Walk me through a DCF? (NEW) | Interview Answer

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  • Опубликовано: 23 дек 2024
  • bit.ly/2qddmQs 👈 𝗴𝗲𝘁 𝗲𝘅𝗰𝗹𝘂𝘀𝗶𝘃𝗲 𝗮𝗰𝗰𝗲𝘀𝘀 𝘁𝗼 𝗮𝗹𝗹 𝗻𝗲𝘄 𝗰𝗼𝘂𝗿𝘀𝗲𝘀. Investment Banking Interview & Recruitment Guides, Financial Modelling, Hedge Funds, Private Equity and Audit & Accounting guides
    Enquiries: naasir.r@highfinancegraduate.com
    Walk me through a DCF is a very common investment banking interview question, in fact, your almost guaranteed to get asked it during your interviews.
    In this video I will show you how to fully answer this question and more by providing insights into how a real DFC is performed by investment banking analyst. By using this answer you will impress your interviewer.
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    Contact: Naasir.r@highfinancegraduate.com
    #investment banking #Precedent Transaction #investment banking interview
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Комментарии • 83

  • @JagjitBrawler
    @JagjitBrawler 5 лет назад +161

    As a CS student who will never go into investment banking and is just watching this for the fun of it, mad respect to all of you finance/IB guys out there. This stuff sounds complicated as hell.

    • @FRACP
      @FRACP 5 лет назад +61

      I'm a medical student who did finance before this. This stuff is NOT complicated. It's just a method based on our understanding which this guy does REALLY good job of explaining. You can teach it to anyone because there is so little background knowledge you need.

    • @vacortese99
      @vacortese99 5 лет назад +67

      I take both finance and cs classes, here is how I describe them. CS concepts are hard to understand, but once you really understand them, and if you are a good coder, then it is easy to implement them. Finance concepts aren't that hard to understand, but you deal with tons of edge cases and unique situations.

    • @Baron-nv1ez
      @Baron-nv1ez 5 лет назад +4

      Can you make me a flying carpet? Just sayin.

    • @harveerdhillon8612
      @harveerdhillon8612 4 года назад +1

      It's not that complicated but will seem like it if you have no desire to learn it and in general don't care about Business

    • @KevinWidesouls
      @KevinWidesouls 3 года назад +7

      Please don't inflate bankers' egos any more than they already are lol they're somehow worse than lawyers

  • @HankTheTank23
    @HankTheTank23 4 года назад +76

    This was a useful video, but you also left out that the main problem with WACC is that it assumes a constant cost of debt and cost of equity over the course of the investment, which is rarely ever the case.

    • @trustedrat1369
      @trustedrat1369 3 года назад +1

      Thats why you can be conservative and change the numbers to what you think they should be, its better to have a margin of safety

  • @user-ln2eq8vg7u
    @user-ln2eq8vg7u 3 года назад +29

    I have an interview in 2 days and retained nothing during my finance classes...you sir are a lifesaver

    • @rickjames21
      @rickjames21 2 года назад

      Did you get the job?

    • @pedropadilla9084
      @pedropadilla9084 2 года назад

      Update?

    • @user-ln2eq8vg7u
      @user-ln2eq8vg7u 2 года назад +5

      Lol an unexpected update: didn't get the job, realized I wanted something different, now taking an exchange semester at art school in Europe and looving every second of it! I'm still completing my finance degree but don't think I'll go into the field. :)

    • @pedropadilla9084
      @pedropadilla9084 2 года назад

      @@user-ln2eq8vg7u ah damn😭 hope you make it to what u want to do now 👍

  • @himanshuagarwal747
    @himanshuagarwal747 5 лет назад +121

    Please make a video of those 20-30 follow-up questions.

  • @snakedr67
    @snakedr67 4 года назад +5

    This topic is very interesting. I’ve been enjoying your videos....a pure gold mine!

