There are four main types of questions you can expect to receive during investment banking interviews (bulge-bracket banks and boutiques):
We will now break down each type of question one by one, giving examples of questions and answers.
Fit or behavioural questions are questions designed to get to know you better, to see if you have the qualities required to be successful at the job you’re applying to, and to evaluate if you would be a good fit for the employer’s team.
At entry-level roles (internships and graduate schemes), fit questions tend to represent at least 60-70% of all interview questions.
Contrary to what many candidates think, fit questions are the most important type of interview questions, as the hiring decision will rely heavily on your answers to these questions.
Banks tend to place a higher value on the intrinsic qualities, personality traits, and intellect of a candidate than its mere technical/financial skills.
Why? Because it’s easier to train someone to build a sensitivity analysis than it is to train someone to become smart, rigorous, and team-oriented. Technical skills can generally be taught faster than personal qualities can be developed.
For that reason, in case you don’t feel ready, you should always give priority to these fit questions. If you don’t prepare them, you’re almost guaranteed to fail.
We present below a few examples of fit/behavioural questions.
EXAMPLES OF FIT QUESTIONS
The most important fit interview question that you’ll ever get – and which you’ll get every single time, at the beginning of every interview – is a question about your story:
Question: Tell me about yourself
OR
Walk me through your resume
This may sound like a simple question. Yet most candidates fail to deliver a truly highly quality “personal pitch”.
For this question, you should aim to present yourself in a compelling way, briefly showing that you have some skills useful for the job, and conveying your personality as much as you can.
All within 2-3 minutes.
Example of answer:
Aside from the classic “tell me about yourself” question, you will also get questions that are intended to evaluate your motivation for the job, and whether or not you have specific qualities that the recruiter is looking for.
For instance, a common fit question is:
Question: What do you think are the skills required to succeed in investment banking?
Example of potential answer:
Say that based on your industry discussions and your current understanding of the Investment Banking industry, you believe there are 4 primary skills that are particularly important to be successful as an IB analyst.
You had the chance to develop your attention to detail and analytical skills by working as a data analyst intern for ABC Company. Since there were several times when you had to send deliverables to clients within tight deadlines (one time you had to finish a full-scope 12-page statistical report in less than 72 hours), you also know what it’s like to burn the midnight oil while still making sure that the work you produce is accurate and error-free. Finally, you were the captain of your university handball team so you’re acutely aware of the importance of teamwork to achieve great outcomes.
Another common fit question that is asked almost systematically is:
Question: Why [Firm Name]? (e.g. Why JP Morgan?)
Many students tend to overcomplicate this question, thinking that they have to come up with some highly intricate answer based on some arcane deal flow numbers that a handful of insiders know…
In reality, you don’t need to talk about any of that. From experience, I can tell you that the best answer is an honest one, using name dropping to boost your credibility.
Being honest simply means that you don’t invent BS reasons to support your decision to apply. There are many candidates that don’t really speak their mind that an honest answer will almost always be well received by recruiters.
You should always show that you’ve talked to someone working at the bank who gave you a compelling reason to apply.
Example of potential answer:
These questions are designed to test and evaluate your knowledge of financial concepts, in particular those that are relevant for investment banking.
Depending on the bank, 30-40% of all interview questions will be technical. Candidates with financial background can expect to receive more technical questions than applicants with non-financial background, for obvious reasons.
Note that the degree of technicality of interviews can vary across banks and geographies.
For instance, investment banking boutiques – especially elite boutiques such as Greenhill or Centerview – have a reputation for asking more technical questions than large, bulge-bracket banks.
If you have some interviews in France, you can also expect to receive more technical questions than usual.
EXAMPLES OF TECHNICAL/FINANCIAL QUESTIONS
Question: How do you explain that a tech company might have a higher P/E than a grocery retailer?
Example of potential answer:
Tech companies tend to have higher P/Es than grocery retailers, because they typically grow much faster.
