Investment Banking Interview Questions

You should be prepared to answer the following questions during an investment banking
interview. A lot of this is covered in the Vault Guide to Finance Interviews and the Merger
and Inquisitions Guide.
Everything on your resume, have a 30 second snippet about every line item prepared
Practice a 2-4 minute background speech countless number of times (this is extremely important
because first impressions last it sets the stage for the rest of the interview - if you come off as
well-spoken and sharp here, the rest of the interview is smooth sailing). Focus on your strongest
accomplishments and use the opportunity to differentiate yourself from the other people
applying.
Usually the background speech will end with a question about why you want to work in the
industry. You may have touched upon that when you talk about choosing your major, but they'll
want a formal response. Make sure to know the industry and what it does. Investment banks
typically connect people that have capital (investors) with the people that need capital
(corporations, governments, etc.) and advise on strategic transactions.
Prepare 3 strong reasons why you want to do that job.
Prepare 3 qualities that make you a good fit for the job.
TIP: Have examples from your previous work experience that
describe this ability.
**TIP: Have an example for everything! Based on the general flow, pick and choose the times
you want to use your example, it may not be for everything. Be quick with these.
Know a few things that separate you from the rest of the applicants. Once again, the qualities,
strengths, and this question all sound pretty much the same, but it's important you know the
variations. You can try and institute whatever answer you are most happy with for any of these
questions.
Know 3 one-word characteristics a friend might describe you as. Know 1 character flaw a friend
might say about you. Also, have a few weaknesses ready. When you answer, dont call them
weaknesses call them areas to improve and make sure they are not dealbreakers.
Know what you think the difference is between a good analyst and a great analyst is. A great
analyst is always growing, asking questions, and learning something knew each day. Also, a
great analyst will never make the same mistake twice.
Know what you would do if you were overwhelmed with the work you were supposed to get
accomplished and weren't going to be able to get done.
Know 3 things that you are passionate about outside of school and work.

Know your favorite movie and your favorite book.

Have an industry that you are interested in prepared. Know some of the important multiples for
this industry (P/E, Enterprise Value/EBITDA, growth rate).
Know what you might want to do in 5-10 years.
Know what the company stands for.
Know one recent deal the company has done.
Know the company's chairman or CEO.
Know the company's stock price.
Know the difference between Enterprise Value and Equity Value.
Know what Minority Interest is.
Know why Enterprise Value multiples have corresponding denominators such as EBIT/EBITDA
or Sales.
Know why Equity Value multiples have corresponding denominators such as Net Income.
Know 3 ways to value a company.
Know important assumptions that go into a DCF.
Know how to calculate unlevered and levered free cash flows. Know how and why different
cash flows give you different values. Unlevered cash flows will give you the Enterprise Value of
the firm because it represents cash flows to everyone that has a claim on the firm. Levered free
cash flows only represent flows to equity holders and will give you the Equity Value of the
company.
Know how the financial statements link. For example, if depreciation is $10m more than
expected, how would that flow through the financial statements. In these questions, I think it is
best to start with the Income Statement, then move on to the Cash Flow Statement, and do the
Balance Sheet last to double check your work so Assets = Liabilities + Equity
Know how and why to unlever and lever betas.
Know CAPM (Capital Asset Pricing Model) and how it is used to calculate the cost of equity. It
is: Cost of Equity = risk free rate + Beta * (Return of Market Risk Free Rate). Generally banks
think of the 10-year Treasury note as a rough proxy for the risk free rate.
Know how to calculate WACC.

Know the hierarchy of securities - the cost of equity will ALWAYS be greater than the cost of
debt.
Know why WACC decreases as level of debt increases up to a certain point. (Even though cost
of debt and cost of equity both would increase, the relative values change.)
Know 3 ways an executive could manage earnings. (e.g. D&A assumptions, accounting for
receivables, etc.)
Know the ranges of valuations that methods would give you. (Market Multiples, Precedent
Transactions, DCF) Precedent Transactions add a premium, they will provide the highest
valuation. Market multiples and DCF will be close to each other. Keep in mind that DCFs are
subjective as well the value depends a great deal on several key inputs. Thus if they say, the
company is valued at $150, $155, and $300, which method would go with which valuation and if
you were going to advise a manager on how much they would have to pay right now for a firm
what would it be. Answer: 300.
Know about the importance of taxes and tax shields. (e.g . if D&A went up by $10mm, what
effect does this have on NI?) Answer: NI goes down by 6mm if taxes are 40%. Be able to flow
this through the statements.
Know the difference between capital and operating leases and how they are treated on the Cash
Flow Statement.