Harbus

Issue date: 1/30/06 Section: News

For all of those HBS students thinking about careers in banking or finance, the Finance Club and UBS arranged for a visit by "Training the Street" to help prepare students for the technical questions in interviews and also to prepare for the internship itself. Generously sponsored by UBS, the program's cost to students was only $10, and included breakfast and lunch. The event was oversubscribed, so there was a full classroom of students in Aldrich 112 for the training Saturday.

"Training the Street" was founded by Scott Rostan in 1999 and serves both Wall Street firms and business schools in applying financial concepts to real-world valuations(http://www.trainingthestreet.com). Instructor Joseph Zirpolo, who worked in JPMorgan Chase's Global Trade Finance Group in 1989 and later joined the Credit Risk Management group, taught the January 21 course. He became a full-time instructor for the firm's Investment Banking Trading Program and is now an Adjunct Professor of Finance at Fordham University.

The program was very comprehensive, reminding me of the review programs for the CFA exam. I was impressed with the instructor's ability to keep things moving along, particularly because it was a long day, beginning at 8:30 a.m. and ending at 4:30 p.m. Questions were encouraged and students asked engaging questions throughout.

So what did we learn? The program covered basic approaches to valuing companies and how to discuss these in interviews. We looked at five key valuation methodologies, including public comparables analysis, acquisition comparables analysis, discounted cash flow analysis, merger consequences and leveraged buyout analysis.

First we discussed the nature of valuation. While there may be standard tools utilized in many cases, there is much more art than science involved in determining many of the inputs. It often takes years of experience to develop a gut instinct for a company and/or industry. In addition, consideration must be given not only to the resulting value, but also to how much the potential buyer can afford or is willing to pay. In the banking industry, valuation is critical because it is the basis for initial public offering prices, debt offering value, merger and acquisition analysis, and research reports.

Next we discussed equity value and enterprise value. Equity value is the value of shareholders' interest and is often referred to as market cap. It can be calculated by multiplying the number of shares outstanding by the price per share. However, later in the session we discussed how to use the Treasury Stock Method to calculate equity market value for companies with outstanding options. Enterprise value may be referred to as firm value, total capitalization, or transaction value. It includes the sum of equity market value, net debt, preferred stock and minority interest.

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