Investment banking interview questions

Give a reason only you could give, from work you did yourself. Say why banking beats the nearest alternative for you, such as lending, corporate finance or consulting, then finish on what you want to learn and what you'd bring.

Give two or three reasons specific to this bank, like its strength in a sector you care about or the group's recent deals. Prove each with a conversation, who you spoke with and what you learned. Then say how you would contribute as an analyst.

Most of the day goes to building models, making pitch books and checking every number and page. On live deals you also run data rooms and diligence lists. Late nights come from client deadlines and rounds of comments. Show you value getting details right.

Give one clear reason banking fits better than each option, ideally from experience like a consulting internship. Respect both paths, be honest about any buy-side interest, and say why analyst training comes first. End committed to banking for now.

Skip the bravado. Show you know the hard part is hours you don't control, back it with a demanding schedule you've kept up and what analysts told you, and tie the hours to what you'll learn as an analyst.

Root the switch in past work: a moment where the financial question mattered most, then one that pointed to banking. Show concrete preparation, like courses, a model and conversations, and say what your background adds and what you're still building.

Pick a real dilemma with pressure from someone, like a request to book revenue early. Say no clearly with the reason, take it to the person whose call it is, offer a fair alternative, and stay fair to the other person.

Tell the VP tonight with the fix ready and let them decide what the client hears. Confirm and size the error first, send a short note of what changed, match the urgency to the stakes, and own the mistake.

Pick the two or three resume lines that explain why you're applying and tell them as one story, with a detail the page leaves out. Keep it under two minutes, and close on the job you're interviewing for.

Give two or three reasons you fit the role, each tied to what the job needs and proven with a short story. Use evidence, not trait labels. Close with where you would add value in your first months and how you would ramp up fast.

Name two strengths the role needs, like structuring messy problems or earning client trust. Prove each with one specific moment where your action changed the outcome, ideally with a number. Skip adjectives without evidence, and tie both back to the job.

Name a real weakness that is not core to the job, like holding work too long before sharing it. Give one time it cost you, the specific fix you use now and proof it is improving. Admit it still shows up sometimes.

The extra work has to come after your own was done. Explain what you noticed, why it mattered to the client or team, and how you got your manager on board. The payoff is a measurable result someone else noticed.

Describe a real crunch and the numbers behind it. Show you flagged it early, laid out the trade-offs and let your manager choose what slipped, instead of silently working nights. Say what shipped, what moved and how you raise risks sooner now.

Use feedback that mattered and quote what you heard. Admit your first reaction, then show you checked whether it was fair using a real example. Explain the change you made, how you asked for follow-up, and the measurable result.

Answer with a future at this firm, such as leading client teams in a sector you care about. Tie it to work you have enjoyed, name the skills you need to get there, and keep it realistic without sounding like you plan to leave.

Yes, two or three, about things only this person can answer. Ask about their own work, what separates strong performers in their group, or a hard call they made, and follow up on what they say. Skip anything a website answers.

Start with why you want to own businesses rather than advise on them, with a longer horizon and responsibility after closing. Tie it to a deal where you wanted to see what happened next. Then show you want to judge investments and work with management.

Net income from the income statement starts the cash flow statement and, after dividends, adds to retained earnings. Cash flow adjusts for noncash items and working capital, then investing and financing. Ending cash becomes balance sheet cash, and PP&E, debt and equity change to match.

Assume a 25% tax rate. On the income statement, pretax income falls $10, taxes fall $2.50 and net income falls $7.50. On cash flow, add back $10, so cash rises $2.50. On the balance sheet, net PP&E falls $10 and retained earnings fall $7.50.

At purchase, nothing hits the income statement. The cash flow statement shows $100 of debt raised in financing and $100 of capex in investing, so net cash is unchanged. On the balance sheet, PP&E and debt both rise $100. Interest and depreciation hit income later.

Working capital is current assets minus current liabilities. For cash flow, use operating working capital, receivables plus inventory minus payables. When it rises, cash is tied up, for example when customers pay later, so the increase is subtracted in free cash flow.