Grocery retailers have been around for a very long-time, this is not something new that is driving major innovation. Grocery shopping is something that people were already doing 80 years ago, and they continue to do so roughly at the same pace. Therefore, the sector is not growing at an abnormal rate.
On the other hand, the tech sector comprises companies that are the true locomotives of economic growth, they drive innovation by bringing new products that change the way we live.
As such their revenue tends to grow much faster than other sectors because they are addressing the most pressing needs of our contemporary era, which are mainly technological, in particular in developed countries.
The faster the growth, the higher the P/E, other things equal. The reason for that, is that mathematically, the P/E can be expressed as:
Since r (the discount rate) is much lower than 1, g has a much greater impact on the denominator than on the numerator, which means that if you increase g, you mechanically increase the P/E
EBIT stands for “Earnings Before Interests and Taxes”, which means that it is the company’s earnings before paying interests and taxes, and AFTER paying depreciation and amortization
On the other hand, EBITDA is basically EBIT but before depreciation and amortization.
Some prefer to use EBIT multiples rather than EBITDA because EBIT account for the level of investment made by companies, since you have to remove depreciation and amortization to get to EBIT, and D&A are directly linked to the amount of CAPEX spent by the company (i.e. the higher the CAPEX, the higher the D&A)
Hence, if you use EBITDA multiples instead of EBIT multiples to compare several companies, you ignore the fact that companies have different levels of investments (i.e. some companies in the same sector may spend much more on CAPEX than others), and hence you take the risk of using a multiple that is not reliable.
A CAPEX-intensive company can have a very solid EBITDA but a poor EBIT after subtracting D&A charges.
There are several methods we can use to evaluate the attractiveness of an M&A deal:
These questions aim to evaluate how much you know about the job you’re applying to, and see if you’re genuinely interested in finance by following the newsflow (and forming interesting opinions about these pieces of news.)
Typically, a strong financial culture is what will differentiate an excellent candidate from a good one. If you want to excel during your interviews and have a shot at joining a bulge bracket, you need to nurture your financial culture every day, by reading financial newspapers and speaking to people who work in the industry of your interest.
EXAMPLE OF FINANCIAL CULTURE QUESTIONS
In a buy-side M&A transaction, the bank assists the client in selecting the best acquisition target, lowering the price paid, and negotiating the best deal conditions.
First, the bankers do preliminary research on dozens or hundreds of possible acquisition targets depending on the client’s purchase criteria.
They next refine the list and pick which firms to approach; they hold meetings with interested parties and assess how responsive each is.
Then they trim the list even more and do extra due diligence on the most likely vendors. They calculate offer rates based on the financial information provided by the firms.
Finally, the bankers negotiate the Purchase Agreement’s price and essential clauses before announcing the purchase. Bankers bring value to the process by lowering the cost, identifying viable targets, and negotiating the best purchasing conditions.
A company profile slide is designed to give investors a quick overview of the company by presenting the most important information about the business.
That includes: a brief description about the company’s business and industry, key financial performance and valuation metrics, key products and services, geographical exposure, etc.
You’ve read in the news that X country is going to implement subsidies to boost “green investments”. They’re going to provide a stimulus package of $Xbn to help reduce CO2 emissions etc. (summarise the event in 2-3 quick sentence)
You believe that this event could have an impact on X sector (the automotive sector for example), because it will likely drive investment in X technology which produces fewer carbon emissions vs the current technology that is predominantly used. (show the impact of this event on a given sector).
You believe that some companies, such as X and Y, could benefit from that shift, to the extent that they could expand their production of X technology, benefit from economies of scale, and improve their margins (explain the impact of this sector trend on individual companies, very briefly).
Brainteasers are logical questions often formulated as problems which are designed for two main reasons:
These questions can be very hard to answer if you’ve never seen them before, so it’s critical to train yourself to perform at least a dozen brainteasers before doing an IB interview.
You are not guaranteed to have brainteasers during your interviews, but these questions do come up very frequently – especially at large investment banks.
