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Investment Banking Interview

Additional Questions Answered In Order Received.


Interviews:
Before Jumping into Q&A remember the setup for Investment Banking Interviews is as follows:
Round 1: Phone or quick office visit 30-45mins, is this person normal and does he know what he is
interviewing for
Round 2: By now the firm knows who they want and dont want. Youll be grilled, youll be challenged
and youll be asked much tougher questions to fish out the wannabes from the run through a brick
wall to get what I want candidates. Once youre in the final round, everyone is equal, your job to lose.
Fit Questions
1. Walk Me Through Your Resume?
This of course will be tailored to everyone but at the end of the day youre selling yourself as a
compelling candidate.
Back in high school I decided to attend ___ university because of its focus on (finance/business).
After that I really became interested in Investment Banking after studying ___ and ___ courses which
led me to pursue finance internships. I started out with a job in ___ (finance field) which led to an
internship at ___ bank over the summer. Fortunately, I received an offer from ___ bank but believe I
may be a better for ___ bank as I know the firm focuses on ___ and ___
Talk longer if its not a 30 minute interview, keep it short like the above if it is a quick phone interview.
2. Why Did You Choose Your University?
The idea here is to make it seem like you made the best possible decision that was handed to you.
You dont necessarily need to choose the most prestigious, maybe you got a scholarship etc.

To be honest I was also admitted to ___ school however I decided to attend ___ school as I was
given a (partial/full-ride) due to ___ , ___ and ___. Overall, I am happy with my decision as I certainly
researched the schools to see what opportunities were available and realized the change was
relatively minimal given the partial scholarship opportunity.
You basically want to deliver the following message I made a logical smart decision and made the
most of my time at my university
3. Why Did You Choose Your Major?
Hopefully youll avoid this question but you need to create a mini-story as to how your decisions led to
finance.
I decided to major in Biology as I planned to become a doctor, however as I developed an interest in
investing through a few Economics courses I decided to pick up finance as a minor. At that point I
realized that I was more interested in finance and decided to take courses in ___, ___ and ___. Even
though I may not be a pure finance person, I believe I have taken the important finance courses and
could be a good fit for a role in healthcare investment banking.
The idea here is to show actionable steps on how your views changed and spin it in a way as having
an edge in terms of knowing the space.
4. Why Our Bank?
This one is less likely to show up in an interview with Goldman or Morgan Stanley but the overall idea
is to make sure you know the deals and what group you want to work for.
I want to work for ___ bank because I believe it offers the right set of experiences for me given
transactions in ____ (capital raise), ____ (Acquisition) and ___ (Merger). I believe I would be a great
fit because of XXX, XXX and XXX. Over the past year I have noticed XXX (positive comment on
direction of company) and believe this is certainly a platform where I can both help add value and
learn from over the next few years.
The idea is to show you know the bank well, that you can be a good asset and finally that you wont be
quitting after 6 months.

5. Why Should We Hire You?


In this question avoid the following phrases ambitious, hard working, dedicated and driven. Instead
you want to be able to give these qualities in the form of real experience. Example below:
I think ___ bank should hire me because of my experience in __, __, __and __. I know you have a lot
of qualified candidates to interview and believe my experience in ___, ___ and ___will be helpful for
the firm. I have always been interested in ___ bank because of ___ transactions and would enjoy
having the opportunity to work with ___ team and hit the ground running.
To fill in the blanks, use things such as Internship at __bank, course experience in ___, relevant club
experience in ___.
Notice you should have experience to draw into the interview that will directly impact their hiring
decision.
6. Tell Me About a Failure in Your Life.
This one is tougher as you want to give an example of a set back that you can recover from but not
something terrible that you would lose trust. As a guideline if you told this to an acquaintance they
should recognize it as a fault but not immediately lose faith in you because the error was so large.
One failure I remember well was oversleeping one semester to sign up for XYZ course in fall of
Sophomore year. It set me back by about 1 semester in terms of classes I wanted to take, the next
summer I decided to take the extra course to make up for lost time, but learned the valuable lesson of
being organized at all times to avoid costly errors
The above is right on the line with costly errors, 1) you recovered from it but 2) it certainly was bad to
oversleep. Not everyone in the world has overslept something once in their life so youre in pretty
decent shape since you learned from the experience.
7. Are You A Good Multi-Tasker?
The truth in the real world is no one really multi-tasks but at this really means are you good at
handling multiple projects.