  • @ricardocavaleiro8822
    @ricardocavaleiro8822 5 лет назад +11

    Keep up the great work. Very informative videos from what I've seen.

  • @TheBattlesEnd
    @TheBattlesEnd 3 года назад +5

    Just to clarify when you say adjust for the mid-year in subsequent years does that mean you'll go to the power of .5, 1.5, 2.5, and so on?

  • @chrisa8203
    @chrisa8203 4 года назад +4

    3:08 this approach is wrong if you seek an intrinsic valuation - you are mixing relative and intrinsic valuation together. Not sure why this is such a popular approach when it’s clearly wrong.

    • @HarryMcGuire1738
      @HarryMcGuire1738 4 года назад +1

      What are you talking about??

    • @VV-bd2pg
      @VV-bd2pg 4 года назад +10

      @@HarryMcGuire1738 about TV calculation based on market multiples which contradicts with the concept of intrinsic valuation method. This way 2/3 of your company value will be based on multiple valuation and only 1/3 on FCF.

    • @HarryMcGuire1738
      @HarryMcGuire1738 4 года назад +1

      @@VV-bd2pg Awesome explanation. Thank you.

    • @billykhoabillykhoa7844
      @billykhoabillykhoa7844 3 года назад +1

      I think the assumption is that you operate this company for 5 years and at the end you sell if off to another investor who would value the firm using a multiple approach?

  • @edenj.968
    @edenj.968 2 года назад +1

    Really appreciate this video!

  • @jmg8888
    @jmg8888 8 месяцев назад

    Great stuff! Can you send us the link to an actual unlevered/levered DCF model?

  • @madison9474
    @madison9474 2 года назад

    You are very good at explaining, keep going!

  • @LukeIlijevski
    @LukeIlijevski 5 лет назад +6

    Hey, I’m a senior auditor at a big 4 public accounting firm. I’m inexperienced in finance but have begun prep as I would like to apply for investment banking analyst roles. Have you seen any/many people breaking into such roles from this background? I’d expect a 1st year analyst role, and while I’ll lack finance knowledge compared to some I’ll come in with an accounting knowledge and 3 years of built up professional maturity. Thanks for your time!

    • @naasirramjaun6414
      @naasirramjaun6414  5 лет назад +6

      Hey Luke, in short Yes I have seen a few auditors and consultants break into Investment Banking. Expect to get grilled on why you are now switching roles and your technical knowledge. Most people in your situations would consider doing an MBA and apply for the Associate role because you might be too old for a first year Analyst role. Check out my week in the life of an Analyst if you are still interested in becoming an Analyst ➡️ruclips.net/video/hDE3Q0TMoIE/видео.html

    • @throopasahdew2477
      @throopasahdew2477 4 года назад +2

      @@naasirramjaun6414 what , too old for a role as financial analyst or investment banking. I m screwed than even more . I"ve done Mineral economics and had bunch of financial analysis classes, but in Suriname the market is too small for people with tis background. now im 46 .. and returnng to financial analysis

    • @trustedrat1369
      @trustedrat1369 3 года назад +5

      @@throopasahdew2477 fuck what ever anyone else says, you do it bro chase your dreams

  • @sukilee73
    @sukilee73 2 года назад

    super clear! Thanks, mate!

  • @ahmedxh
    @ahmedxh 5 лет назад +14

    Can you give an example and do it on an actual company (I.g USBank)

    • @sebhub8632
      @sebhub8632 4 года назад +1

      You are not using DCFs when valuing banks but DDV approaches

    • @mickbibi
      @mickbibi 4 года назад

      @@sebhub8632 why

    • @sebhub8632
      @sebhub8632 4 года назад

      @@mickbibi Because money is more like a production factor to banks than it actually is the residual of their performance. A bank can lend money for basically zero costs at the respective central banks,. This makes the CF statement actually useless for valuation purposes.

