How to answer this Technical interview question about Financial Health Analysis for Senior-Level Investment Banking?

How would you evaluate the financial health of a company before recommending it for a merger?

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Investment Banking

Technical

Asked at

Bank of America Merrill Lynch

Difficulty :

Hard

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Explanation

This question assesses your ability to conduct a comprehensive financial analysis to determine merger suitability. Recruiters evaluate your understanding of financial statements, key metrics, and potential synergies. Common pitfalls include focusing too much on one aspect, such as profitability, and ignoring other critical factors like debt levels or cash flow. A strong answer demonstrates a structured approach, highlighting the balance sheet, income statement, and cash flow analysis, along with qualitative factors. Preparation involves reviewing financial analysis case studies and merger processes.

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Answer Example

I would begin by reviewing the company’s financial statements to assess profitability, liquidity, and solvency. Key metrics like EBITDA margins, debt-to-equity ratio, and free cash flow would help evaluate its financial stability. Additionally, I’d analyze industry trends and potential synergies with the acquiring company, such as cost savings or revenue enhancements. For example, during a case study, I identified a target company with a 15% EBITDA margin and low leverage, which led to a successful merger recommendation with $50M in projected synergies.

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