Overall I would say I am a good to decent Multi-Tasker given my heavy course load, 2 club
commitments and 1-2 part time jobs. To be honest I believe this is something everyone can always
improve on, unlike a check box where you have it or you dont it is certainly something I can continue
to improve upon over the long-term.
The idea here is to give them examples of real multi-tasking at your age bracket and then finishing it
off with something that leads them to believe that the interviewer works harder than you do. Note of
course they do.
8. Are You A Good Presenter?
This is unlikely going to be asked but the idea here is to see if youre willing to stand up and make a
presentation if necessary.
During my time at ___ school I have made a few presentations including ___ and ___. While Ill be
honest and say it is certainly not a daily occurrence I believe my experience doing presentations for
__ class (or ___ case competition) gives me confidence that I can make presentations if needed.
Again show some real examples of presentations youve made. Even better is if you can add to it
example: Case presentation for Jefferies case competition, which led to a 2 nd place finish for our
team.
9. What Do You Do for Fun?
This is a key question in your interview abilities, if the person seems to be happy and fun (party type)
mention you go watch football games and drink beers. If you peg them as more uptight mention things
more simple like traveling or sports.
During my free time beyond finance related activities I enjoy ___ and ___. Sports have been a big
part of my life for many years and I believe its always good to try and set aside thirty minutes to an
hour for exercise. Also on weekends I enjoy watching our college ___ team play and grab a few drinks
to watch the game with friends.
Dont come off as a complete type A unless you are certain the person you are speaking to will ding
you immediately. No one wants to hear I stay at home and read the Wall Street Journal.

10. Describe Your Favorite Course in College.


Unlike conventional answers that will say choose an interesting topic or choose a finance course the
best answer is to make a personal connection.
To be honest one of my favorite classes was History 101. I know the topic may sound dry but the
professor did a great job at making the topic interesting and relating it back to real life (insert short
example). During the semester I got to know the professor well and we still correspond from time to
time. I have no interest in pursuing a career related to history as my real focus is on finance but it was
a great course that showed me the importance of keeping a topic interesting.
The idea here is youre showing that you made a connection with a professor. Now you may not have
this exact example, but the best way to describe your best course is one in a sales format. You liked
it because the presentation and delivery was key, bankers will know that is extremely important no
different than pitching a company.
11. I See You Worked in (Healthcare/Real Estate/Law etc.) Why The Switch?
Very similar to walk me through your resume you need to flip your experience to how you concluded
with your current interest in Wall Street.
After leaving law school I joined ___ firm and attended drafting sessions for ___ and ___ companies.
After that I became more and more interested in finance and decided to take level 1 of the CFA exam.
After completing the first level and working closer with financial firms, my interest was solidified and I
believe my experience with S-1s and other financial documents makes me a good fit for ___ position
at ___ firm.
The idea here is to spin your good experience to directly help the firm. In addition you dont want to
make it seem like you know nothing about finance.
12. What Would You Do With an Offer Today?
I would sign up for the job. After meeting with __ and __ and doing research on __ and __ I believe
this would be a great company to work for.

You need offers to get offers so simply say you will sign, you can always push out the official sign date
by saying I dont want to burn bridges with ___ university as I am signed up for X days to attend X
events and cannot cancel.
13. Where Do You See Yourself in Five Years?
The basic rules are 1) in finance, 2) tough to call beyond 2-3 years. If youre at a Associate/VP level
then you can hammer home more on wanting to stay in IB.
Over five years is a pretty long time horizon however I do know that I want to stay in the financial
industry. Knowing that I want to stay in finance for the long-term I believe Investment banking offers
the best base skill set for a long-term career. In five years I may still be working in investment banking
or getting an MBA but I do know for sure that I want to stay in Wall Street related professions.
No where in a competitive Wall Street interview do you give them a single ounce of belief that you
would not stay in finance. This means youre not 100% committed so it means youre going to be
shown the door.
14. Tell Me About Negative Feedback Youve Received from ___ Job?
The idea here is to admit to having some faults good ones if youve done an internship in investment
banking is 1) Attention to detail (always going to get interviewers to agree) and 2) Industry knowledge.
Overall the feedback was positive however I learned quickly how important it is to constantly check
work and learn about ___ sector. I will be the first to admit I have made errors in Pitchbook drafts and
will always try to correct them and make sure they do not reoccur. In addition, the sector specific
knowledge is certainly something that I need to focus on as it helps to know the space when reviewing
text in a sales memorandum or Pitchbook.
Both attention to detail and industry knowledge are easy negatives. No one knows either perfectly out
of the gate.
15. How Would a Friend Describe You In Just A Few Words?
Happy, Competitive, Methodical