  • @vitaminhead1465
    @vitaminhead1465 4 года назад +1

    I’m in business school just getting prepared:) Thankyou

  • @ramarama98
    @ramarama98 4 года назад +3

    Aren't you supposed to always get a lower number for the EV if you don't use the mid-year discount period, as you will use a higher discount factor than you would otherwise? ( in the video you say that you will generally get a higher number)

  • @retro8919
    @retro8919 4 года назад +11

    So I’m supposed to regurgitate all this during an interview? Okayyyyyy

    • @retro8919
      @retro8919 4 года назад +1

      @@governmentofficial_23 hahaha yea we must follow the same channels and be in the same field

    • @retro8919
      @retro8919 4 года назад +1

      @@governmentofficial_23 I’m actually set to graduate in May with a degree in Finance. So I’ll be working in the industry soon. It will be interesting to see how the mechanics of all this actually work

  • @ajayvaidhyanathan3680
    @ajayvaidhyanathan3680 2 года назад

    The best explanation :)

  • @peterhaberlehner6749
    @peterhaberlehner6749 4 года назад +2

    Thank you so much!

  • @MuhammadIdrees01
    @MuhammadIdrees01 5 лет назад +4

    Excellent video, found it very informative and useful.
    Can you please also make a video about private equity and what kind of question an interviewee get asked?
    I’m an ACCA affiliate and looking forward to start my career in any one of these fields.
    Thank you.

  • @kabirsood5426
    @kabirsood5426 4 года назад +8

    Thanks for the video! Got a bit lost with the stub period and mid-year discounting period portion. The DCF assumes that you have a full year to collect the cash flow and that you collect the cash flow on December 31, so are these 2 things just fixing for those assumptions? Assuming the answer is yes, what is the difference between the 2 concepts, then?

    • @Missquichante
      @Missquichante 4 года назад +25

      The stub period is only for the 1st year of projected CF , while the mid-year discounting period portion applies for the rest of the projected CF.
      For example, if the current year is 2021 and we wish to work out the net present value of the cash flow in 2025 with a discount rate of 10% and an estimated cash flow of $1000 per year, the process would be as follows:
      2025 is the 4th year in the future
      The general formula would be 1000 / 1.1^4 = $683
      This method assumes all the cash for 2025 comes in on the 31st December 2025 whereas in reality, it comes in throughout the year
      .
      Therefore we use a mid-year discount to say that that cash flow will come in, on average, in 3.5 years time
      (and not in 4 full years) Cash Flow / (1+Discount Rate)^((Year-Current Year)-0.5)
      The new formula is 1000 / 1.1^3.5 = $716
      Hope that helps...

    • @philliphochman1654
      @philliphochman1654 3 года назад

      @@Missquichante Hey thanks for looking. For your first formula, I'm confused where exactly the stub period comes in. If it was July 1st 2021, and we started in January 1 2021, would you have said 1.1^.5? Because it seems like you just have ^4 which is what you would have done in normal circumstances. Thank you.
      For second formula, are you assuming you're collecting it in 3.5 years time on average, but not necessarily on July 1st 2024? So is stub period is an exact time period for less than one year, while midyear discount is an average time period based on more than one year?

    • @Missquichante
      @Missquichante 3 года назад

      @@philliphochman1654 The first formula I wrote isn’t for the stub period but for the rest of the projection (=for the 4 remaining years, if we use the example I used), hence ^4
      For second formula (^3.5) as per its name, “mid-year discount”, you’ll get 0,5, because in reality the money will come throughout the year

  • @mjsmcd
    @mjsmcd 2 года назад

    Do you discount the terminal value back to year one also? If so by what power?

  • @nipunwadhwa1
    @nipunwadhwa1 3 года назад +1

    Why would it be better to project FCFs shorter out? You said that would be more accurate but shouldn't you do it 15-20 years out into the future for more data points or until a stable growth rate is reached? Great video, using it to prep for current recruiting.

