Goldman Sachs Internship Interview Prep
What do investment bankers do?
- focuses on raising capital for companies, governments, and other financial institutions- can provide services such as M&A advice or advice on transactions such as spinoffs- day-to-day life: valuing companies, examining financial statements, crunching numbers, analyzing market changes, making pitch books, etc.
Why do you want to work in IB at Goldman?
-In investment banking, I would be at the center of global events. - every event that affects the market whether it is political events or natural disasters affects our work. - make a meaningful impact on the economy. - Many opportunities for growth since GS is such a large asset, career progression, and acceleration. - also offers a fast-paced environment, quantitative projects, concrete results, and the opportunity to develop a hard skill that I felt I was missing in previous work experience - collegiate environment, given a lot of responsibility as analyst
What is a private key?
Hash of the transaction address that "unlocks" a blockchain address, allowing one party in a transaction to establish ownership of money, items, or info
What is your greatest weakness?
I don't like to dwell on weaknesses, however, I would say that my weakness is oftentimes being too independent. I feel as though this comes with good things, however, I tend to get lost in my head and compare my assets and skills to other prospective applicants so I am afraid to sometimes ask for assistance or guidance. I want to complete everything on my own. Also, impatience (also very self-aware of that) and sometimes take on more than I can chew. I want to focus on how I'm improving this.
Why Goldman Sachs?
I have Perseverance and I pride myself on my hard work. It's a lot of work and time. A bigger reason for doing this job is not just for money, prestige, or opportunities. I am motivated to do this hard work. Ex: I am not who I was in my past, personal story that makes me want to convey qualities: where I see myself in the future: business appropriate emotional stories. - client-orientated nature - Goldman Sachs is a celebrated firm with a long history of innovation and success. This goes all the way back to 1906 and being the firm that originally took sears public, and also to today where we see Goldman being the first bank to conduct an over-the-counter Crypto trade (with Galaxy). So clearly an innovative firm. Thinking more from a career perspective though, I know that GS is very collaborative. As an example, during my networking, I've spoken to more people who didn't even go to my school than my own alumni.
Why should we hire you?
I possess more than just the grades and the statistics, I have the intangibles - I am extremely good at public speaking, collaborating in teams, innovation, interpersonal, and ambitious, I am a quick learner.
What is investment banking?
IB is connecting corporations to investors. That could mean, taking a company public and selling the corp to the stock market and its investors. Could mean sales and trading, where you sell a company's individual bonds, and could mean Mergers and acquisitions transactions: selling all of the company or piece of a company to another private equity firm. IB can also help governments raise capital. Say that: The way I understand it is that investment banking helps connect corporations to investors, in 3 specific ways, sales and trading, IPO way, MA, and examples. - You get to tell the stories of companies → mention my Total Comfort experience, and how I wrote the marketing materials of a product, and enjoyed telling that story (and am good at it).
What drives returns in an LBO? Mental math, quickly what's 18 x 19?
The returns in an LBO : leveraged buyout: driven by three factors, which we demonstrate in our topic on creating value in LBOs: De-levering (paying down debt) Operational improvement (e.g. margin expansion, revenue growth) Multiple expansion (buying low and selling high) 18x19= 342
What is a hash?
Unique string of characters generated by the cryptographic hash function that makes the blockchain secure Each hash is unique to the block it came from (think a digital fingerprint) Process works in one direction, hash from one block is added to the data in the next block so when the next block goes through the hash function, a trace of it is woven into the new hash
how do you manage tasks?
first, figure out what is the most important task, what has the strictest deadline, and which one will benefit the most from increased effort
what skills do you have that align with this prgram?
public speaking skills, quantitative/Excel skills - been doing advanced math since I was kid - extremely quick when it comes to crunching numbers, client interaction, strong presentation skills, problem-solving skills, resourcefulness, keen attention to detail
What are the 3 major ways of evaluating companies worth?
the asset approach, income approach, and market approach
questions for interviewer
what has GS done to improve the quality of life and wellbeing 2)how has GS increased the presence of women in the workplace and ensured that they are treated equally 3) what was one of the most interesting projects or experiences you have worked on and why
why NYC?
→ Short answer, I'm a people person, so many opportunities to make connections, motivation to work hard, → Tell story of where I grew up. Went from a very small town in Northern Minnesota to a large suburb → to a large high school → to one of the biggest undergraduate schools in nation by population (speaks to people person nature, connects dots to why I want to move to NYC).
Walk me through a DCF
"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 out a company's financials using assumptions for revenue growth, expenses and Working Capital; then you get down to Free Cash Flow for each year, which you then sum up and discount to a Net Present Value, based on your discount rate - usually the Weighted Average Cost of Capital. Once you have the present value of the Cash Flows, you determine the company's Terminal Value, using either the Multiples Method or the Gordon Growth Method, and then also discount that back to its Net Present Value using WACC. Finally, you add the two together to determine the company's Enterprise Value."
