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- Topic: A Good I-banking Interview Question
| Author | Topic: A Good I-banking Interview Question |
|---|---|
| Xianny @2016-12-30 21:08:23 |
How would you approach this fairly common interview question:Assessing a company's financial statements, how can you determine whether or not they have too much debt on their balance sheet? |
| shawn @2017-01-12 12:49:13 |
Cash flow-the company should make enough money so that after it pays off the debt service the cash flow is enough for the business to sustain itself and grow,volatility of revenue stream-stable industries have stable cash flows and thus can afford to risk being leveraged in order to improve return on equity, but a cyclical industry with high leverage or a cash flow that's not reliable because the industry has yet to mature can be in trouble because a downturn in the economy may bankrupt the company,intrinsic value of assets--like in a mortgage if the debt is larger than the intrinsic assets then if the business closed today then the debt holders would not get back the amount that they paid in. |
| tony1973 @2017-03-25 08:20:00 |
The way high yield analysts do it:1) calculate the EBITDA/interest ratio, aka interest coverage2) do the same for other companies in same industry3) compare this ratio among peersAlso of interest is gross margin and operating margin and the trend for both of these ratios. Looking at cash flow in itself can be misleading because what you really want to see is how the business generates net cash on things it SELLS. |
