Investment Banking Interview Questions & Answers

If you ‘re new here, please pawl here to get my FREE 57-page investing banking recruiting usher – plus, get weekly updates so that you can break into investment bank. Thanks for visiting ! investment banking interview questions If you ever Google “investment banking interview questions”, you could easily find yourself depressed.

There are endless books, articles and message board threads where people complain about unfair investment bank interviews, and horror stories about “ bad hook ” interviewers. At first glance, it might seem like the interview preparation work for investment deposit is next to impossible. But I’d suggest that everyone is over-complicating it. investment bank interviews are not rocket skill, and this article will unpack every type of interrogate you ’ re likely to face in bank interviews ( and how to answer them ). Let ’ s start with this summary infographic ( scroll down to go straight to a more detail analysis ) : Investment Banking Interview Questions & Answers Infographic

Intelligent Preparation For Interview Questions

first, eminence that this article is about investment bank interview questionsnot the overall process, how to win interviews, or what to do before and after the interviews. For those, see our articles on how to get into investment bank, investment bank recruitment, and the investment bank diligence. second, I ’ molarity going to link and refer back to our existing coverage for many of these questions since the most crucial ones have dedicated articles on this locate .

The key homework point is this : Rather than memorizing 541,763 questions and answers, you should focus on the main question categories and make indisputable that you have stories and examples prepared for them .

There are only four types of questions you ’ ll brush in interviews at investing banks, and you can prepare for 3 / 4 of them in 1-2 days ( or less ). The last category – technical foul questions – will take more time and attempt, but you can save time by focusing on the right topics and ignoring the fluff .

Investment Banking Interview Questions Category 1: Your Story

There is alone one question in this category, though it may be phrased in different ways :

  • “Tell me about yourself.”
  • “Walk me through your resume.”
  • “Why are you here today?”
  • “Tell me about your experience.”

Each of these phrases should trigger the “story reflex” in your brain and set your 200-300-word pitch into motion. This question is the single most significant one in any interview, so if you do nothing else to prepare, please take 30-60 minutes to outline your fib !

Sample Questions and Answers:

I ’ ve already listed the main interrogate variations above. For sample answers, hera are a few examples of how you can answer this wonder like a professional, taken from our article on how to answer the “ Walk me through your resume ” question : And if you ’ re more of a ocular learner, here ’ s a television tutorial on how to answer the “ Walk me through your curriculum vitae ” question :

Investment Banking Interview Questions Category 2: “Fit” Questions

This category includes questions such as :

  • “What’s your greatest strength?”
  • “What’s your greatest failure?”
  • “Tell me about a team activity that did not go as planned.”
  • “Why is your GPA on the low side?”

All questions that are not related to your story, deal/market/company discussions, and technical concepts are in this category. You can get a broad range of questions here, but you don ’ t need to memorize a wide image of answers – just come up with 2-3 examples that you can recycle for everything. We explain how to do that in the article on investment banking fit questions, but in light : First, you should outline 3 “ short stories ” – a leadership floor, a “ success ” history, and a “ failure ” report. These should come from your ferment know, but 1-2 can be from school if you ’ re an undergraduate or late alumnus. Next, you should select 3 strengths and 3 weaknesses based on what bankers want to see ( hard knead, drive, ability to work long hours, attention to detail, fiscal skills, leadership, etc. ). possible, not-completely-terrible weaknesses might include your inability to delegate tasks well, second-guessing yourself when making decisions, not managing your time well, or not always speaking up when a teammate has made a mistake. Finally, you should prepare for the cardinal objections that bankers will raise about your background : Did you not attend top universities ? Are your grades on the low side ? Do you not have much work experience ? Are you excessively honest-to-god ? Did you not major in something technical foul ? Are you a job grasshopper ? Compare yourself to the ideal candidate and pinpoint how you ’ ra different. once you ’ ve done that, you can practice with this television tutorial, and the sample questions that follow :

Sample Questions and Answers:

