How to Prepare for the BAT The BAT aids employers in identifying and screening students who wish to pursue a career in global financial services, most suitably in investment banking, capital markets and asset management. A basic level of finance knowledge is required, however the bulk of what is being assessed is a person’s aptitude and skills to be successful in this industry. The BAT consists of 11 sections divided into two categories: (1) Financial Knowledge and Aptitude (2) Career Skills and Aptitude In preparation for the Finance sections of the BAT, students should ensure that they have a good understanding of the global macroeconomic marketplace, including its current events, basic terminology, products and institutions. The test covers a very wide range of topics and represents a practitioner’s approach to finance (i.e. not textbook knowledge only). Therefore, candidates should prepare for the BAT as they would an interview and not focus on the details of financial theory. A successful test taker will understand the “big picture” of how all the parts fit together. Following are descriptions of the different sections of the BAT and the concepts students can expect to see on the test. Finance Knowledge and Aptitude Financial Statements This section assesses knowledge and understanding of the concepts and language of accounting as tools of communication, monitoring and resource allocation. Topics include standard techniques of analysis, including ratios, interrelation of financial statements and financial articulation. Accounting Principles and Guidelines IFRS and US GAAP Accrual vs. Cash Revenue and Cost Recognition Capitalized vs. Period Costs Financial Reporting Balance Sheet Individual line Items
Off Balance Sheet Information Income Statement Individual line Items Operating vs. Non-operating Industry-specific line Items Cash Flow Statement Individual line Items Sources and Uses of Cash Interrelation of Financial Statements “Normalizing” Income Statement Financials Non-recurring items Tax impact Financial Ratios Liquidity Leverage Performance Efficiency
Corporate Valuation BAT participants are expected to explain and understand the most commonly used corporate valuation methodologies – (i) comparable public companies analysis, (ii) precedent transactions and (iii) discounted cash flow analysis. Test takers are required to distinguish between equity and enterprise values, levered and unlevered cash flows, various valuation multiples and the different costs of capital. Time Value of Money Present Value and Future Value Discount Rates and Interest Rates Simple and Compounding Rates Annuities and Perpetuities Total Enterprise Value (TEV) Components of TEV TEV vs. Equity Value Minority Interest Net Debt – Subtracting Cash from Debt Basic vs. Diluted Shares Outstanding Core Valuation Methodologies
Comparable Public Companies (Relative Valuation) Pros and Cons Operating vs. Equity-based Multiples Selecting a Comparable Universe Consensus Estimates and Forward Multiples Precedent Transactions (Relative Valuation) Pros and Cons Selecting Relevant Transactions Control Premium Consideration and Structure Discounted Cash Flow (Intrinsic Valuation) Dividend Discount Model Free Cash Flow Model
Calculating and Forecasting Free Cash Flow Terminal Value (Multiple vs. Perpetuity) Weighted Average Cost of Capital (WACC) Cost of Debt Cost of Preferred Stock Cost of Equity via the Capital Asset Pricing Model (CAPM) Sensitivity Analysis Investment Banking This section covers the basic principles of capital budgeting, capital structure optimization and the advisory and capital raising services of the Investment Banking Division (IBD) within an investment bank. Test takers should generally understand the debt and equity syndication processes, primary versus secondary markets, mergers & acquisitions, leveraged...
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