IFMP Investment Banking and Analysis Certification (IBAC), Pakistan common mistakes
IFMP Investment Banking and Analysis Certification (IBAC), Pakistan · Understand the traps and how to avoid them.
Computing enterprise value as market capitalisation plus total debt, then dividing by EBITDA without netting cash, so EV is overstated by the cash balance and multiples come out too high.
Candidates memorise 'EV = equity + debt' from a flashcard and skip the bridge step where cash and cash equivalents are subtracted; the shortcut survives practice because the error is small for leveraged companies and only becomes obvious in a full valuation question.
What to do instead
Always write the bridge explicitly before dividing: market cap + total debt + preferred stock + minority interest − cash and cash equivalents = EV. Then check the sign on cash by asking whether a buyer would get that cash back. Practise three bridge builds from a trial balance until the line items are automatic.
Building a DCF where terminal value is more than 85–90% of total value and then quoting the implied share price to two decimal places as if it were a precise answer.
The terminal value formula is easy to apply, so candidates lean on it to avoid the harder work of forecasting an explicit period that actually reflects the business; they also mistake spreadsheet precision for analytical confidence.
What to do instead
Before quoting any DCF output, compute terminal value as a percentage of EV. If it exceeds roughly three-quarters of value, extend the explicit forecast period or use an exit multiple cross-check, and state the sensitivity. Always present a range or a sensitivity table, never a single point estimate.
Applying a transaction multiple from a comparable deal without adjusting for the target's different growth, margin, or leverage profile, and without converting the multiple to the correct date and currency.
Comparable company and precedent transaction analysis is taught as a lookup exercise, so candidates treat the multiple as transferable; they also forget that a multiple struck in a different interest-rate and growth environment embeds different assumptions.
What to do instead
For every multiple used, write one sentence on why the peer or deal is comparable and one on the adjustment needed. Check the multiple's denominator period (LTM versus forward), its currency, and its date. Recalculate the peer's multiple yourself from raw figures at least once so you understand what is inside it.
Getting the direction of accretion/dilution backwards, or declaring a deal accretive without comparing the target's earnings yield to the acquirer's after-tax cost of financing.
The mechanics involve mixing pre-tax and post-tax figures and mixing cash and stock consideration, so candidates lose track of which side of the comparison they are on; the rule is often memorised as a phrase rather than as an inequality.
What to do instead
Reduce every deal to one test: target earnings yield (target net income ÷ purchase price) versus the after-tax cost of consideration (after-tax cost of debt for cash, earnings yield of the acquirer for stock). Compute pro forma EPS both ways and show the breakeven synergy figure. Sanity-check the sign against the intuition that a low-P/E acquirer buying a high-P/E target is accretive.
Building a three-statement model where the balance sheet does not balance, then plugging the difference into a 'balancing figure' line and continuing as if the model were sound.
Circularity between interest, debt paydown, and cash flow is genuinely hard; under time pressure candidates take the plug because it makes the error message disappear without revealing which schedule is wrong.
What to do instead
Never allow a plug. Isolate the break by checking each schedule in sequence: cash flow ending cash versus balance sheet cash, retained earnings roll-forward, debt schedule closing balance, and working capital. Add a dedicated check row that flags any imbalance and keep it visible in every version of the model.
Quoting a WACC built from a bottom-up beta of unrelated peers, a risk-free rate of the wrong maturity, and an equity risk premium pulled from memory, with no country risk adjustment for a Pakistani target.
Each input looks plausible in isolation, so the composite number is never stress-tested; candidates also underweight the fact that a Pakistan-focused valuation needs a country risk premium and a consistent currency between cash flows and discount rate.
What to do instead
Document the source and date of every WACC input in a small assumptions box. Match the risk-free rate maturity to the cash flow horizon, unlever and relever peer betas, and add a country risk premium when discounting Pakistan-relevant cash flows. Keep nominal cash flows with a nominal rate in the same currency throughout.
Presenting a valuation as a single number in the pitch or written answer, with no football field, no sensitivity, and no statement of the key value drivers.
Candidates treat the question as an arithmetic test rather than a communication test, and a single figure feels more decisive; they also run out of time and cut the synthesis step.
What to do instead
Structure every valuation answer as: methods used, resulting range per method, chosen reference range, and the two or three assumptions that move the answer most. Draw the football field in words if you cannot draw it. End with the recommendation and the single biggest risk to it.
Confusing the roles of the buy side and sell side, or describing an IPO book-building process with the issuer running the book rather than the underwriters.
Market-practice questions are learned from headlines rather than from process maps, so the sequence of mandate, due diligence, roadshow, book-building, pricing, and stabilisation gets scrambled.
What to do instead
Write out the equity capital markets sequence from mandate to listing as a numbered list, naming who acts at each step. Do the same for an M&A sell-side process from teaser to closing. Learn one real, publicly documented transaction structure end to end and use it as your mental template.
Answering a capital structure or financing question by listing instruments without linking the choice to cost, control, covenant headroom, and the issuer's cash flow profile.
Candidates revise instrument features as isolated facts (convertibles, sukuk, term loans, revolving facilities) and never build the decision framework that exam questions actually test.
What to do instead
For any financing recommendation, answer four questions in order: what does the cash flow profile support, what does it cost on an after-tax basis, what control or dilution does it concede, and what covenant or refinancing risk does it create? Practise applying this to a leveraged and a stable-cash-flow issuer so the trade-offs become concrete.
Treating regulatory and disclosure requirements as a generic list, without distinguishing which regulator or rule applies to a public offer, a rights issue, or a private placement in the Pakistani market.
Candidates rely on broad statements about 'SECP approval' or 'listing requirements' without knowing which framework governs which transaction, so answers score low on precision even when the direction is right.
What to do instead
Build a one-page matrix of transaction type against approving body, key filing, and principal disclosure obligation, and verify each entry against the current regulator's published requirements rather than memory. Where you are not certain of a current rule, say what you would check and where, instead of guessing.