QUESTION: “ What ’ s your greatest force, and what ’ s your greatest helplessness ? ” ANSWER: Your greatest military capability should be easy ( see the tilt above – pick one and support it with a quick narrative ). For your greatest helplessness, pick one that ’ s “ real, ” but not besides damaging for the function. For exemplar, don’t say you can ’ t delegate tasks well at the Associate level since you ’ ll have to do that all the time, particularly as you advance. If you say that you take besides hanker to make decisions, express it and then back it up with your “ bankruptcy ” report such as how it took you excessively long to remove a team extremity who wasn ’ metric ton lend because you didn ’ triiodothyronine want to start a conflict – but that slowly action ended up hurting the team. QUESTION: “ What feedback did you receive from your most recent internship or job ? ” ANSWER: This one is a combine strengths/weaknesses question. It will be about impossible to describe your 3 strengths and 3 weaknesses in 30-60 seconds, indeed pick 1 in each class and give a flying floor to support it. For exercise, you worked long hours and finished a last-minute job for a pending hand in your internship, which resulted in a successful close, but you could have been more proactive when following up on assignments and asking for the future steps. QUESTION: “ Can you describe a team situation where you worked with a difficult team member ? ” ANSWER: You could use any of your 3 short stories hera, depending on what they ’ re about. You just have to say that a person in the group didn ’ metric ton want to do the work, or wanted to do something unethical, or was competent but couldn ’ thyroxine catch along with others. then, you convinced the others to side with you – and you gave this difficult team member something that wouldn ’ t sink the project to prevent far conflicts while still finishing the tax. QUESTION: “ You have no experience in an investment bank. Why do you think your skills are relevant to this industry ? ” ANSWER: Start by stating, concisely, the skills that are required for investing bank ( see the article on investment bank analyst roles ), and then explain how your former work experience has given you exchangeable skills. For exemplar, you can point out how you ’ ve worked with clients in former jobs, how you ’ ve had to work retentive hours and complete analytical/technical tasks, and how you ’ ve learned about account and finance in classes. QUESTION: “ You already have two years of work have. Why couldn ’ triiodothyronine you get into an investing bank as an undergraduate ? Were you a fail campaigner ? ” ANSWER: No ! tied if it ’ sulfur true, never admit this. You can answer this one by saying that you got interest in banking very late in the process, when it was excessively former to get the command sequence of internships ( plausible if you went to a non-target school ; not believable if you went to Harvard or Wharton ). Or, you could say that you knew about bank but intentionally chose something else – but then you realized you should have done bank, so you ’ ve been working toward it from the start of your full-time role ( it ’ mho much tougher to make this floor work ). You must be clear that you didn ’ metric ton “ good ” get interested in IB – you ’ ve been interested for a long time, and you completed specific client work/jobs to move closer over prison term. QUESTION: “ You ’ ve changed jobs twice in the past two years, and now you ’ re trying to switch once again. How do I know you won ’ triiodothyronine just leave our tauten next year ? ” ANSWER: Emphasize that you changed jobs twice because it was your original, long-run plan to do sol. You won ’ deoxythymidine monophosphate variety jobs yet again because working at an investing bank was your design all along. For example, you started out in audit, went to a boutique valuation firm to gain client and evaluation know, and now you want to move into bank to work on the stallion hand process from beginning to end. That has been your goal since you started out in audit, but you knew you couldn ’ metric ton precisely move directly from audit to IB. QUESTION: “ The person in the room next door has perfect grades from Harvard or Oxford. You had lower grades and went to a country educate. Why should I hire you over him ? ” ANSWER: Because it ’ s the person who does the work, not the degree. besides, point out that you had to put in far more attempt to get into this room than the other person did. You ’ re besides motivated to stay in bank for the long term because it ’ s your actual end goal ; about everyone from “ elect schools ” wants to get into private fairness ASAP, which runs contrary to the long-run commitment that banks are now trying to encourage. QUESTION: “ Can you describe what a banker does in an IPO or M & A batch ? ” ANSWER: Review our articles on mergers & acquisitions and initial public offerings ( IPOs ). QUESTION: “ Why do you want to be an investment banker ? ” ANSWER: This is just the survive character of your narrative. It shouldn ’ t even be a interview if you ’ ve told your narrative by rights. But just in encase, see the “ Why investment bank ? ” article. QUESTION: “ Why our bank, specifically ? ” ANSWER: See above. If you ’ ve mentioned something the deposit is good at in your history, it shouldn ’ t evening be a motion. But equitable in character, see the “ Why our bank ? ” article .

Investment Banking Interview Questions Category 3: Discussing Deals, Markets, and Companies

This category includes questions such as :

  • “Tell me about a recent deal.”
  • “Tell me about a deal our bank worked on recently.”
  • “Tell me about a company you’re interested in.”
  • “What makes Market X interesting to you?”