You can move it around but the idea is 1) positive personality quality, 2) willing to work without saying
driven/dedicated, 3) Clear thinking patterns.
16. Tell Me About a Leadership Position You Have Had?
To be honest this is less likely to come up at a lower end hiring position but a decent answer would be
1) a position in a club, 2) position in a sports team or 3) team leader in a project (school or work
related).
17. Tell Me Something Interesting About Yourself?
Sometimes they ask you for things that are not on your resume, its usually best to choose something
that is a one time interesting event. Such as traveling to ___ country or going skydiving.
Hmm, one thing you may not know is that I used to be deathly afraid of heights. In order to combat
this I decided to go out and go skydiving once, I did this in the summer and believe it was a great
once in a life time experience.
Anything that is interesting and still appropriate for an interview.
18. Are You Smart or Hard Working?
For an interview youre going to want to veer on the side of being humble versus cocky so the better
avenue is to say hard working and imply youre not a slow learner.
If I had to choose I would say hard working. My grades are not perfect (they should be above a 3.5)
but I believe with long hours and a strong work ethic improvements can be made. There are always
going to be people who may be smarter but Im more than willing to put in the work to learn a new
topic as fast as possible.
19. Why Do You Believe Investment Bankers Work Long Hours?
This is a simple test to see if you understand what you are signing up for.

Investment bankers work long hours, anywhere from 60-100+ hours per week, as they are involved
on multiple projects from pitch books (winning new deals) to live mandates (IPOs and M&A). This
means an investment banker must be on call at all times for his clients which could include
international deals as well. With this business model, the hours are quite variable and stressful at
times as well. Investment bankers must continue to source new business while executing live deals at
the same time.
20. Give Me an Example of a Strenuous Week.
This is another spin on if you understand what you are signing up for. The trick is to tow the line
between showing you can do the work and not insulting your interviewer by making it seem like you
work harder than him/her.
As example of a stressful week would include waking up at 6 in the morning, going to the gym for an
hour, returning and heading off to class for the next few hours while answering emails for ___ and ___
clubs that I am currently involved with. After this I would spend an hour or two studying before heading
off to my evening job working at ____ (ideally an investment banking night time rotational program or
finance related job). This would be repeated throughout the week and my weekends would be spent
working at ___ and ideally taking a few minutes to relax on a Saturday night.
Technical Questions
1. Can You Walk Me Through The Three Statements?
The income statement shows revenue and profitability metrics over a period of time starting from
revenue to gross and operating profit down to net income and EPS.
The balance sheet shows a snapshot at a point in time, the assets equal liabilities + equity. It is linked
to the income statement because net income flows to retained earnings.
The cash flow statement starts with net income and shows real cash out flows or inflows from
operations, investing and financing activities. The final link to the BS is made as ending cash matches
balance sheet cash.
2. What Are The Major Items On The Income Statement?

Income Statement: Revenue Cost of Goods Sold Selling General and Administrative expenses
(Depreciation & Amortization baked in above the operating income line) Total Operating Expenses
Operating Income Other Income or Expense Pre-tax income Net Income Shares EPS
3. What Is The Balance Sheet Equation And What Are The Major Line Items?
Assets = Liabilities + Equity
Balance Sheet: Current Assets: (Cash & Marketable Securities, Accounts Receivable, Inventory,
Deferred/Prepaid Current Assets and Other Assets); Long-term Assets: (Property, Plant & Equipment,
Long-term investments, Goodwill, Intangible Assets & Other Long-term Assets); Current Liabilities:
(Accounts Payable, Current Accrued Liabilities, Current Debt and other liabilities); Long-term
Liabilities: (Long-term debt, Deferred long-term liabilities and other Long-term liabilities); Shareholders
Equity.
4. What Are The Major Items On The Cash Flow Statement?
Cash Flow Statement: Beginning Cash; Cash Flow From Operations: (Net Income, Depreciation and
Amortization, Change in Working Capital, Other Non-cash charges such as Stock based
compensation); Cash Flow from Investing: (Capital expenditure, Purchase or sale of marketable
securities, purchases for acquisitions); Cash Flow Financing (Equity or Debt Raises, Dividend
payments, Repurchase of common stock [also called a buyback program]); Ending Cash.
5. How Would Depreciation On A Truck Impact The Three Statements After A Year?
If we give a $10K truck a 10-year span of life and use $1K as a reasonable assumption.
Income Statement: Operating income decreases by $1K, assuming 30% tax net income declines by
$700.
Cash Flow: Net Income goes down by $700 but D&A is non-cash so $1K is added back so cash
increases by $300.
Balance Sheet: On the asset side PP&E goes down by $1K, cash increases by $300, so assets are
down $700. This is offset by the decrease of $700 from net income swimming to retained earnings.