EBITDA is earnings before interest, taxes, depreciation and amortization. Bankers use it as a rough cash flow proxy that compares companies regardless of debt, taxes or depreciation choices. But it ignores capex and working capital, so it overstates the cash a business produces.

Nothing hits the income statement yet, because inventory becomes COGS only when sold. Operating cash flow falls $10, so cash falls $10, inventory rises $10 and total assets are unchanged. If it later sells for $20 at a 25% tax rate, net income rises $7.50.

On day one there is no revenue yet. Cash and deferred revenue both rise $100, and operating cash flow is $100. Over the year, $100 of revenue is recognized, net income is $75 at 25% tax, deferred revenue falls $100 and cash falls $25.

At 25% tax, if deductible, net income falls $75, the $100 is added back, and cash rises $25 from the tax saving. The asset falls $100 and retained earnings fall $75. If not deductible, a $25 deferred tax asset replaces that cash.

At 25% tax with no COGS, revenue rises $100 and net income $75. On cash flow, subtract the $100 rise in receivables, so cash falls $25 for taxes. Receivables rise $100, cash falls $25 and retained earnings rise $75.

SBC is a $10 noncash expense. At 25% tax, net income falls $7.50. Cash flow adds back $10, so cash rises $2.50. On the balance sheet, paid in capital rises $10 and retained earnings fall $7.50. The real cost is dilution.

PIK interest is paid by adding it to the loan instead of paying cash. At 25% tax, $10 of it cuts net income by $7.50. Cash flow adds back $10, so cash rises $2.50. Debt rises $10 and retained earnings fall $7.50.

The cash flow statement. It shows whether profit turns into cash, which is harder to dress up than earnings. Compare operating cash flow with net income, check working capital and capex against depreciation, and see how it is funded. It does hide margins.

Profit books revenue when earned, but cash arrives only when customers pay. Fast growth ties cash up in receivables and inventory, and capex and loan repayments drain it. So $10m of profit can burn $10m after $14m of working capital, $5m capex and $4m repaid.

Goodwill comes only from acquisitions. It is the purchase price minus the fair value of the target's identifiable net assets, not their book value. Pay $500 million for $350 million of net assets and goodwill is $150 million. It is tested for impairment, not amortized.

Capitalize a cost when it brings benefits beyond this year, then depreciate or amortize it. Expensing $100 cuts this year's pretax income by $100. Capitalizing it over five years cuts it by $20, moves the cash outflow from operating to investing, and raises EBITDA.

FIFO sends the oldest costs to COGS, and LIFO sends the newest. When costs rise, LIFO gives higher COGS, lower profit and taxes, more cash after tax, and inventory carried at older, lower costs. Falling costs reverse this. IFRS bans LIFO.

It is tax deferred because taxable income is below book income now, often from faster tax depreciation. With $40 of tax depreciation and $20 of book depreciation at 25%, the liability grows $5. It reverses later. Increases are added back in operating cash flow.

Under US GAAP both go on the balance sheet. Finance leases transfer ownership, carry a purchase option the lessee will use, or cover most of the asset's life or value. Operating leases book one rent expense above EBITDA, finance leases depreciation and interest below.

Unlevered free cash flow, also called free cash flow to the firm, ignores how the company is financed: NOPAT plus D&A, less capex and the build in working capital. Levered free cash flow subtracts after-tax interest and mandatory principal, so it belongs to shareholders alone.

Define an NOL as a tax loss carried forward to cut future taxable income. Give the current US federal rules, no expiry and an 80% annual cap, work a quick example, then mention the deferred tax asset and the Section 382 limit in deals.

Define cash accounting by when cash moves and accrual by when revenue is earned and costs incurred. Give a December project paid in January, note that public companies must use accrual, and tie it to the cash flow statement.

Name the two sources: tax losses carried forward and costs expensed before they're deductible, like a warranty reserve. At a 25% rate, $100 of losses is a $25 asset. Mention the valuation allowance and that a rise reduces operating cash flow.

Say a 30% stake gives influence without control, so the equity method applies: one line on each statement. Add your share of earnings to the investment, take dividends out of it, and subtract the stake in the bridge to enterprise value.