    • @leilaan9344
      @leilaan9344 Год назад

      But you don't have all those data points, you can't assume the same growth rate for 15 years ahead, there's already enough assumptions in a dcf

  • @lofi3000
    @lofi3000 3 года назад

    Valuable video, thank you!

  • @sayan_krish
    @sayan_krish 5 лет назад +2

    I m working as Business Analyst for one of investment banking client but into alternative investments. This role mostly falls into operations and IT of wealth management. I am from MBA finance background. How do I get into M&A role of an investment bank? I have never received any calls for such position.

  • @ntcuong01ct1
    @ntcuong01ct1 4 года назад

    Dear Friends, I have confused between company valuation and capital budgeting use DCF method:
    1/ With company valuation by DCF method, I use Free Cash Flow and discount rate (ex: WACC) evaluate?.
    2/ With Capital Budgeting by DCF method, I use Operating Cash Flow and discount rate (ex: WACC) evaluate?.

  • @ali2009tube
    @ali2009tube 4 года назад +2

    Very complicated explanation

  • @snoopyanup
    @snoopyanup 4 года назад

    What happens to the non operating assets of the company like land , office building , investments etc ? these should be added to DCF value ?

  • @Ashishjangir05
    @Ashishjangir05 4 года назад

    We can directly use XNPV function rather then doing all this

  • @naasirramjaun6414
    @naasirramjaun6414  5 лет назад

    Get Access to our Free Members Area - Resumes, Cover letter, Interview Questions, Guides...: goo.gl/4G1W9e

  • @saurabhrajpoot9128
    @saurabhrajpoot9128 2 года назад

    Accent 🔥🔥

  • @lilizhang9440
    @lilizhang9440 4 года назад

    But then how do you discount the terminal value?

  • @Jimexter
    @Jimexter 4 года назад +1

    Can anyone recommend a textbook that goes over all of this?

  • @11liamk1
    @11liamk1 3 года назад +12

    The fact that you have to know all of this for an interview BEFORE a job is stupid - like all these things can be taught on a job, why expect candidates to know it before even working in IB..

  • @sexiiliexi
    @sexiiliexi 5 лет назад

    Wow brilliant

  • @Lindobz17
    @Lindobz17 5 лет назад

    Hi, Is the course available on udemy?

  • @raydead2670
    @raydead2670 3 года назад +1

    Ily

  • @ngantehngelo8824
    @ngantehngelo8824 3 года назад

    Please make more interviews Q&A

  • @mjsmcd
    @mjsmcd Год назад

    Buffet says depreciation a real expense so leave it in

  • @doughboi007
    @doughboi007 Год назад

    this would have been better if you show examples. throwing up a bunch of different formulas doesn't help with learning the process.

  • @Fuhyr675
    @Fuhyr675 3 года назад

    Hi Naasir,
    quick question on the stub period and mid yr period.
    for stub period, do we discount the cash flow in half as well, if it was july or just the period (t variable), e.g. fcf 1=100, if its july then 50^0.5, or 100^0.5?
    and for mid yr period t value goes up by 0.5, yr 1 = 0.5, yr 2 = 1 yr3 = 1.5?
    new subscriber, love your videos.

  • @أفضل10-ح3ن
    @أفضل10-ح3ن 5 лет назад +4

    Please invest in a new camera and microphone for visual and sound clarity

  • @becominganinvestmentbanker7874
    @becominganinvestmentbanker7874 8 месяцев назад

    4:09 that's a c r a z y thing to say

  • @floaterof17
    @floaterof17 3 года назад

    great!

  • @rickjames21
    @rickjames21 2 года назад

    CFA baby

  • @vitaminhead1465
    @vitaminhead1465 4 года назад

    This is simple math

  • @am-197
    @am-197 2 года назад

    your video is full of knowledgeble but Your speaking destroys every thing please speak normally that i grasp what u are saying

  • @MichaelSmith-fo6qq
    @MichaelSmith-fo6qq Год назад

    Lol there's no way they're asking these stupid questions