These questions are not that authoritative unless you ’ ve had across-the-board consider have that the interviewers plan to dig into – but they do require extra research and preparation. We recommend the following steps :

  1. Look Up 1 Deal the Bank Has Worked on Recently – Find something from the past ~6 months on the bank’s website or via Google searches. Outline the background, deal rationale, 1-2 financial stats, and your opinion of it. This can be very short because you just need to show that you know something about the bank.
  2. Prepare for 1 In-Depth Deal/Market/Company Discussion – You should also prepare for a more in-depth discussion of a deal, and this deal does not have to be one that this bank advised on. For this, you’ll need the background information, deal rationale, a few financial stats, and your opinion of it. If they ask you to discuss a market, pick the market from this deal and make sure you know the approximate market size, key trends/drivers, major competitors, and your opinion of its prospects.
  3. (If Applicable) Prepare for 2 Discussions of Your Own Deals – This one is applicable only if you’ve had previous IB, PE, corporate law, or Big 4 experience where you worked on deals or with clients. You should gather the background information, deal motivation, your personal contributions, and the current status for each one you use.

There are many tips on how to research and prepare for these questions in our articles on discussing a late cope and discussing your own deals .

Sample Questions and Answers:

There international relations and security network ’ deoxythymidine monophosphate a lot to say hera because the most common questions are listed at the top of this segment. For examples of how to answer these questions, please see the templates and samples in the correspond articles .

Investment Banking Interview Questions Category 4: Technical Questions and Answers

For this death category, I do not have any charming tips that will get you results in hours rather of weeks or months. Put simply, to succeed in investment banking interviews, you need to put in the time to study accounting, finance, valuation, and M&A and LBO modeling. If you don ’ thyroxine, you won ’ thyroxine have a bang-up probability against candidates who are obsessed about becoming an investment banker and have spent months preparing. We cover all these topics comprehensively in our wax Investment Banking Interview Guide, but you can besides get good introductions to them in our YouTube channel and the articles on this locate : With limited time, focus on accountancy, equity value and enterprise value, and evaluation and DCF analysis. They are the most common topics, particularly in entry-level interviews. There are thousands of possible questions to test your technical foul cognition, so I will list a few representative examples in each of the chief categories. I will focus on questions and answers that you probably haven’t seen on other sites and other resources, so most of these are in the “ more challenge ” range :

Example “Finance” Questions in Investment Banking Interviews

“ Finance ” means concepts such as the Time Value of Money, the Discount Rate, Present Value, and the Internal Rate of Return ( IRR ). QUESTION: “ How much would you pay for a company that generates $ 100 of cash flow every single year into eternity ? ” ANSWER: It depends on your rebate Rate, or “ target yield. ” If your Discount Rate is 10 %, meaning you could earn 10 % per year in companies with similar risk/potential tax return profiles, you would pay $ 100 / 10 % = $ 1,000. But if your Discount Rate is 20 %, you would pay $ 100 / 20 % = $ 500. QUESTION: “ A company generates $ 200 of cash stream following year, and its cash flow is expected to grow at 4 % per year for the farseeing terminus. You could earn 10 % per year by investing in other, similar companies. How much would you pay for this company ? ” ANSWER: Company Value = Cash Flow / ( Discount Rate – Cash Flow Growth Rate ), where Cash Flow Growth Rate < Discount Rate. then, this one becomes : $ 200 / ( 10 % – 4 % ) = $ 3,333. QUESTION: “ What might cause a party ’ south Present Value ( PV ) to increase or decrease ? ” ANSWER: A ship’s company ’ mho PV might increase if its expected future cash flows addition, its expected future cash flows start to grow at a fast rate, or the Discount Rate decreases ( for example, because the expect returns of like companies decrease ). The PV might decrease if the antonym happens. QUESTION: “ What does the inner rate of fall ( IRR ) hateful ? ” ANSWER: The IRR is the deduction Rate at which the Net Present Value of an investment, i.e., Present Value of Cash Flows – Upfront Price, equals 0. You can besides think of it as the “ effective compounded interest rate on an investment ” – thus, if you invest $ 1,000 today, end up with $ 2,000 in 5 years, and lend and gain nothing in between, the IRR is the concern pace you ’ d have to earn on that $ 1,000, compounded each class, to reach $ 2,000 in 5 years .

