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Happy Friday, future bankers!

Hope everyone is doing well and congrats on making it to the end of the week! Today we’re covering valuation multiples, difficult communication situations, and Rivian’s new SUV.

🚀 Let’s get into it.

🔢 Technical Question

Imagine you have two companies. They have identical growth prospects, market capitalizations, and industries. Why might you value one using EV/Revenue and the other using EV/EBITDA?

The choice between using EV/Revenue and EV/EBITDA as valuation metrics often comes down to the profitability and cash flow characteristics of the companies in question.

EV/Revenue is a useful metric when comparing companies that may not yet be profitable, or have very different cost structures. It's often used for high-growth companies, particularly in the technology sector, where upfront costs are high but revenue growth is strong. This ratio focuses on the top line of the income statement, making it less sensitive to variations in cost structures and profit margins.

On the other hand, EV/EBITDA takes into account a company's profitability by considering earnings before interest, taxes, depreciation, and amortization (EBITDA). This ratio is often used for companies with significant assets and established cash flows, as it provides a clearer picture of a company's ability to generate cash flow from its operations.

So, in your scenario, even though the two companies have identical growth prospects, market capitalizations, and industries, one might use EV/Revenue for a company with high revenue growth but not yet profitable or with a unique cost structure. In contrast, one might use EV/EBITDA for a company with significant assets, established, and stable cash flows. It's all about choosing the metric that gives the most accurate picture of a company's value given its specific circumstances.

🗣 Behavioral Question

What kind of communication situations are difficult for you?

Communication skills are essential for investment banking, as you need to persuade and convince clients, colleagues, and other stakeholders. Therefore, interviewers often ask questions about your communication strengths and weaknesses.

The best way to answer this question is to use the STAR method, which stands for Situation, Task, Action, and Result. This method helps you structure your answer in a clear and concise way, and demonstrate your communication skills with specific examples.

Here is a possible answer using the STAR method:

• Situation: Describe a situation where you faced a communication challenge, such as working with a difficult client, presenting to a large audience, or resolving a conflict with a team member.

• Task: Explain what your goal or objective was in that situation, and why it was important for your project or role.

• Action: Describe the steps you took to overcome the communication challenge, such as listening actively, asking clarifying questions, adapting your style, or providing constructive feedback.

• Result: Highlight the outcome or impact of your actions, such as achieving a positive result, building a rapport, or improving a relationship.

For example:

• Situation: In my previous internship at ABC Consulting, I was assigned to a project for a client in the healthcare industry. The client was very demanding and often changed their requirements without notice.

• Task: My task was to create a financial model for the client’s new product launch, and present it to them in a meeting.

• Action: To deal with the client’s changing requests, I communicated with them frequently and proactively, and confirmed their expectations and priorities. I also updated my model accordingly and explained the changes and assumptions clearly. I prepared a professional and engaging presentation, and practiced it dozens of times before the meeting.

• Result: The client was impressed by my work and presentation, and gave me positive feedback. They also agreed to the final recommendations and signed the contract. I received a high performance rating from my manager and a return offer from the firm.

Some tips to remember when answering this question are:

• Choose a situation that is relevant and recent, and that showcases your communication skills in a positive light.

• Be honest and realistic about your communication difficulties, but do not dwell on them or make excuses.

• Focus on the actions you took to overcome the challenge, and the results you achieved.

• Use specific and quantifiable details to support your answer, such as numbers, percentages, or feedback.

• Avoid using vague or generic terms, such as “I communicated well” or “I solved the problem”.

• Be confident and enthusiastic, and show your interest and passion for investment banking.

🗞 Industry News

🚘 Rivian Stock Surges With New SUV

Rivian's stock enjoyed a significant boost after the company unveiled its new, more affordable R2 electric SUV. The R2, priced at $45,000, garnered over 68,000 reservations in mere hours. Analysts see this as a positive sign for Rivian's expansion into the mass-market EV segment, especially with Tesla showing limited ambition in the SUV space. Rivian plans to accelerate R2 deliveries by focusing production at its existing factory and pausing the construction of a second facility, potentially saving the company billions. The surprise announcement of two additional models, the R3 and R3X, further fuels investor optimism. This news comes amidst slowing EV demand and Tesla's price cuts, but Rivian's stock surge this week indicates strong market confidence in the company's potential.

Read more about this story below.

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