How do the three financial statements link together?
1. Net Income from the IS links to both the BS and the CFS 2. In terms of the BS, NI flows into Shareholders' Equity via Retained Earnings. RE is equal to the previous period's RE + NI - DIV 3. In terms of the CFS, NI is the first line as it is used to calculate Cash Flows from Operations. Any non-cash income or expenses from the IS flow into the CFS to calculate CF from Operations 4. Any BS items that have a cash impact (WC, Financing, PP&E, etc.) are linked to the CFS since they are either a source or use of cash. 5. Cash from the previous period and the Net Change in Cash from the CFS are used to calculate cash for this period.
what is a DCF
A method of valuing a company or asset where the intrinsic value is assumed to be the sum of all future cash flows discounted to their present value by the cost of capital
If you were CFO of a company and received a bunch of cash, what would you do with it
After you have reviewed where the extra funds are coming from, your next action should be to set aside some of those profits in order to create a cash buffer. By creating a savings pool, you can ensure that you have the funds to cover payroll and bills should the revenues decline or market shocks occur.
Describe the process of an IPO
An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. Companies must meet requirements by exchanges and the Securities and Exchange Commission (SEC) to hold an IPO.
accretion/dilution
Analysis that determines the change in a company's projected EPS due to a potential M&A or capital markets transaction. A transaction is "Accretive" when there is a positive change in EPS and "Dilutive" when there is a negative change.
How does Goldman Sachs stand to benefit from tax reform?
By cutting the corporate tax rate to 20%, banks will be able to shrink their tax bills because they typically claim fewer deductions than other companies and paid an average tax rate of 26% last year.
How do you decide when to capitalize rather than expense a purchase?
Capitalize: If an asset has a useful life over 1 year, it is capitalized (BS rather than IS) and depreciated (tangible) or amortized (intangible) over a number of years Expense: Employee Salaries and CoGS If the purchase only covers a short period of operations (Salary Expense, Cost of Goods Sold), it shows up as a normal expense on the IS
What is the most important statement needed for reviewing the overall health of a company?
Cash Flow Statement because it gives a true picture of how much cash the company is actually generating, independent of all non-cash expenses you might have (most important thing is cash flow)
How does Goldman Sachs stand to benefit from deregulation?
Change the securities mix they are required to hold (trade cash and highly liquid assets for higher yield assets like Treasuries and munis) Buy government securities with borrowed money Take on more deposits as a lender
Which groups are you most interested in?
Consumer Retail, Financial Institutions, Healthcare, Industrials, Natural Resources, Real Estate, and Tech, Media, and Telecom
What is the structure of the Financing Group, which area would you like to work in and why?
Corporate Derivatives - develops risk management strategies with corporations FIG Financing - coverage team focused on analyzing fixed income market trends to provide financing advice - primarily responsible for debt/hybrid securities, but also works to analyze cross-market products like derivatives and risk management Investment Grade Syndicate - sits between capital markets, banking, and S&T Real Estate Financing Group - provides mortgage financing ECM - originate, structure, and execute equity and equity-linked financings (i.e. IPO) Leveraged Finance Capital Markets - originates, structures, and executes bank loans and high-yield bond financings - includes LBOs, refinancings, M&A transactions, and restructurings Interested in working in Leveraged Finance- in line with my academic interests- everything that is going on in the market is directly applicable to what you are responding to on a day-to-day basis- more fast-paced than classic industry group IBD because you are responding to so many changes- you have concrete results - raising capital to finance a companies' operations which increases their revenues and injects money into the economy- likely has a flatter structure since you interact heavily with Bank Loan and High Yield Capital Markets & Syndicate - also helps you experience other facets of the company
How do you do a basic DCF?
DCF values a company based on how much money it's projected to make in the future 1. Project a company's financials using assumptions for revenue growth, expenses, and working capital 2. Determine FCF for each period by figuring out what cash is left over from revenues after deducting operating costs, taxes, net investment, changes in working capital 2. Add all FCF and use the WACC to calculate the NPV of FCF 3. Calculate the TV using the Gordon Growth Model (most widely-used) and use the WACC to calculate its NPV 4. Add NPV of FCF and NPV of TV together and you have the company's Enterprise Value
who is goldman sachs CEO
David M. Solomon
If depreciation is a non-cash expense, why does it affect the cash balance?
Depreciation is tax-deductible and taxes are a cash expense so Depreciation affects Cash by reducing the amount of taxes you pay
If you could only pick two statements to assess a company's prospects, which would you pick and why?
