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 inance Interviews and the !erger
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 intervie! - if you come off as
!ell-spoken and sharp here, the rest of the intervie! is smooth sailing"# $ocus on your strongest
accomplishments and use the opportunity to differentiate yourself from the other people
applying#
%sually the background speech !ill end !ith a &uestion about !hy you !ant to !ork in the
industry# 'ou may have touched upon that !hen you talk about choosing your ma(or, but they)ll
!ant a formal response# Make sure to know the industry and what it does. *nvestment banks
typically connect people that have capital (investors" !ith the people that need capital
(corporations, governments, etc#" and advise on strategic transactions#
Prepare 3 strong reasons !hy you !ant to do that (ob#
Prepare 3 &ualities that make you a good fit for the (ob#
+*P, -ave examples from your previous !ork experience that
describe this ability#
..+*P, -ave an example for everything/ 0ased on the general flo!, pick and choose the times
you !ant to use your example, it may not be for everything# 0e &uick !ith these#
1no! a fe! things that separate you from the rest of the applicants# 2nce again, the &ualities,
strengths, and this &uestion all sound pretty much the same, but it)s important you kno! the
variations# 'ou can try and institute !hatever ans!er you are most happy !ith for any of these
&uestions#
1no! 3 one-!ord characteristics a friend might describe you as# 1no! 3 character fla! a friend
might say about you# 4lso, have a fe! !eaknesses ready# 5hen you ans!er, don6t call them
7!eaknesses8 call them 7areas to improve8 and make sure they are not dealbreakers#
1no! !hat you think the difference is bet!een a good analyst and a great analyst is# 4 great
analyst is al!ays gro!ing, asking &uestions, and learning something kne! each day# 4lso, a
great analyst !ill never make the same mistake t!ice#
1no! !hat you !ould do if you !ere over!helmed !ith the !ork you !ere supposed to get
accomplished and !eren)t going to be able to get done#
1no! 3 things that you are passionate about outside of school and !ork#
1no! your favorite movie and your favorite book#
-ave an industry that you are interested in prepared# 1no! some of the important multiples for
this industry (P9:, :nterprise ;alue9:0*+<4, gro!th rate"#
1no! !hat you might !ant to do in =-30 years#
1no! !hat the company stands for#
1no! one recent deal the company has done#
1no! the company)s chairman or >:2#
1no! the company)s stock price#
1no! the difference bet!een :nterprise ;alue and :&uity ;alue#
1no! !hat ?inority *nterest is#
1no! !hy :nterprise ;alue multiples have corresponding denominators such as :0*+9:0*+<4
or @ales#
1no! !hy :&uity ;alue multiples have corresponding denominators such as Aet *ncome#
1no! 3 !ays to value a company#
1no! important assumptions that go into a <>$#
1no! ho! to calculate unlevered and levered free cash flo!s# 1no! ho! and !hy different
cash flo!s give you different values# %nlevered cash flo!s !ill give you the :nterprise ;alue of
the firm because it represents cash flo!s to everyone that has a claim on the firm# Bevered free
cash flo!s only represent flo!s to e&uity holders and !ill give you the :&uity ;alue of the
company#
1no! ho! the financial statements link# $or example, if depreciation is C30m more than
expected, ho! !ould that flo! through the financial statements# *n these &uestions, * think it is
best to start !ith the *ncome @tatement, then move on to the >ash $lo! @tatement, and do the
0alance @heet last to double check your !ork so 4ssets D Biabilities E :&uity
1no! ho! and !hy to unlever and lever betas#
1no! >4P? (>apital 4sset Pricing ?odel" and ho! it is used to calculate the cost of e&uity# *t
is, >ost of :&uity D risk free rate E 0eta . (Feturn of ?arket Fisk $ree Fate"# Generally banks
think of the 30-year +reasury note as a rough proxy for the risk free rate#
1no! ho! to calculate 54>>#
1no! the hierarchy of securities - the cost of e&uity !ill 4B54'@ be greater than the cost of
debt#
1no! !hy 54>> decreases as level of debt increases up to a certain point# (:ven though cost
of debt and cost of e&uity both !ould increase, the relative values change#"
1no! 3 !ays an executive could manage earnings# (e#g# <H4 assumptions, accounting for
receivables, etc#"
1no! the ranges of valuations that methods !ould give you# (?arket ?ultiples, Precedent
+ransactions, <>$" Precedent +ransactions add a premium, they !ill provide the highest
valuation# ?arket multiples and <>$ !ill be close to each other# 1eep in mind that <>$s are
sub(ective as !ell the value depends a great deal on several key inputs# +hus if they say, the
company is valued at C3=0, C3==, and C300, !hich method !ould go !ith !hich valuation and if
you !ere going to advise a manager on ho! much they !ould have to pay right no! for a firm
!hat !ould it be# 4ns!er, 300#
1no! about the importance of taxes and tax shields# (e#g # if <H4 !ent up by C30mm, !hat
effect does this have on A*I" 4ns!er, A* goes do!n by Jmm if taxes are 40K# 0e able to flo!
this through the statements#
1no! the difference bet!een capital and operating leases and ho! they are treated on the >ash
$lo! @tatement#