Equity Research interview preparation
Sell side and buy side. Every question is either traced to a named firm from a public candidate report, or tagged at desk level when we could not trace it. Answers lead with the point, then the mechanism, then the limitation.
100 questions, mapped to the firms that asked them
- Questions
- 100
- Traced to a firm
- 72
- Firms
- 45
- Updated
- September 2026
042How do you normalise earnings for a cyclical company?Franklin TempletonOil and Gas · San Mateo · 2024
Say this
Estimate what the business earns through an average cycle, not at either extreme. Take mid-cycle volumes and mid-cycle margins, adjusted for any structural change since the last cycle, and value that.
Then walk it
- Method one: average the margin over a full cycle, usually seven to ten years, and apply it to current revenue. Simple and defensible.
- Method two: estimate mid-cycle volume and mid-cycle price separately, then rebuild the income statement. More work, but it lets you adjust each independently.
- Method three: normalise on the balance sheet instead, using return on invested capital through the cycle applied to today's capital base. Useful when volumes have changed structurally.
- The critical adjustment: has anything structural changed since the last cycle? Capacity closures, consolidation, a new cost position, or demand substitution mean history is not a clean guide. This is where the analysis is.
- Then apply a mid-cycle multiple to the normalised figure. The common error is applying a peak multiple to normalised earnings, or a normalised multiple to peak earnings; the two must be consistent.
- And show the earnings range rather than a point. For cyclicals the honest output is a value at trough, mid and peak, with a probability view on where in the cycle we are.
Where candidates lose it
Normalising the earnings but not the multiple, or ignoring structural change and treating the last cycle's average as destiny. Consistency between the earnings base and the multiple is the whole discipline.
Expect next
- How do you know where in the cycle you are?
- What has structurally changed in that industry?
- Why do cyclicals look cheapest at the top?
Reported by candidates at Franklin Templeton (Oil and Gas, San Mateo, 2024). Source: Wall Street Oasis.
Firm tags come from public, anonymous candidate reports on Wall Street Oasis: strong signal, not sworn testimony. Firms are named as the places a question was reported, not as partners of Fin Maverick. Answers are written for this page to show how to think out loud; they are not scripts to recite.