Example “Accounting” Questions in Investment Banking Interviews

You don ’ t need to know accounting in terms of debits and credits, but you do need to know the 3 independent fiscal statements and how they link in concert identical well. QUESTION: “ How do the 3 fiscal statements link together ? Assume the Indirect Method for the Cash Flow Statement. ” ANSWER: To link the statements, make net income at the bottom of the Income Statement the top line of the Cash Flow Statement. then, adjust this web Income total for any non-cash items such as Depreciation & Amortization. future, reflect changes to operational Balance Sheet items such as Accounts Receivable, which may increase or decrease the party ’ south cash menstruate depending on how they ’ ve changed. That gets you to Cash Flow from Operations. adjacent, reflect invest and finance activities, which may increase or decrease cash hang, and sum up Cash Flow from Operations, Investing, and Financing to get the net change in cash at the bottomland. Link Cash on the Balance Sheet to the ending Cash number on the CFS, and add net income to Retained Earnings within Equity on the Balance Sheet. then, link each non-cash adjustment to the appropriate Asset or Liability ; SUBTRACT links on the Assets side and ADD links on the L & E side. Link each CFI and CFF detail to the matching item on the Balance Sheet, using the same rule as above. Check that Assets equals Liabilities + Equity at the end ; if this is not true, you did something wrong and want to re-check your work. QUESTION: “ A company runs into fiscal distress and needs cash immediately. It sells a factory that ’ s listed at $ 100 on its Balance Sheet for $ 80. What happens on the 3 statements, assuming a 40 % tax rate ? ” ANSWER: Income instruction : record a Loss of $ 20 on the Income Statement, which reduces Pre-Tax Income by $ 20 and net income by $ 12 at a 40 % tax rate. Cash Flow Statement : net income income is down by $ 12, but you add back the $ 20 Loss since it ’ s non-cash. You besides show the full proceeds, $ 80, in Cash Flow from Investing, sol cash at the bottom is up by $ 88. Balance Sheet : cash is up by $ 88, but PP & E is down by $ 100, so the Assets side is down by $ 12. The L & E side is besides down by $ 12 because Retained Earnings fell by $ 12 due to the final Income decrease, so both sides libra. QUESTION: “ A company buys a factory using $ 100 of debt. A year passes, and the company pays 10 % matter to on the debt as it depreciates $ 10 of the factory. It repays $ 20 of the lend equally well. Walk me through the statements from beginning to end, and assume a 40 % tax rate. ” ANSWER: Initially, nothing changes on the IS. The $ 100 factory purchase shows up a CapEx on the CFS, and the $ 100 debt issue shows up on the CFS adenine well, offsetting it, so Cash does not change at the bottom. On the Balance Sheet, PP & E is up by $ 100, and Debt is up by $ 100, so both sides balance. then in the first year, you record $ 10 of matter to and $ 10 of depreciation on the IS, reducing Pre-Tax Income by $ 20 and net income by $ 12 at a 40 % tax rate. On the CFS, net income is down by $ 12, but you add back the $ 10 of depreciation since it is non-cash, and the $ 20 loan refund is a cash spring, so Cash is down by $ 22. On the BS, Cash is down by $ 22, and PP & E is down by $ 10, so the Assets side is down by $ 32. On the L & E side, Debt is down by $ 20 and retain Earnings is down by $ 12, so the L & E side is down by $ 32 and both sides libra. QUESTION: “ What does the Change in Working Capital think of, intuitively ? ” ANSWER: The Change in Working Capital tells you if the caller needs to spend in progress of its growth, or if it generates more money as a result of its emergence. For case, the Change in Working Capital is normally negative for retailers because they must spend money on armory before being able to sell their products. But the Change in Working Capital is frequently positive for subscription-based companies that collect cash in overture because Deferred Revenue increases when they do that. The Change in Working Capital increases or decreases spare Cash Flow, which, in flex, directly affects the ship’s company ’ second evaluation. QUESTION: “ What does it mean if a company ’ s free Cash Flow is growing, but its Change in Working Capital is increasingly minus each class ? ” ANSWER: It means that the party ’ s net Income or non-cash charges are growing by more than its Change in WC is declining, or that its CapEx is becoming less negative ( i.e., shrinking ) by more than the Change in WC is declining. If a company ’ s net Income is growing for legitimate reasons, this is a positive sign. But if higher non-cash charges or artificially low CapEx are boosting FCF, both of those are negative .

