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What Are The Most Common Investment Banking Questions

Common Questions of Investment Banking

There are a lot of articles online showing you some investment banking questions for interviews.

The problem is: from the perspective of an industry professional, I can tell you that the quality of these articles is generally poor (with a few rare exceptions).

These articles either show you academic questions on finance that you may get during an exam, but which you’ll never get during a real world interview…

…or give you highly generic advice on how to answer so-called fit questions.

In this article, you’ll discover a concise list of interview questions that you can be almost certain to obtain during investment banking interviews at bulge-bracket banks and elite boutiques. 

We also provide examples of high-quality answers to give you a precise idea of what recruiters expect to hear from candidates. 

As you may know already, there are two main types of questions you can expect during IB interviews: fit/behavioural questions and technical questions. 

You’ll also occasionally have questions on financial culture and brainteasers, but this article will mainly focus on fit and technical questions because they are the most common. 

Fit questions

Question: Tell me about yourself
Example of answer
  • Briefly state your school name and major.
  • Start by briefly mentioning 2-3 experiences through which you had the chance to build skills that are useful and relevant for the role you’re applying to. The goal here is to demonstrate that you have accumulated experiences that have prepared you for this role. Remain extremely concise when you talk about these experiences and only focus on your most impactful and interesting experiences. 
  • Shorter answers perform better. Interviewers will have the chance to learn more about your experiences later by asking you further questions. Don’t go into too much depth: just state the name of the position, the sector in which you worked, the name of the company/association, and one key achievement.
  • For example, “Last year, I did a 6 months internship in data analysis at Company ABC, during which I wrote several statistical reports on consumer behaviour in the health & beauty niche”, and “At university, I had the chance to learn more about financial markets by managing an investment portfolio of $10k and a team of 15 people. We also organized several conferences with equity senior analysts and portfolio managers to learn more about finance and investing from seasoned professionals”).
  • Briefly introduce your “catalyst”: the specific reason that led you to become interested in the job you’re applying to. Then, use that catalyst to justify your presence here today, at the interview table (in one/two sentences max).
  • For instance, you became interested in finance after participating in a stock picking competition with two friends of yours, in which you prepared a stock pitch on XYZ Company and presented it in front of a jury in ABC City. You thoroughly enjoyed the process of performing financial research and building the investment case for this company, and now you would like to rediscover this exciting feeling in a professional context (more examples of interest “catalysts” below).
  • Say one or two things that are truly unique/funny about you (ex: a strange hobby that you have). Extremely important to finish with a light, refreshing touch.
  • Ex: “Aside from that, I like to play poker, I love cats, and I have an unexplained passion for origami”. Refreshing, original, straight to the point. Find your unique interests and try to finish with these kinds of unusual sentences. Recruiters will love it. 
Question: Why investment banking?
Tips to prepare this question

Don’t make it more complicated than it needs to be. Most people get this answer wrong because they’re overcomplicating the reason they really want to join the field. Be honest and concise and you will outperform the majority of your competition on this one. 

One of the best ways to answer this question, in my experience, is to find a “catalyst” or an “origin story”: a specific event that led you to be interested in investment banking. Notice that I already suggested using a catalyst for the question “Tell me about yourself” (TMAY). 

The difference here is that you go into more depth (i.e. instead of saying one or two lines to briefly explain why you’re here, run them through the specific chain of events that led you to become interested in IB). In other words, in the TMAY question, you only tease your catalyst. In this question, you don’t tease, you explain.

There are no right or wrong catalysts. As long as it is true and that it clearly justifies your interest in IB, this is a good catalyst. A catalyst is entirely personal, so you’ll have to find yours.

Your catalyst could be:
  • A person/mentor you met that inspired you to be learn more about this path (can be someone you met during a networking event, an university alumni, a family friend, your uncle, for instance)
  • A leadership experience you had which was related to finance, and which sparked an interest to explore the IB path (stock picking context, M&A valuation case, trading competition, etc.)
  • A key observation in one of your former professional experiences that triggered some interest for IB (you got in touch with M&A people during one of your former internships in the IR department of a company, and you learnt something from them that sparked your interest in the field)
Example of answer
Example of “mentorship” catalyst:

During an alumni networking event organized by your university last year, you met a Managing Director working in the M&A team of Jefferies in London. During your conversation, he told you the story of a major $11bn M&A deal in the TMT space that happened last year between X Company and Y Company. 

