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Happy Sunday, future bankers!

Hope everyone is doing well! Today we’re going over forecasting depreciation and capital expenditures, talking about how you handle setbacks and failure, and Reddit’s upcoming IPO.

🚀 Let’s get into it.

🔢 Technical Question

“How do you project Depreciation & Capital Expenditures when creating a discounted cash flow model?”

When creating a discounted cash flow (DCF) model, projecting Depreciation and Capital Expenditures (CapEx) is an important step. Here’s how you might approach it:

Depreciation: Depreciation is often projected as a percentage of the recent capital expenditures. This is because depreciation is essentially the spreading out of the cost of an asset over its useful life. So, if a company is consistently investing in new assets, it will consistently have depreciation expenses.

1. Look at the historical relationship between CapEx and Depreciation in the company’s financial statements.

2. Calculate the ratio of Depreciation to CapEx for each historical period.

3. Take the average of these ratios, and apply it to your future CapEx projections to estimate future Depreciation.

Capital Expenditures (CapEx): CapEx is typically projected based on the company’s strategic plans and the industry’s growth outlook.

1. If the company has provided guidance on its expected CapEx, use this information.

2. If not, look at the historical CapEx as a percentage of revenue.

3. Consider the company’s growth plans. A company in growth mode may have higher CapEx as a percentage of revenue compared to a company in a mature industry.

4. Apply this percentage to your projected revenues to estimate future CapEx.

Remember, these are just estimates and the actual figures can vary based on a multitude of factors. It’s always important to understand the underlying assumptions in your model and to adjust them as necessary based on new information.

🗣 Behavioral Question

"How do you handle failure and setbacks in your work or studies? Give me an example of a time when you failed or made a mistake and how you learned from it and moved on."

This is a common behavioral question that aims to assess your resilience, learning ability, and growth mindset. The best practices for responding to this question are:

• Use the STAR method to structure your answer. This means describing the Situation, the Task, the Action, and the Result of your failure or setback.

• Choose an example that is relevant to the investment banking role and shows your skills and potential. Avoid examples that are trivial, personal, or unethical.

• Be honest and take responsibility for your failure or mistake. Do not blame others or make excuses.

• Emphasize what you learned from the experience and how you applied it to improve yourself or your work. Show that you are open to feedback and willing to grow from challenges.

• Demonstrate a positive attitude and confidence in your abilities. Do not dwell on the negative aspects or outcomes of your failure or setback.

🗞 Industry News

Reddit Preps for an IPO 🏦

Reddit, the popular social media platform, has taken a significant step towards going public by filing its IPO prospectus with the SEC. Set to trade on the NYSE under "RDDT," this IPO will mark a major tech offering for the year and the first social media IPO since Pinterest's 2019 debut. Reddit boasts impressive revenue figures, with $804 million in annual sales for 2023, and is predominantly driven by advertising. Despite its popularity, Reddit has faced ongoing losses since its 2005 founding and struggles to match the advertising dominance of giants like Meta and Alphabet.

Reddit possesses a massive user base with unique communities, though its revenue per user has seen a decline. The company is actively exploring ways to increase revenue, including enhanced search capabilities, AI-powered ad improvements, and fostering a user-driven economy. Reddit is also venturing into data licensing partnerships, like their recent deal with Google. The IPO structure will feature multiple stock classes and includes a unique program allowing Reddit moderators to participate. Reddit acknowledges potential risks, including user base fluctuations and dependence on external trends or events for traffic spikes.

Read more about this story below.

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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!