Example “Valuation” Questions in Investment Banking Interviews

You need to understand the “ big picture ” behind evaluation, how Equity Value and Enterprise Value differ, and the trade-offs of different multiples and methodologies.

Questions like “ How do you measure a company ? ” or “ Tell me the 3 basic evaluation methodologies ” are then basic that banks about assume you already know them. QUESTION: “ What do Equity Value and Enterprise Value base, intuitively ? ” ANSWER: Equity Value is the value of ALL the ship’s company ’ s Assets, but lone to EQUITY INVESTORS ( common shareholders ). Enterprise Value is the value of alone the company ’ s core-business Assets, but to ALL INVESTORS ( Equity, Debt, Preferred, and possibly others ). For more, please see our tutorial on how to calculate Enterprise Value. QUESTION: “ A caller issues $ 200 million in new shares, and then it uses $ 100 million from the proceeds to issue Dividends to shareholders. How do Equity value and Enterprise Value change in each step ? ” ANSWER: Initially, Equity Value increases by $ 200 million because Total Assets increases by $ 200 million and the change is attributable to common shareholders. Enterprise Value stays the same because Cash is a non-core-business Asset ; you can besides say that the increases in Cash and Equity Value offset each early in the Enterprise Value rule. In the future step, Equity Value decreases by $ 100 million because Cash, and consequently total Assets, falls by $ 100 million and this change is attributable to coarse shareholders. Enterprise Value stays the lapp because Cash is a non-core-business Asset, or because the reduced Cash and reduced Equity Value offset each early. QUESTION: “ What are the advantages and disadvantages of EV / EBITDA vs. EV / EBIT vs. P / E as valuation multiples ? ” ANSWER: With EV / EBITDA vs. EV / EBIT, EV / EBITDA is better in cases when you want to wholly exclude the party ’ sulfur CapEx, Depreciation, and capital structure. EV / EBIT is better when you want to exclude capital social organization but partially factor in CapEx and Depreciation. It is park in industries where those items are key respect drivers for companies ( for example, manufacture ). The P / E multiple is not terribly utilitarian in most cases because it ’ south affected by different tax rates, capital structures, non-core-business activities, and more – so, you much use it in the sake of “ completeness ” or because you want a multiple that reflects a ship’s company ’ second true buttocks line. besides, it ’ sulfur crucial in industries such as commercial bank and insurance where you do need to factor in the interest income and expense. For more on this topic, please see our usher to EBIT vs. EBITDA vs. Net Income QUESTION: “ Which of the main 3 valuation methodologies will produce the highest valuations ? ” ANSWER: Any methodology could produce the highest valuations depending on the diligence, period, and assumptions. But you can say that Precedent Transactions frequently produce higher values than the Public Comps because of the see premium – the extra measure that acquirers must pay to acquire sellers. It ’ mho baffling to say how a DCF exemplary stacks up because it ’ mho far more pendent on the assumptions and far-in-the-future projections. so : “ A DCF tends to produce the most variable output since it ’ s then dependent on the assumptions, and Precedent Transactions tend to produce higher values than the Public Comps because of the control premium. ” QUESTION: “ How might you select a set of comparable populace companies for function in a evaluation ? ” ANSWER: You screen based on geography, industry, and size. For exercise, your screen might be “ U.S.-based sword fabrication companies with over $ 500 million in gross ” or “ european bequest airlines with over €1 billion in EBITDA. ” Get more on comparable company analysis in our YouTube channel .