6. How Do You Calculate Enterprise Value And What Does It Mean?


Enterprise value is calculated as follow: Market Cap + Debt Cash. (More advanced Market cap +
Debt + Preferred Stock + Minority Interest Cash)
It is a valuation that is available to both bond and equity holders. Unlike equity value, which is below
the operating income line or Below the Line, Enterprise value can have sales and EBITDA metrics
applied to them as well. It is used as a takeout valuation as this is a better proxy for how much the
buyer must pay for the business.
7. Why Do We Add Debt and Subtract Cash?
The reason why we add debt and subtract cash is because when a company purchases a firm it is
now liable for the debt on the balance sheet and now also has the cash on the balance sheet.
8. Can Enterprise Value Be Negative?
Yes. If the Companys market cap were below its net cash balance (cash debt) then the company
would have a negative enterprise value.
9. How Do You Value A Company?
There are many methods to valuing a Company however some of the major ones would include the
following.
1. Comparable companies analysis, using multiples of like companies to justify valuation
2. DCF, using future free cash flows to value the firm
3. LBO, using cost savings & revenue synergies to value cash flows of a take-out compared
to increases in payments from required debt
4. Precedent transactions, using similar transactions in a space to justify a take-out
valuation
5. Premiums Paid, looking at public take-outs and seeing a percentage above current stock
price in which the Company was taken out.

Italics are the most common and where you will likely receive the most questions.
10. Which Of The Valuation Methods Yield Higher Valuations?
It depends. Both Precedent Transactions and Premiums Paid should yield higher valuations that
Comparable Companies analysis as these valuations are done on take-out transactions. In addition,
the DCF analysis could yield a high valuation if the terminal value produces a significantly higher
valuation for the firm (could also be quite low if discount rates are high and terminal value is low).
Finally, the highest valued comparable could yield a significantly inflated multiple while the LBO is
likely yielding a lower valuation as this would be a financial rather than strategic transaction.
11. Walk Me Through A Discounted Cash Flow Analysis & Tell Me The Flaws Of Such Valuation
Using a 5-year or 10-year convention calculate Cash flow by taking Net Income + D&A + Non-Cash
Charges CAPEX +/- Changes in Working Capital. (Note change in Working Capital is a +/-)
DCF = CF1/(1+r)+(CF2/(1+r)^2..+(CF5/(1+r)^5+FCFN(1+g)/(R g) (discount back to 5 or 10 yrs).
(Alternatively use an exit multiple to EBITDA/FCF/EBIT for the terminal value, discount back)
CF = Cash flow, R = Discount Rate, G = Long-Term Growth (Appropriate would be roughly GDP of ~25%)
A DCF is a poor metric for valuing cash flow negative companies or companies with hyper growth as
the terminal value can make up for north of 70% of the total valuation.
12. Why Do We Use 5-10 Years For A DCF?
This is a general convention as it is difficult to predict 10+ years of free cash flow for a firm. Depending
on the industry you can choose the most reasonable time frame to value the firm and attach a
terminal value at the end to come up with a valuation.
13. What Do You Do If The Growth Rate Exceeds Your Discount Rate? (Advanced)

If the growth rate exceeds the discount rate then your terminal value calculation becomes negative.
Assuming the numerator is positive the best course of action is to derive a lower long-term growth
number or adjust your discount rate on the terminal value calculation.
Note: This is likely the last question you are going to be asked on DCFs and will be more
conversational in nature.
14. What Are Some Problems With Using Comparable Companies Analysis?
While comparables are a great way to get an idea for the valuation of a company, no two companies
are exactly the same. A Company may have higher growth rates, better margins or lower risk (balance
sheet, size, better customers). This creates problems in justifying an exact multiple to be applied to
each company.
15. I Have Retail Comps Trading At X Valuations, How Would I Apply These Numbers To Value
Facebook?
Trick question. This is an are you thinking question. The answer is you should not apply oil/gas
comps to Facebook.
To be honest unless there is a reason why we would compare retail companies to Facebook it would
likely not make sense to compare retail companies to a technology growth company such as
Facebook. Technology comparables would be more appropriate.
16. What Multiples Would You Use To Value A Company?
There are many multiples that can be applied depending on the industry however a few would be.
1. EV/Sales
2. EV/EBITDA
3. Price/Earnings
4. Price/Free Cash Flow
5. Price/Book Value
Many others dependent on the space (know the other simple metrics they would use).

