do the 3 financial statements link together

to tie the statements together, net income from the IS flows into shareholders equity on the BS, and into the top line of the CF statement.

What happens to enterprise value when you issue or repurchase shares?

will make no impact on it.

How would you go about valuing Apple?

you would look at its assets minus its liabilities.