Answer in five steps. Project unlevered free cash flow for five to ten years. Discount it at WACC. Add a terminal value from perpetuity growth or an exit multiple, discounted back. Sum both for enterprise value. Subtract net debt and divide by diluted shares.

WACC blends what lenders and shareholders require and discounts unlevered free cash flow. Weight the CAPM cost of equity and the after tax cost of debt by market value. With 70% equity at 10% and 30% debt at 6% taxed at 25%, it's 8.35%.

Equity value belongs to shareholders. Enterprise value is the business's value to all capital providers. From equity value, add debt, preferred stock and noncontrolling interest, then subtract cash. Pair enterprise value with pre interest metrics like EBITDA, and equity value with net income.

Use three methods and compare the ranges. Comparable companies apply peer trading multiples. Precedent transactions apply multiples paid in past deals, which include a control premium. A DCF discounts projected free cash flow at WACC. Lean on the DCF when cash flows are predictable.

Investors pay more for faster growth, lower risk and better earnings quality. The higher P/E company usually grows faster, has steadier earnings or earns higher returns on capital. Also check one off items, leverage and cash conversion, since more debt means more risk.

Skip a DCF when cash flows cannot be forecast or free cash flow is the wrong measure. For early startups, use revenue multiples. For banks and insurers, debt is part of operations, so use dividend models or price to book. For distress, use liquidation value.

Use perpetuity growth or an exit multiple, then discount to today. Perpetuity growth is next year's FCF over WACC minus growth, so $204 million at a 10% WACC and 2% growth gives $2,550 million. An exit multiple applies a peer multiple to final year EBITDA.

Start with revenue and subtract cash operating costs for EBITDA, then D&A for EBIT. Tax EBIT, not pretax income, and skip interest because unlevered cash flow ignores financing. Add back D&A, then subtract capex and the increase in net working capital.

Use CAPM: the risk free rate plus beta times the equity risk premium, so 4% plus 1.2 times 5% is 10%. Take beta from relevered peer betas and the risk free rate from a long term government bond. It must exceed the cost of debt.

Beta measures how a stock moves with the market, not its total volatility. Peer betas include their debt, so unlever them and relever at your target debt. At 25% tax, a 1.3 beta at 40% debt to equity unlevers to 1.0, then 1.45 at 60%.

Subtract cash because the buyer pays for the equity, takes on the debt and gets the cash. With $1,000 equity, $200 debt and $300 cash, EV is $900. With $150 equity, $50 debt and $300 cash, EV is negative $100, often from cash burn.

Pick close peers by business model, size, growth, margins and geography. Build each peer's enterprise value from diluted shares, then compute EV to EBITDA and P/E on clean, matched periods. Apply a range around the median and bridge enterprise value to equity value.

Precedent transactions usually give the highest value because buyers pay a control premium. Then comes the DCF, which swings with assumptions, then trading comps, which reflect minority prices. An LBO is often lowest because target returns cap the price. Hot markets can change the order.

Use EV/EBITDA when companies carry different amounts of debt, since both sides ignore financing. Use P/E when earnings to shareholders are the point, and for banks and insurers, where debt is part of operations. Always pair EV with pre interest metrics.

Count in the money options and warrants, assume they are exercised, and use the exercise cash to buy back shares at today's price. With 100 million shares and 10 million options struck at $10 and the stock at $20, net new shares are 5 million.

First ask why it loses money, early growth or a broken model. P/E and EV/EBITDA stop working, so use EV to revenue against peers with similar growth and gross margin. Build a DCF out to mature margins, and test unit economics to check them.

Lenders are paid first and have claims on assets, so they accept lower returns than shareholders. Interest is also tax deductible, so 6% debt at 25% tax costs 4.5%. But too much debt raises bankruptcy risk, which lifts the cost of both.

Say neither changes. Debt and cash both rise by $100, so they cancel in enterprise value, and shareholders hold more cash but owe the same amount more. Then cover the follow-ups: a dividend or buyback cuts equity value, a factory raises enterprise value.