17. Assuming We Have The Prefect Multiples At 2x LTM Sales, 5x LTM EBITDA and LTM 10x
P/E. How Would You Estimate the Value of the Firm Given an LTM Income Statement?
Sales Multiple = LTM Sales * 2x (which is EV/LTM Sales) = Enterprise Value Estimate (Sales cancels
out)
EBITDA Multiple = LTM EBITDA * 5x (which is EV/LTM EBITDA) = Enterprise Value Estimate
(EBITDA cancels out)
P/E Multiple = LTM Net Income * 10x (Which is Equity Value/([Shares*Earnings Per share] = Net
Income)) = Equity Value
18. Which M&A Precedent Transaction Would Likely Lead To A Higher Multiple Or Valuation,
Private or Public? (Advanced)
It depends, however in general a small private take out would likely warrant a higher multiple as the
larger company that purchases the private company could immediately sell the product to a wide
variety of new customers and geographies. If the private company was distressed, not growing and
recent public companies have been acquired for high multiples, then the answer would switch.
19. In Simple Terms What Is An LBO?
A leveraged buy-out is a transaction in which a Private Equity Firm raises debt and buys a company
that it believes it can fix. In general terms the Private Equity firm believes it can improve the
Companys financials over the long-term and exit the transaction generating a profit by either selling
the company or taking it public.
20. A Company generates an additional $100M in revenue with gross margins of 40% and no
change to any operating expenses, what happens to the Income Statement?
The Company sees revenue increase by $100M, Cost of Goods Sold increases by $60M, Gross Profit
Increases by $40M, with no change to OPEX, Operating income also increases by $40M, if we
assume no change to other income/expense, Pre-tax income is also up by $40M, finally this is taxed
at ~40% which means net income increases by $24 and EPS increases as well with no change to
share count.

21. What is the difference between GAAP and Non-GAAP Earnings?


Many companies have non-cash charges such as stock based compensation, write-offs, amortization
and other non-cash expenses (no cash outlay occurs). So, non-gaap financials or pro-forma
excludes these charges and generally increases the Net Income and EPS of the Company.
22. What Are Basic Shares Versus Diluted Shares?
Basic shares exclude the impact of options (depending on the transaction may include warrants as
well). If a Company has several option contracts in-the-money then the diluted shares would include
the impact of such options being executed. As an example a company with a current share price of
$15 with many options at the $10 mark, the diluted shares would be higher than the basic shares.
23. How Do You Calculate Diluted Shares?
Note that if the options price is above the current stock price the options do not execute. In this case,
basic shares are equal to diluted shares.
Basic Shares + ((Current Stock Price In-The-Money Options Price)*Number of Options)
Normally companies have an options table in a 10-K or 10-Q filing that outlines tranches of options so
a table is necessary to calculate each tranche and add up the impact. Finally, diluted shares can also
be found in the 8-K earnings release each quarter, but it is best to calculate total shares outstanding
as the stock price changes.
24. A Company has a $100M write-down how does this impact the three statements?
Income Statement: Usually a write-down or one-time charge happens at the Pre-tax income line so a $100M charge is seen here, same 40% tax rate and you see net income decline by $60M.
Cash Flow: Net income declines by -$60M but the charge is added back so you have cash flow from
operations increase by $40M.

Balance Sheet: Cash increases by $40M, Retained earnings decline by -$60M, this is balanced by a $100M charge on the asset side.
25. What Happens To Your Three Statements If A Company Initiates A Dividend?
Income statement: No change however a line-item usually appears below the Income Statement to
show the $/share distributed.
Cash Flow: Cash flow from financing decreases by dividend amount.
Balance Sheet: Cash declines by dividend amount (Assets) this is balanced by a decrease in
Retained Earnings
26. What Is Treasury Stock?
Treasury Stock is stock purchased by the issuing company to reduce the amount shares outstanding
in the open market. Generally speaking, this is usually done as part of a buyback or repurchase
program where the Company buys back shares in the open market when it believes the current stock
price is undervalued.
27. What Happens To Your Three Statements If A Company Initiates A Share Repurchase
Program?
Income Statement: Total share count declines, increasing EPS, no change to Net Income
Cash Flow: Cash flow from Financing decreases by amount spent on share repurchases
Balance sheet: Cash declines by amount spent on buying back shares and balanced out by a change
in treasury stock a decrease in shareholders equity (usually a negative entry)
Note this is more advanced and will likely only occur if you tell an interviewer that Retained Earnings =
Previous Retained Earnings + Net Income Dividends. As this is yet another way to see if you
understand the 3 statements.
28. How Could You Use Premiums Paid On A Private Company With No Shares?
If we want to use premiums paid on a private company with no shares, one possible method would be
to derive an equity value for the firm by taking Net Income and multiplying by the best comparable P/E