Example “DCF” Questions in Investment Banking Interviews

The DCF is “ real valuation ” ; multiples are just abbreviated ways to express it. indeed, you can expect questions on everything from the basic mind to a walk-through to the Discount Rate and Terminal Value calculations. QUESTION: “ Explain the boastful idea behind a DCF analysis and how it is used to measure a company. ” ANSWER: A DCF is an expansion of this recipe : Company Value = Cash Flow / ( Discount Rate – Cash Flow Growth Rate ), where Cash Flow Growth Rate < Discount Rate The problem is that that formula assumes the company ’ second Discount Rate and Cash Flow Growth Rate never change – but in veridical life sentence, they keep changing until the company reaches adulthood. so, in a Discounted Cash Flow psychoanalysis, you divide the valuation into two periods : One where those assumptions change ( the denotative prognosis period ) and one where they stay the lapp ( the Terminal Period ). You then project the company ’ randomness cash flows in both periods and discount them to their portray Values based on the appropriate Discount Rate ( second ). then, you compare this union – the company ’ south Implied Value – to the company ’ south Current Value or “ Asking Price ” to see if it ’ s valued appropriately. QUESTION: “ Walk me through an Unlevered DCF. ” ANSWER: You start by projecting the ship’s company ’ randomness Unlevered Free Cash Flows over the next 5-10 years by making assumptions for gross growth, margins, Working Capital, and CapEx. Unlevered FCF excludes all finance and non-core-business activities and equals EBIT * ( 1 – Tax rate ) + D & A +/- Change in Working Capital – CapEx. then, you discount the UFCFs to Present Value using the leaden Average monetary value of Capital and sum up everything. future, you estimate the company ’ s Terminal Value using the Multiples Method or the Gordon Growth Method ; it represents the party ’ s value after those inaugural 5-10 years into perpetuity. You then discount the Terminal Value to Present Value using WACC and add it to the sum of the company ’ randomness discounted UFCFs. last, you compare this Implied Enterprise Value to the company ’ south Current Enterprise Value ; you ’ ll frequently calculate the company ’ sulfur Implied Share Price so you can compare that to the Current Share Price adenine well. Get more on Unlevered Free Cash Flow in our YouTube channel. QUESTION: “ Explain what WACC means intuitively and how you might calculate each component of it. ” ANSWER: WACC is the ask annualized render over the hanker term if you invest proportionately in all parts of the company ’ s capital structure – Debt, Equity, Preferred Stock, and anything else it has. To a company, WACC represents the cost of funding its operations by using all its sources of capital and keeping its capital structure percentages the lapp over time. The formula is dim-witted : WACC = Cost of Equity * % Equity + Cost of Debt * ( 1 – Tax rate ) * % Debt + Cost of Preferred Stock * % Preferred Stock You normally estimate the price of Equity with Risk-Free Rate + Equity Risk Premium * Levered Beta. The cost of Debt and Cost of Preferred can be based on the output to Maturity ( YTM ) of the stream issuances, the median rates or YTMs on the issuances of peer companies, or you can take the risk-free Rate and add a default spread based on the company ’ south credit military rank after it issues more Debt or Preferred. QUESTION: “ A ship’s company goes from 20 % Debt / Total Capital to 30 % Debt / Total Capital. How do its Cost of Equity, Cost of Debt, and WACC change ? Assume it entirely has Debt and Equity. ” ANSWER: As a company uses more Debt, the cost of Debt and Cost of Equity always increase because more Debt increases the risk of bankruptcy, which affects all investors. As the ship’s company goes from no Debt to some Debt, WACC decreases at first because Debt is cheaper than Equity, but it starts to increase at higher levels of Debt as the risk of bankruptcy starts to outweigh the lower monetary value of Debt. In this encase, we can ’ thyroxine tell how WACC will change because we don ’ thyroxine know where we are on this “ swerve ” – but we guess that WACC will probable decrease because 30 % Debt / Total Capital is still in a reasonably low/normal range for most industries. QUESTION: “ How do you calculate and sanity check Terminal Value in a DCF ? ” ANSWER: You apply a Terminal Multiple, such as an EV / EBITDA figure based on the comparable companies, to EBITDA in the final year of the prognosis time period, or you pick a Terminal FCF Growth Rate and use a variation of the “ Company Value ” formula : Terminal Value = Final Year FCF * ( 1 + Terminal FCF Growth Rate ) / ( Discount Rate – Terminal FCF Growth Rate ) To check yourself, back into the Terminal FCF Growth Rate implied by the first method and the Terminal Multiple implied by the second method. If you get, say, a 10 % Implied Terminal FCF Growth Rate for a company in a modernize area, you ’ re direction off and need to pick a lower multiple that results in a growth rate below the long-run GDP growth rate .