Income Statement and Balance Sheet because you can create the Cash Flow Statement from both of these (assuming you have "before" and "after" versions of the BS corresponding to the period in which the IS is tracking)
How would depreciation increasing by $10 affect the statements?
Income Statement: - Operating Income down by $10 - Net Income down by $6 (assuming a 40% tax rate) Cash Flow Statement: - Net Income down $6 - Depreciation is a non-cash expense so it gets added back - CF from Operations up $4 Balance Sheet: - PP&E down $10, - Cash up $4 - Net Income down $6 (A = L + SE)
What does Goldman Sachs do?
Investment banking firm that engages in global investment banking, securities, investment management, and other financial services to a client base that includes corporations, financial institutions, governments, and high net-worth individuals. It is organized by Investment Banking, Institutional Client Services (facilitate client transactions and make markets in income, equity, currency, etc.), Investing and Lending, and Investment Management. - Following the financial crisis, Berkshire Hathaway agreed to purchase $5 billion in Goldman's preferred stock and received warrants to buy another $5 billion of its common stock. GS also received a $10B preferred stock investment from the US Treasury. Some of its leading roles have been leading Apple's corporate bond deal in 2013, which was a $17B offering and being the lead underwriter for Twitter's IPO in 2013 as well, valuing the company at $31B after issuing 70 million shares for the company. Their role in tech IPOs has been particularly pronounced in recent years. It is also one of the leading M&A advisory firms.
What is a hash function?
It hashes (converts) a number in a large range into a number in a smaller range. The smaller range corresponds to the index numbers in an array.
Why do companies report both GAAP and non-GAAP ("pro forma") earnings?
Most companies have "non-cash" charges such as amortization of intangibles, stock-based compensation, and deferred revenue write-down on their Income Statements As a result, some argue that Income Statements under GAAP no longer reflect how profitable most companies truly are Non-GAAP earnings are almost always higher because these expenses are excluded, companies present both to look better to investors
What is your greatest strength?
My time management skills are excellent and I'm organized, and efficient, and take pride in excelling at my work. I also prioritize communication, and I am very focused on tasks that must be completed in order to successfully tackle assignments and goals. Analytical (keen attention to detail as a result of major), quick learner, public speaking, strong work ethic
What exchange is Goldman Sachs' stock traded on?
NYSE (Dow Jones component)
What are Goldman Sachs' values?
Partnership: We prioritize collaboration and believe in the strength of the collective, creating a culture that fosters teamwork and belonging in the pursuit of professional and personal growth. Client Service: We lead with a service mindset, working to earn our clients' trust and exceed their expectations by understanding and overdelivering on their goals. Integrity: We hold ourselves accountable to the highest ethical standards, insisting on transparency and vigilance from our people as we learn from our experiences and make decisions that instill a sense of pride in our firm. Excellence: We aspire to nothing less than excellence, striving for exceptional performance and superior results for our clients, our shareholders, and our communities.
What is a way a private equity fund can enhance their returns?
Private equity managers can also cause the acquired company to take on more debt to accelerate their returns through a dividend recapitalization, which funds a dividend distribution to the private equity owners with borrowed money.
Whats your favorite excel function>?
SUM: Excel's most simple formula, SUM allows you to add up the values of numbers in a row or column
What was Goldman Sachs' first IPO?
Sears (1906)
Describe the three financial statements.
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."
Why GS Classics?
The classic group of IB is beneifical because you get to advise companies on all of their needs. Maybe it's an M&A deal, an IPO or debt raising. I like that you get to see many different solutions taking place. I also want to work within a coverage group. You get to become an expert in your field, understand who the key players are (companies) and build relationships with them, and I like the idea of getting to be in a position where you can see the whole landscape and offer trusted advice.
Walk me through an income statement.
The first line of the Income Statement represents revenues or sales. From that we subtract the cost of goods sold, which gives gross margin. Subtracting operating expenses from gross margin gives us operating income (EBIT). We then (add/subtract) interest expense (income), taxes, and other expenses (income) to arrive at Net Income.
How do you calculate the WACC?
The formula is: Cost of Equity * (% Equity) + Cost of Debt * (% Debt) * (1 - Tax Rate) + Cost of Preferred * (% Preferred). In all cases, the percentages refer to how much of the company's capital structure is taken up by each component. For Cost of Equity, you can use the Capital Asset Pricing Model (CAPM - see the next question) and for the others you usually look at comparable companies/debt issuances and the interest rates and yields issued by similar companies to get estimates.
What direction is Goldman Sachs' stock trending?
Trending upwards because of rising interest rates, corporate tax cuts, proposed deregulation (above all key long-term and short-term moving averages)