There are two practical tips that I give you to help you nail brainteasers:
Every time you are answering these questions, always think out loud rather than thinking by yourself, even if you think you’ll be more effective in the latter case.
Recruiters are more interested in your reasoning than in the sheet content of your answer, so if you can articulate your thoughts in real-time (by speaking them out loud), you will make a positive impression.
It’s better to explain your reasoning out loud and to come up with an OK answer, than to reason secretly like a “silent genius” and come up with an excellent answer.
Explain every assumption you make in your attempt to find a solution. Of the critical aspects of a financial analyst is to make forecasts by using a combination of several assumptions.
As such, the more assumptions you use and the more sensible these assumptions are, the stronger impression you will make.
EXAMPLES OF COMMON BRAINTEASERS
The mistake here is to answer zero, by forgetting to account for the fact that the hour hand must adjust itself according to where the minute hand is.
At 3.15, what you can tell for sure is that the minute hand will point precisely towards 3 (perfectly horizontal), and that the hour hand will point between 3 and 4 (because 15 minutes have passed since 3).
More precisely, the hour hand will have covered one-quarter of angle between 3 and 4.
Since there are 12 hours on a watch dial, that means that between each hour you have an angle of 360/12=30 degrees. Then you just have to divide 30 by 4 to get 7.5 degrees.
Put a black ball in one bucket, and all the other balls in the other bucket. By doing so, you maximize your chances of drawing a black ball (you have a c.75% chance to be precise).
Here is how the math works. You have a 50% chance of selecting the bucket containing the black ball (100% chance of drawing a black ball when this bucket is selected) and a 50% chance of selecting the other bucket, containing 50 whites and 49 blacks (where the probability of drawing a black ball after selecting this bucket is c.49.5% i.e. 49 blacks divided by 99 balls).
This gives you: 50%x100%+50%x49.5%=74.75%.
The key to answering this question is to think about how many days in the week are either followed by Monday, or are “Mondays”.
Obviously, Monday is Monday and it’s a business day, so we get at least 1/7. Further, both Saturday and Sunday can be counted as days that are followed by Monday, because Monday is the first business day that comes after them.
In other words, if we are on a Saturday, we know that the next business day is a Monday. Same thing for Sunday.
Hence you have 3 days out of 7 where Monday is either the next business day or the current business day (if we are on a Monday). Therefore, the answer is 3/7.
The correct answer is 3 in 7 because if the first day of the month is a Saturday, Sunday or a Monday then the first business day is a Monday.
If you’ve read me this far, it means that you truly care about optimizing your chances of success. You care about getting the right information to beat your competition.
In case you have an interview in a few days and are pressed by time, I’d recommend focusing on fit questions (including a compelling story for “tell me about yourself”). These are the most important interview questions and they take the longest time to prepare.
Once you feel prepared enough on behavioral questions, start preparing yourself for technical questions, and make sure you genuinely understand the underlying financial concepts (e.g. enterprise value, IRR, time value of money, etc). Never memorize answers by heart which you don’t truly understand.
Read financial newspapers everyday to broaden and enhance your financial literacy, and speak to a few industry insiders every week to learn more about their jobs (and expand your network by the same occasion).
Make sure you practice a few brain teasers so that you don’t get caught off guard during the interviews.
If you wish to obtain advanced preparation on investment banking interviews, I’d advise you to check out our premium online course on this page.
This course had been made by top investment banking professionals form Goldman Sachs, Lazard, and Perella Weinberg Partners, and contains the 125+ most commonly asked interview questions at bulge-bracket investment banks.
This includes fit questions, technical questions, financial culture questions and brainteasers.
For each question, we provide examples of high-performing answers, and we help you build your own high-quality answers based on your unique background. Learn more about our comprehensive online course here.
Aurelian Tran is the founder of Alpha Lane and an ex-Goldman Sachs analyst who has spent 4+ years working in the investment banking industry.
@2022 Alpha-Lane. All rights reserved.