Example M&A and Merger Model Interview Questions

These questions are less important than those in the other technical categories above, but you should still know the basic concepts. We have a full YouTube video recording tutorial on these questions : But if you prefer the text translation, here ’ s a sample : QUESTION: “ Walk me through a amalgamation model. ” ANSWER: Start by projecting the fiscal statements of the Buyer and Seller. then, you estimate the Purchase Price and the blend of Cash, Debt, and Stock used to fund the deal. You create a Sources & Uses agenda and Purchase Price Allocation schedule to estimate the on-key cost of the acquisition and its effects. then, you combine the Balance Sheets of the Buyer and Seller, reflecting the Cash, Debt, and Stock used, new Goodwill created, and any write-ups. You then combine the Income Statements, reflecting the Foregone Interest on Cash, Interest on Debt, and Synergies ( for both gross and expenses, but if you have to pick one, cost synergies are more important ). If Debt or Cash changes over time, the Interest figures should besides change. The combine net income equals the Combined Pre-Tax Income times ( 1 – Buyer ’ south Tax pace ), and you divide that by ( Buyer ’ s Existing Share Count + New Shares Issued in the Deal ) to get the Combined EPS. You calculate the accretion/dilution by dividing the Combined EPS by the Buyer ’ s standalone EPS and subtracting 1. QUESTION: “ A company with a P / E multiple of 25x acquires another party for a leverage P / E multiple of 15x. Will the softwood be accretive or dilutive ? ” ANSWER: You can ’ t tell unless it ’ s a 100 % Stock deal. If it is, it will be accretive because the Cost of Acquisition is 1 / 25, or 4 %, and the Seller ’ randomness Yield is 1 / 15, or 6.7 %. Since the Seller ’ south yield is higher, it will be accretive. QUESTION: “ Let ’ s say it is a 100 % Stock deal. The Buyer has 10 shares at a share price of $ 25.00, and its net Income is $ 10. It acquires the Seller for a Purchase Equity Value of $ 150. The Seller has a internet income of $ 10 a well. Assume the same tax rates for both companies. How accretive is this deal ? ” ANSWER: The buyer ’ south EPS is $ 10 / 10 = $ 1.00. It must issue $ 150 / $ 25.00 = 6 extra shares to do the deal, so the Combined Share Count is 10 + 6 = 16. Since both companies have the lapp tax rate and since no Cash or Debt is used, blend net Income = $ 10 + $ 10 = $ 20, and Combined EPS = $ 20 / 16 = $ 1.25, so the deal is 25 % accretive. QUESTION: “ What are the Combined Equity Value and Enterprise Value in this lapp deal ? Assume that Equity Value = Enterprise Value for both the Buyer and Seller. ” ANSWER: Combined Equity Value = Buyer ’ s Equity Value + Value of Stock Issued in the Deal = $ 250 + $ 150 = $ 400. Combined Enterprise Value = Buyer ’ s Enterprise Value + Purchase Enterprise Value of Seller = $ 250 + $ 150 = $ 400. QUESTION: “ Without doing any mathematics, what ranges would you expect for the Combined EV / EBITDA and P / E multiples, and why ? ” ANSWER: They should be somewhere in between the Buyer ’ s multiples and the Seller ’ randomness buy multiples. It ’ s about never a simple average because of the relative size of the Buyer and Seller – and for P / E multiples, the purchase method acting besides plays a role .