Multiple to obtain an Equity value. At this point we can take the Equity Value which is no different than
Shares*Price = Market Cap and place the premiums paid percentage on the implied equity value.
29. Why Do We Calendarize Income Statements?
Companies have different fiscal year ends, so we cannot overlay companies with a Fiscal Year ending
in September with a Fiscal Year Ending March as it will create discrepancies when comparing the
quarters and years. As a convention we calendarize the statements to end in December across all
companies to make the comparisons apples to apples.
30. How Does Purchasing Inventory With Cash Impact The Income Statement?
No change to Income Statement. Cash flow from operations decreases by the purchase amount, cash
declines. This is balanced by an increase in assets (inventories) on the balance sheet.
Note: All else equal increases in current assets decrease CFO, increases in current liabilities increase
CFO.
31. How Would Inventories Impact The Income Statement?
When inventories are used to create products then it would be recognized as cost of goods sold or an
operating expense (depends on industry, what inventories are being used for). However, simply
purchasing inventories does not impact the Income Statement.
32. What Does It Mean When A Transaction Is Accretive?
This is when the Purchasing Company + Company Acquired combine and form a New Company
where Net Income increases post the combination. The transaction would be dilutive if the acquisition
causes Net Income to decline post the combination. The negative impact from the acquisition (interest
lost on cash, debt payments) should be offset by additional net income.
Rule of Thumb for Stock Transactions: If you buy a Company that is trading at a higher P/E the
transaction is more likely dilutive as you are paying more for earnings. If you buy a company with a
lower P/E it is likely accretive. Note, this is an all stock transaction, in all cash transaction you are
simply comparing pre-tax income to new debt interest payments and interest lost on your cash.

33. Why Would A Company Choose To Use Stock or Cash In A Transaction?


If the company could be acquired for a lower P/E the transaction would likely be accretive. In addition,
if the company has a great valuation it would want to use its peak price point to acquire a company to
take advantage of its high current stock price. In addition, the company may not have enough cash on
hand to buy the company and be unwilling to take out debt to finance the transaction.
On the cash side the transaction would likely be accretive, assuming the target company is profitable,
as the interest rate on cash is at all time lows of near 1%.
34. Who Would Pay More A Strategic Company Or A Private Equity Firm?
In general a strategic buyer would likely pay more as they can quickly recognize immediate synergies
from the transaction (revenue and cost saving). The companies are more likely than not in the same
space and distribution channels can be used by the acquiring company to expand the reach of the
new products and services. Private Equity firms have a tougher time realizing synergies as they
attempt to fix the business by stripping out operating expenses and attempting to grow sales
organically.
35. What Are Synergies In A Transaction?
Synergies are generally broken into two categories:
Revenue Synergies Acquiring company can sell to more geographies, combine with current portfolio
to bundle goods, up-sell to other products, further penetrate existing customers and address new
customer bases.
Cost Synergies The Company can reduce the cost structure by shutting down facilities, combining
facilities or reducing the head count.
36. What Is EBITDA? Followed By What Are The Flaws?
EBITDA is a proxy for cash flow, however the issue is that CAPEX is not included in the metric so a
Company could generate EBITDA for many years and still go bankrupt if CAPEX exceeds Cash Flow
from Operations

37. What Do You Use For A Discount Rate?


Generally you can use either the weighted average cost of capital (WACC) or calculate a rate (Cost of
Equity) based on the capital asset pricing model (CAPM).
WACC = ((Cost of Debt*(Debt/(Debt+Equity))*(1 Tax Rate))+(Cost of Equity*(Equity/(Debt+Equity))
Cost of Equity = Risk-Free Rate + ((Beta * (Market Return Risk Free Return))
Un-Levered Beta = Levered Beta / (1+((1-Tax Rate)*(Total Debt/Equity)))
Levered Beta = Un-Levered Beta * (1+((1-Tax Rate)*(Total Debt/Equity)))
38. What Is Working Capital? Followed By What Happens If Accounts Receivables Are
Increasing?
Working Capital is a metric that shows if a Company can pay off its short term liabilities with its short
term assets so it is calculated by taking Current Assets Current Liabilities. Depending on the
Company and industry it could be a good or bad sign (know the answer for the group youre
interviewing with).
Finally, while seeing accounts receivables increase can be a positive, it means more customers
should pay you in the future; it causes cash to go down as you have not received the actual dollars
from the customers just yet. (If you are a real rock-star you can look up the AR days for the group)
39. If A Companys Stock Price Increases By 25% Today What Happens To The Balance Sheet?
Nothing. Many people confuse Equity Value or Market Cap which is Shares * Price with Shareholders
Equity. Shareholders Equity is a Book Value Calculation.
40. With No Information Which Of The Three Statements Would You Use To Value A Company?
Assuming the Company is profitable, I would choose the cash flow statement as it can give me a
sense for the overall long-term value proposition. At the end of the day cash is king. We can use a
DCF, analysis, or even use Net Income as a proxy for Cash flows and derive some profitability