Explain that a parent consolidates 100% of a majority-owned subsidiary's EBITDA while its market cap reflects only its own stake. Adding the outside owners' share keeps the multiple consistent. Show it with numbers and contrast it with equity investments, which are subtracted.

Say precedents value a company on prices paid for whole similar companies, so they include a control premium. Then give four steps: pick the deals, build each deal's enterprise value from the offer price, compute LTM multiples, and apply the median and range.

Start from the business model, not the industry label, then filter on size, growth, margins and geography. Build the long list from filings, research and a screen, keep five to ten close peers, and drop outliers like a company under a takeover offer.

Define it as a bar chart lining up the value range from each method on one scale. Say where the ends of each bar come from, then read it three ways: the overlap, the outlier and an offer price against every bar.

Say value falls either way and the higher discount rate usually hurts more, because WACC discounts every cash flow while growth only touches the terminal value. Prove it with a quick DCF, and note that growth drops out with an exit multiple.

Give about 2% to 3% for a mature company, never above long-run nominal economic growth. Reject 6% for three reasons: it lasts forever, growth needs reinvestment the cash flow ignores, and the terminal value balloons as growth nears WACC.

Tie it to EBITDA. Add an unfunded pension like debt, often after tax. Under US GAAP operating lease rent is already in EBITDA, so leave that liability out, under IFRS add it, and treat every comp the same way.

Match the multiple to what drives value: P/E and price to tangible book for a bank, price to FFO and AFFO for a REIT, EBITDAX and reserves for an oil producer, and revenue or EBITDA multiples for software depending on maturity.

Use the same methods but adjust the inputs: normalize owner pay and one-time items, relever peer betas for the discount rate, apply a marketability discount only to minority stakes, and look for hidden debt-like items in the bridge.

Define it as the percentage paid above the unaffected share price to buy the whole company. Explain why control has value, give about 20% to 40% as a rough range, and measure from the price before any leak.

Use today's borrowing cost, not old coupons: the yield to maturity on traded bonds, or a rating-based spread over the risk-free rate. Then tax-effect it for WACC, so 5.75% becomes about 4.3% at a 25% tax rate.

Explain that cash arrives through the year, so year one is discounted half a year, year two 1.5 years, and so on. Value rises about 4.9% at a 10% WACC, and an exit-multiple terminal value stays at year end.

Say it's normal, often 60% to 80% of a DCF, because a long-lived business earns most of its value after the forecast. Then normalize the final year, cross-check both methods, show sensitivities, and worry above about 85%.

Give all four first: WACC dips, enterprise value is flat or up by the tax shield, equity value falls about $1 billion and the price drops about $10. Holders keep the dividend, so they gain the shield, about $2.50 a share.

Compare the buyer's pro forma EPS with its standalone EPS. Combine net incomes, subtract after tax interest lost or paid, add synergies, subtract new amortization, and divide by new shares. In all stock deals, a buyer P/E above the target's offer P/E is accretive.

A merger model tests whether a deal raises or lowers the buyer's EPS. Set the price and financing mix, combine income statements, adjust for lost interest on cash, new debt interest, synergies and new amortization, add new shares, then compare pro forma EPS with standalone.

Synergies are extra profit the combined company earns that neither could earn alone. Trust cost synergies, like closing duplicate offices, over revenue synergies, because management controls cuts while customers decide on cross selling. Phase them in, subtract integration costs, and check they exceed the premium.

On cost, cash usually comes first, then debt, then stock. At 25% tax, cash earning 4% costs 3%, debt at 6% costs 4.5%, and stock at 20x earnings costs its 5% earnings yield. At 40x, stock costs 2.5%. Stock dilutes but shares risk.

Prepare materials and a buyer list, send a teaser, sign NDAs and share the information memorandum. Collect first round bids, give a shortlist data room access and management meetings, then take final bids on a marked up purchase agreement. Negotiate, sign, get approvals and close.

Because buying can be faster or cheaper than building. Group reasons into growth, synergies, new capabilities and defense against rivals, with financial reasons secondary. A deal creates value only if benefits exceed the premium, and overpaying, inflated synergies or poor integration destroy it.