Example LBO Model Interview Questions and Answers

These questions are besides less important than the ones in the categories above, but you ’ ll silent be expected to know the big photograph behind LBOs. We besides have a full YouTube tutorial for these : To understand the chief ideas and mechanics, besides check our our tutorial on how to build a simple LBO model. And if you prefer the questions and answers in text, here ’ s a sample : QUESTION: “ Walk me through a leverage buyout exemplar. ” ANSWER: In a leverage buyout, a PE firm acquires a party using a combination of Debt and Equity, operates it for several years, and then sells it. The mathematics works because leverage amplifies returns ; the PE firm earns a higher restitution if the deal goes well because it uses less of its own money upfront ( and it earns an even lower return if the softwood goes ill ! ). In Step 1, you make assumptions for the Purchase Price, Debt and Equity, Interest Rate on Debt, and Revenue Growth and Margins. In Step 2, you create a Sources & Uses schedule to calculate the Investor Equity paid by the PE firm. In Step 3, you adjust the Balance Sheet for the effects of the deal, such as the new Debt, Equity, and Goodwill ( see our tutorial for more on how to calculate Goodwill ). In Step 4, you project the company ’ sulfur statements, or at least its cash flow, and determine how much debt it repays each class. last, in Step 5, you make assumptions about the die, normally using an EBITDA multiple, and calculate the IRR and cash-on-cash multiple. QUESTION: “ What ’ s an ideal LBO campaigner ? ” ANSWER: Price is the most crucial component because about any manage could work at the right price ( i.e., one that ’ s low adequate ) – but if the price is excessively high, the chances of failure increase well. beyond that, static and predictable cash flows are important, there shouldn ’ metric ton be a huge need for ongoing CapEx or other big investments, and there should be a naturalistic path to exit, with returns driven by EBITDA growth and Debt paydown alternatively of multiple expansion. QUESTION: “ A PE firm acquires a $ 100 million EBITDA party for a 10x multiple using 60 % Debt. The company ’ s EBITDA grows to $ 150 million by class 5, but the passing multiple drops to 9x. The company repays $ 250 million of Debt and generates no extra Cash. What ’ s the IRR ? ” ANSWER: Initial Investor Equity = $ 100 million * 10 * 40 % = $ 400 million. exit Enterprise Value = $ 150 million * 9 = $ 1,350 million. debt Remaining Upon Exit = $ 600 million – $ 250 million = $ 350 million. exit Equity Proceeds = $ 1,350 million – $ 350 million = $ 1 billion. This represents a 2.5x multiple over 5 years, and you should know that a 2x multiple over 5 years is a ~15 % IRR, while a 3x multiple is a ~25 % IRR, so this IRR is approximately 20 %. QUESTION: “ You buy a $ 100 EBITDA clientele for a 10x multiple, and you believe that you can sell it again in 5 years for 10x EBITDA. You use 5x Debt / EBITDA to fund the deal, and the company repays 50 % of that Debt over 5 years, generating no extra Cash. How a lot EBITDA increase do you need to realize a 20 % IRR ? ” ANSWER: Initial Investor Equity = $ 100 * 10 * 50 % = $ 500. 20 % IRR Over 5 Years = ~2.5x multiple ( 2x = ~15 % and 3x = ~25 % ). Required die Equity Proceeds = $ 500 * 2.5 = $ 1,250. Remaining Debt = $ 250, so exit Enterprise Value = $ 1,500. Required EBITDA = $ 150, since $ 1,500 / 10 = $ 150. so, EBITDA must grow by 50 % .

What NOT to Worry About In Investment Banking Interviews: Brain Teasers and Questions to Ask

Phew. OK, we ’ ra done with that list of sample distribution questions that ended up being surprisingly long. I ’ ve seen prospective investment bankers over two subjects that do not matter much for traditional IB interviews : brain teasers and the questions you ask the interviewer when he/she asks if you have any questions at the goal. brain teasers are more likely in sales & trade interviews or consulting interviews, and less likely in bank because they have nothing to do with the caper. so, I wouldn ’ deoxythymidine monophosphate recommend spend much clock time learning how to estimate the number of golf balls that fit in a 747 or how to move water between jugs of different sizes. If you are worry because you ’ re interview at an elite boutique or a group/firm known for brain teasers, get a book to prepare. On another note, interviewees tend to obsess over “ the right questions ” to ask interviewers at the end. But the truth is, these questions are about irrelevant unless you say something stupid or inappropriate. just ask a wonder about the person ’ mho background, experience at the bank then far, etc., and don ’ thyroxine give genius cells to this one .

Investment Banking Associate Interview Questions

There are no huge differences for Associate-level candidates, as the same topics and types of questions tend to come up. The main difference is that you need to be more polished because everyone at this degree at an investment bank is articulate and has more real-world experience. It ’ sulfur besides quite crucial to focus on a specific industry because they want candidates who can leverage their pre-MBA experience for something utilitarian on the job. finally, encase studies – sometimes informal verbal ones, sometimes in writing, and sometimes in Excel – are more probably to come up at this level. To practice, you can look at the many example case studies and solutions in the full Breaking Into Wall Street Investment Banking Interview Guide. For more, please see our article on the investment bank associate job .

What Next?

This article is detailed and comprehensive examination, but the most crucial point is dim-witted : You cannot “ train ” for the technical questions in an investment trust interview at the last minute. You can come up with a center decent story and reasonable answers to common “ match ” questions with limited meter – such as a few hours or days before the consultation. But you can not answer detail questions about LBO models, the components of Enterprise Value, or how WACC changes under different conditions unless you have solid technical cognition, which takes time to acquire. At the minimum, you ’ ll have to start ~2-3 months in advance to get a good sense for these concepts ( assuming no backdrop or limited accounting/finance cognition ).

The early question categories can wait until the last moment, but you can ’ t jam and victor the technical foul side in that span of time. If you ’ ra good about acing your investment trust interviews, we recommend you enrol in the follow premium Courses as a minimum :

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