metrics. Now, if it was a rapidly growing and cash flow negative Company I would use a built out
projected income statement or Equity Research report as many multiples require income statement
projections.
Note: The only wrong answer here is really the balance sheet as it shows no long-term profitability or
cash flow metrics and is simply a snapshot of the companys assets and liabilities.
41. If You Could Choose Two Statements Which Would You Choose?
Balance Sheet and Income Statement as the combined statements can be used to generate a cash
flow statement.
42. Why Would A Company Buyback Its Debt?
If the Company is running into covenants such as Total Debt/EBITDA or EBITDA/Interest Expense,
the Company would likely need to buy back its debt. In addition the company may want to buy back its
debt because it can reissue debt at lower rates, perhaps some outstanding debt is significantly higher
than what they can receive in the market today.
43. What Are The Main Differences Between A Cash Transaction And A Cash Transaction
Funded By Debt?
In a debt transaction the interest expenses are higher, the leverage on the Company changes and you
have a higher chance of the acquisition being dilutive to earnings.
44. If Your Company Has Annual EPS That Is Decreasing Over The Next Five Years Is Your
Current LTM P/E Multiple Higher or Lower Compared To A 5-Year Out P/E?
Some people make quick errors and simply say higher, but the answer is lower. Your current price
does not change today so if your EPS is expected to decrease over the next 5 years you are seeing a
higher P/E multiple in the future.
Ex: $10/1 = 10x versus $10/$0.50 = 20x.

Note: This is a decent sanity check for comp sheets as well flip it around when looking at out years for
growing companies.
45. What Is In A Pitchbook?
A pitchbook can contain multiple sections or be quite thin depending on the content. A general
pitchbook for an M&A transaction for example could include the following: 1) Introduction to Bank with
tombstones of previous deals, 2) Overview of Company being pitched; 3) Combined model of said
transaction 4) Other valuation items (DCF, precedent transactions) 5) Comparable company analysis
in the back and 6) An appendix with an overview of team members and executive teams for the deal.
Note: Unlikely will be asked this without prior Investment Banking Experience.
46. How Do We Project Depreciation and Amoritzation and Capital Expenses (or Other Line
Items)?
For projection type questions keep it simple and use a percent of revenue for D&A/CAPEX or you can
use an annual run-rate. Notably, many companies also provide an estimated next year or NTM capex
spend in their filings.
For balance sheet items use a projection that is related to the item, (ex. Receivables should be linked
to sales, Payables to COGs, Expenses to OPEX). For overall revenue numbers you would use a
combination of guidance (public companies) or industry estimates (ex. Industry grows at GDP then
you would stick to using GDP as your annual revenue growth rate).
47. Can You Pitch Me a Couple of Stocks?
I like XYZ stock, it has ___, ___, and ___ going for it. In an upside case I see the stock going up XX
% and in a downside case I see the stock being flat/down XX%. Given this I see more positive than
negatives working for the stock making it well positioned compared to peers because of XYZ. Finally, I
think the balance sheet/cash flow/valuation is good because of XYZ metrics
The interviewee has implied many things, one you understand that you could be wrong with downside
cases. Two you understand companies are compared against one another well positioned compared

