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Happy Wednesday, future bankers!

Hope everyone is doing well! Today we’re covering sources and uses, a time you exceeded your own expectations, and Goldman’s difficult projections.

🚀 Let’s get into it.

🔢 Technical Question

In an M&A transaction, what are sources and uses?

Sources and uses refer to a financial breakdown in an M&A transaction that details:

• Sources: Where the money to fund the acquisition comes from (funding)

• Uses: How the money is spent to complete the acquisition (expenditures)

Imagine it like a budget for the M&A deal. There needs to be a clear picture of how much capital is required (uses) and how it will be financed (sources).

Here's a breakdown of each:

Uses:

• Purchase Price: The main expense, which is the cost of acquiring the target company. This can be based on the target's enterprise value.

• Transaction Fees: Costs associated with advisors, lawyers, accountants, and other professionals involved in the deal.

Sources:

• Equity Financing: Issuing new shares of the acquiring company's stock to raise capital.

• Debt Financing: Borrowing money from banks or issuing bonds to fund the acquisition.

• Cash on Hand: The acquiring company's existing cash reserves used to partially finance the deal.

Key Points:

• The total sources of funds must always equal the total uses of funds.

• This is a crucial part of financial modeling in M&A transactions, used to assess the feasibility and financial impact of the deal.

🗣 Behavioral Question

Tell me about a time that you exceeded your own expectations.

Best Practices

1. Choose a Relevant STAR Story: The STAR method is a powerful way to deliver a compelling answer:

   • Situation: Briefly set the scene of the challenge you faced.

   • Task: Describe what needed to be done.

   • Action: Outline the specific actions you took to tackle the task.

   • Result: Quantify and highlight the positive outcome. Emphasize how your actions went above and beyond the baseline expectations.

   Choose a story relatable to investment banking. Think project management, analytical work, or a time you had to go the extra mile to complete something under pressure.

2. Focus on Exceeding Your Own Benchmark: Don't just tell them about a time you did your job well. The focus needs to be on a scenario where:

   • You had doubts about your ability to deliver

   • The expectations were challenging

   • You were uncertain of the outcome

3. Link Skills to Investment Banking: After the story, explicitly tie your skills back to the demands of an investment banking internship. For example

   • "This experience showed me that I can remain focused and efficient under high pressure, which I know is crucial in investment banking."

   • "This helped me become comfortable with ambiguity, which will be essential in adapting to fast-paced deal environments."

🗞 Industry News

🤔 Goldman’s Difficult Projections

Even Wall Street’s brightest, like Goldman Sachs, have found it challenging to predict the Federal Reserve’s direction. As recently as November, the bank’s economists predicted a mere quarter percentage point cut in the Fed’s benchmark rate in 2024, given the economy’s strength. However, after the Fed signaled it was done hiking, the team revised their call, expecting five reductions, starting in March. This was due to the six-month annualized rate in the Fed’s favorite inflation gauge moving towards the central bank’s 2% target.

However, another higher-than-expected consumer price index jump caused a reset on Wall Street, leading Goldman’s team to revise their call again. They now expect only two cuts this year, in July and November, aligning with what derivative traders are pricing in. Goldman’s revisions reflect the broader struggle of analysts to predict the Fed’s path amid the first significant inflation wave in four decades. Traders are also constantly recalibrating their bets as new data rolls in. Despite most economists predicting a recession in 2023, Goldman argued that the Fed would bring down inflation by cooling the labor market without triggering a sharp rise in unemployment, a view that has become dominant now that the economy remains strong and the Fed is seen as done tightening policy.

Read more about this story below.

Thanks for tuning in today! Best of luck to everyone working through recruiting right now. If you sign an offer, reply to this email and let us know about it! Like seriously, do it—we’d love to hear about it!