Collection, Analysis, and Evaluation of Data
Building the analytical foundation
Investment banking analysis starts with clean data: audited financials, SEC filings, proxy statements, industry reports, and management projections. Candidates must know how to normalize earnings, calendarize comparables to a common fiscal year-end, and distinguish recurring from non-recurring items. Core tools include ratio analysis, trading comparables, precedent transactions, discounted cash flow (DCF), and accretion/dilution analysis.
Matching numerators and denominators
A frequent trap is mixing equity value with enterprise value. Use EV/EBITDA and EV/Revenue for capital-structure-neutral multiples; use P/E and price/book for equity multiples. EV equals equity value plus total debt minus cash. Fully diluted share counts must reflect in-the-money options under the treasury stock method and convertible securities under the if-converted method. For DCF, the discount rate must match the cash flow: weighted average cost of capital (WACC) for unlevered free cash flow, cost of equity for levered cash flow.
Worked example
A target has equity value of $500 million, debt of $200 million, and cash of $50 million. EV = $500 + $200 − $50 = $650 million. If normalized EBITDA is $65 million, the EV/EBITDA multiple is 10.0x. Rule of thumb: if the multiple is EV-based, the denominator must be a pre-interest, pre-tax, pre-capex metric such as EBITDA-not net income.
Traps in questions
Watch for one-time gains inflating EBITDA, options ignored in share counts, forward versus trailing multiples used interchangeably, and comparables with different fiscal year-ends. Accretion/dilution compares pro forma EPS to the acquirer’s standalone EPS, not to the target’s EPS.