to peers. The last part while a bit vague, implies you at least understand the basics of finance and/or
valuation.
Now if you want to go deeper you have to draw in themes such as:
I like XYZ stock because I believe the investment community has XXX and XXX incorrect about the
stock. The reason why i believe this is because of reason 1, reason 2, reason 3. While the bears will
point to XXX and XXX Im more bullish on the name because of reason 1 and reason 2. Finally, from a
valuation perspective I believe the stock is undervalued due to XXX metrics
To further clarify heres an example that everyone could relate to (certainly choose a different stock to
be more differentiated).
Notably, if you would like to go deeper and know that they will be grilling you on reasons for
the stock here are some additional ideas:
1. Buzz phrases Believe selling is Overdone at these levels because people have baked in a
quarter that implies units/volume/metric are going to be down severely on a year over year basis.
2. Technicals Pull up a 20/50 day moving average and find and indicator to help back your
argument, just pased XYZ moving average
3. Disasters Maybe there was a blow up quarter last year in this space, you can use a y/y basis
and compare it to say when the Japanese Tsunami hit and the compares in that quarter on a relative
basis to the (insert most impacted industry) will be better
4. Read throughs Say for wahtever reason every single comparable company printed good/bad
numbers in units of XYZ Your company directly works with XYZ so there is likely upside this time
around versus prior
5. Pricing Say the company you are pitching has extremely high exposure to copper or any other
component could be a semiconductor etc So you say margins should expand and the stock hasnt
moved since the pricing of said component has dropped XYZ percent
Finally, have an opinion on the main bull/bear argument and take a side, if they argue heavily against
you read them and decide to hold your ground or to nod in agreement. Usually its better to hold your
ground in a non-attacking manner.
48. What is Investment Banking?

Investment banks earn fees by raising capital through Equity and debt offerings or by advising on
strategic transactions such as a merger or acquisition.
How to Prepare For an Interview Once You Know the Technicals and Behaviorals?
Bucket your Banks:
1. Boutique You want to emphasize your individualism and ability to work under higher
responsibilities a story involving you randomly being asked to do a much harder task last second will
flatter your interviewer
2. Middle Market You want to see where the platform is expanding to compete with the big boys
all of them are trying to be bulge brackets, so find that spot and bring up positive transactions in that
spot. Flattered again.
3. Bulge Bracket Explain why that BB is the best. This one is much harder unless youre at MS or
GS because they already have through the roof egos.
Bucket your Interviewers:
1. Managing Directors Basically a MD or Director only cares about two things 1) will this guy be
happy if we crush him with 48 hours of work. 2) will this guy be decent in front of clients long-term? So
with that said since he is the most important here is the breakdown:
Reason why his group/sector
Name drop some info BEYOND his major deal so it shows you did research (I would name drop the
major deal and then another one maybe 2-3 deals back in time so it implies you keep your eye on the
market)
Have your story IRON clad strong, he will absolutely ask you about your history/why you want to do
it
Be happy not nervous. This sounds lame and stupid but its the truth. When you pick up the phone
people can feel your personality immediately. This separates average people from good workers in
some cases. He wants to be talking to someone who has a positive attitude.
Have a sector/stock in mind with some basic investment thesis high level (tablets versus PCs
would be an example everyone would be aware of) but of course choose one related to the space.
2. Vice Presidents Have your intensity up here. These guys are in the rockiest part of finance.
People are into themselves so they will feel only as they feel themselves. So the point is be MUCH
more professional. Give very very conservative answers. No joking around. Youre going to give
humble, professional answers that are correct. No rounding write out numbers on your note pad so it

makes it obvious you double check your work.


3. Associates In between an analyst and associate so sometime you can joke a bit, these guys are
bitter but not as bitter as a second/third year analyst so veer on the side of professionalism and try to
make some sort of connection.
4. Analysts Towards the tail end of the interview, you may be able to lighten up. Of course you can
read them and if they are super bankers like the VP type personality then yeah veer on side of
professionalism, but this is just bonus points because they dont make major decisions anyway. If you
have to choose always get the higher ranked analyst to like you.
Bucket your Products:
M&A Choose one mega deal and one niche deal that you can speak to, always start with major deal
so they can toot their horn and flip to the smaller deal. (this is done in Q&A). Basically you make their
mood positive then turn on the i did my research bulb in their head and now they think hmm hes
a good hire
ECM/DCM Emphasize your salesmanship more here because youre going to be doing tons of
pitches and chasing deals and your MDs are going to get paid on that deal closing. They have less
interest in your ability to put an Acc/Dil model together because you wont.
Consumer/Tech/Financials Know the metrics the company is valued on and drop this in the
interview. A smart way to do it would be during Q&A when they say hey so do you have questions for
me. If youre going to work with Financials bankers you can drop some stock you like in the REIT
sector then talk about how its trading at X.X to book value This does two things, gets convo flowing
about if the guy invests in the sector and shows you understand one of the main valuation methods for
that space.
Geographically Lock Yourself In:
If youre interviewing in NYC somehow put a strong tie to NYC and how your family or some other
jargon is tied up here so thats why youre location specific to that area. This gives them a very
minimal but important psychological selling point on why you would bother staying in that area. Again
they want to make sure you are not a one and done