Lead with synergies, which make the target worth more inside a strategic, and put a number on them. Then say what caps a sponsor's price, its return hurdle and the debt lenders will provide, and when a sponsor wins anyway.

Separate EPS from value: a deal creates value if it earns more than the cost of capital. Then give concrete reasons, a fast-growing target, synergies that arrive later and non-cash amortization, and say dilution still needs a believable path to accretion.

Define it as part of the price paid after closing only if agreed targets are hit, used to bridge a valuation gap. Say where it fits, why disputes arise once the buyer runs the business, and how US GAAP records it.

Pick a deal you know well and give the price, the multiple, the premium and how it's paid. Explain why the buyer wants the target and what the financing does to leverage, then give your own view and the risks you'd watch.

Say a stock deal buys the shares and every liability, while an asset deal buys chosen assets and steps up their tax basis. Explain why buyers want the step-up, why sellers often prefer stock, and how a 338(h)(10) combines the two.

Walk through five steps: the client's criteria, screening from a long list to profiled targets, valuation with a merger model and a walk-away price, the approach or auction bid, then diligence, financing and closing. Contrast it with the sell side.

An LBO is a purchase funded mostly by debt that the company itself repays. Follow the money: what the buyer pays and who funds it, the cash that pays down debt over about five years, and the sponsor's take at the sale against its stake.

Stable, predictable cash flow that can service debt through a downturn comes first. Add low capex and working capital needs, recurring revenue and low cyclicality, then a strong management team, room to cut costs, a reasonable entry price and a clear exit.

MOIC is total proceeds divided by investment and ignores time. IRR is the annual return that sets NPV to zero. 2x in two years is about a 41% IRR, while 3x in five is about 25%, so they can rank deals differently.

Returns come from EBITDA growth, debt paydown and multiple expansion. If EBITDA goes from $100 million to $140 million, the multiple from 8x to 9x and debt from $500 million to $300 million, equity gains $660 million, split $320 million, $200 million and $140 million.

Uses are what the deal pays for, the equity purchase price, refinanced debt and fees, say $700 million, $300 million and $30 million, or $1,030 million. Sources are how it is funded, new debt, rolled equity and sponsor equity, which is the plug.

The company takes on new debt and pays it out as a dividend to the private equity owner, without selling anything. The sponsor gets cash early, which lifts IRR, though extra interest trims the final multiple. The cost is higher leverage and less cushion.

List them by seniority. Senior secured bank debt includes the revolver for working capital, an amortizing Term Loan A and a covenant lite Term Loan B. High yield bonds with bullet repayment come next, then mezzanine, often with PIK interest. Cost rises as priority falls.

Start with how stable cash flow is, then test leverage and interest coverage after capex. With $100 million EBITDA, $20 million capex and 8% interest, 5x debt costs $40 million a year. A 30% EBITDA drop leaves $50 million, only 1.25x coverage, so choose 4x.

Go in order: purchase price, debt and equity, exit value, the debt still owed, equity at exit. Here $900 million back on $400 million is 2.25 times, about 17.6% a year, and the whole gain comes from EBITDA growth.

Define it in one sentence, then explain that debt shrinks the sponsor's check while it keeps all the value above the debt, which raises returns when the business beats the after-tax cost of debt. The limit is servicing the debt in a downside.

Name the three main exits, a sale to a strategic, a sale to another sponsor and an IPO, with a reason and a drawback for each. Separate partial liquidity, like a dividend recap, and say good sponsors plan the exit before they buy.

Say the debt is fixed, so a one-turn drop in exit enterprise value comes entirely out of equity. In the example, one turn on $120 million of EBITDA cuts equity by 40%, from 2.2 times to 1.8 times the money.

Work backwards: take exit equity, discount it at the target return to find the most equity you can invest, then add the debt lenders will give. With $900 million of exit equity, 20% over five years allows about $360 million.

Define it as using spare cash to repay debt early. In the model, pay mandatory amortization first, keep minimum cash, then sweep to prepayable loans by seniority. In the loan agreement, an excess cash flow sweep forces part of it.