Investment banking interview questions
62 questions. Every investment banking question in the library, in the order an interview usually runs: fit and behavioral first, then accounting, valuation, M&A and LBOs. Each page takes one spoken answer from weak to strong and checks the numbers.
Fit and behavioral
- Why do you want to go into investment banking?
- Why do you want to work at this bank?
- What do you think an investment banking analyst actually does all day?
- Walk me through your background and why you are here today.
- Why should we hire you?
- What are your greatest strengths?
- What is your biggest weakness?
- Tell me about a time you went above and beyond.
- Tell me about a time you had more work than you could finish on time.
- Tell me about a time you received tough feedback.
- Where do you see yourself in five years?
- Do you have any questions for me?
Accounting
- How do the three financial statements link together?
- Depreciation goes up by $10. Walk me through the three statements.
- A company raises $100 of debt to buy equipment. Walk me through the three statements at the time of purchase.
- What is working capital, and why does it matter for cash flow?
- What is EBITDA, and why do bankers use it?
- A company buys $10 of inventory with cash. Walk me through the three statements.
- A customer pays $100 upfront for a year of service. What happens on the three statements on day one, and after the year?
- A company writes down an asset by $100. Walk me through the three statements.
- A company makes a $100 sale on credit. What happens on the three statements?
- A company records $10 of stock-based compensation. Walk me through the three statements.
- What is PIK interest, and how does $10 of it flow through the three statements?
- If you could look at only one financial statement to judge a company, which would you choose and why?
- How can a company be profitable and still run out of cash?
- What is goodwill, and how is it created?
- When does a company capitalize a cost instead of expensing it, and why does it matter?
- What is the difference between LIFO and FIFO, and how does the choice change the financial statements?
- What is a deferred tax liability, and where does it come from?
- What is the difference between an operating lease and a finance lease?
Valuation
- Walk me through a DCF.
- What is WACC and how do you calculate it?
- What is the difference between enterprise value and equity value?
- How would you value a company?
- Two companies have the same earnings but trade at different P/E multiples. Why?
- When would you not use a DCF to value a company?
- How do you calculate terminal value in a DCF?
- How do you get from revenue to unlevered free cash flow?
- How do you calculate the cost of equity?
- What is beta, and why would you unlever and relever it?
- Why do you subtract cash to get enterprise value, and can enterprise value be negative?
- Walk me through a comparable company analysis.
- Which valuation method usually gives the highest value, and why?
- When would you use EV/EBITDA instead of P/E?
- How do you calculate diluted shares with the treasury stock method?
- How would you value a company that is losing money?
- Why is debt cheaper than equity?
Mergers and acquisitions
- How do you tell whether an acquisition is accretive or dilutive?
- Walk me through a merger model.
- What are synergies, and which kind would you trust more?
- Would a buyer rather pay for an acquisition with cash, debt or stock?
- Walk me through a sell-side M&A process.
- Why would one company want to acquire another?
LBOs and private equity
- Walk me through a basic LBO.
- What makes a company a good LBO candidate?
- Why private equity?
- What is the difference between IRR and MOIC?
- Where do the returns in an LBO come from?
- Walk me through the sources and uses in an LBO.
- What is a dividend recapitalization, and why would a private equity firm do one?
- What kinds of debt are used in an LBO?
- How do you decide how much debt a company can support?
What these questions test
- Fit: whether your reasons for banking come from something you have done, and whether you know what an analyst does all day.
- Technicals: whether you can carry a change through the three statements and walk through a DCF in order, with your assumptions stated first.
- Deals: whether you can say why a merger raises or lowers earnings per share and where a buyout's returns come from, with quick math.
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