He ran you through the entire deal process, from fine-tuning the equity story of the seller, to establishing a range of potential valuations, to negotiating with various stakeholders to secure the best possible selling price, to managing the day-to-day interactions with clients, lawyers, and PR agencies to make sure the deal runs smoothly. 

You were amazed by the phenomenal complexity of the deal. You didn’t know that there was so much “going on” in the backstage of the transaction. And you found beauty in the fact that all the moving parts need to be neatly assembled for the whole operation to work, a bit like a plane that can’t safely fly if one piece is dysfunctional. This story really inspired you, and now you would like to have the chance to work on deals of this kind by being an active member of an investment banking team.

 Example of “leadership experience” catalyst: during an M&A competition you participated in last year, you had to build an M&A case study on a fictive merger transaction between two luxury hotel companies. You partnered with two of your friends, and for three weeks in a row, aside from classes, you worked every day on refining your case study, building valuation analyses, strategic assessments, sensitivity analyses, and due diligence on these two companies.

Once the case study was completed, you sent it to a jury, and they decided to invite you and your team to the final round of the competition, during which the selected participants had to present their case study in front of another jury composed of senior bankers working at leading investment banks. 

You presented your case study as best as you could, and your team was ranked 2nd out of 458 participants. It was one of the most exciting and intellectually stimulating experiences of your life, and since you enjoyed it so much, you would like to rediscover this feeling of excitement by working in M&A.

 Example of “observational” catalyst: last year, you worked as an intern in the Investor Relations team of a public company that recently went through a very large merger. During the operation, you liaised with the M&A team of an investment bank called XYZ, and you were invited to participate in a business meeting during which senior investment bankers discussed the strategic rationale of the transaction, the potential synergies that could be unlocked, the impact it could have on earnings using several hypotheses. 

You found this strategic meeting absolutely fascinating, and based on that vivid and pleasant memory, you decided to gain some experience in Investment Banking to explore this path. 

Note: this type of answer works best if you have no experience in IB and you’re a relatively young student who is in a “discovery mode”. I don’t recommend using this type of catalyst to justify your interest in IB if you’ve got 2-3 internships in fields very close to IB already, as it may sound a bit naïve from the perspective of the recruiter.

Question: What do you think are the skills required to succeed in investment banking?
Example of 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.
  • Strong analytical and financial skills to scan through vast amounts of data and build sound strategic and financial pieces of analysis
  • Attention to detail, to make sure that there are zero defects in the deliverables we send to the clients. It’s key to be very rigorous to preserve the reputation of the firm.
  • An ability to work long and stressful hours, as work can be very intense compared to other industries, especially during time-critical steps of a deal where we have an obligation to meet tight deadlines
  • Teamwork and client management skills. Productivity can be drastically increased by working cohesively as a team, and since this job is particularly fast-paced, it is all the more important to be a well-functioning team member to be successful in this industry, in your view.
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.
Question: What are your key weaknesses?
Tips to prepare this question

Some weaknesses will immediately disqualify you. You can’t say whatever you want, even if those are your true weaknesses.

 For example, if you say that you lack integrity, no one will accept you. Quite obvious.

 The key here is to prepare for weaknesses that are “not too bad” and which could be improved with sufficient practice. Also avoid common popular mistakes, such as saying you’re a “perfectionist”…

Weaknesses that are “not too bad” or that can be improved include:

  • Occasional lack of focus;
  • You could be a bit faster in your work sometimes;
  • Tendency to interrupt your colleagues without wanting to do so;
  • Having trouble saying no to others when they ask you a favour, which may decrease your focus and productivity;
  • Sometimes you’re too “soft” when you give feedback to others. One part of you wants to help them, but at the same time you don’t want to hurt their feelings.
Example of answer
  • Based on the feedback that you received so far from your teachers (and maybe from your internships if you had some), you believe that one of your weaknesses is lack of focus, in the sense that you may sometimes get distracted for no apparent reason
  • Give a brief example to illustrate your weakness (this example shouldn’t be a deal breaker, try to keep it light)
  • Repeat the process with another weakness
  • Say at the end that you are actively working on improving them, to show that you care about self-improvement, and, most importantly, that you integrate external feedback (which is critical)
Question: Where do you see yourself in 5/10 years?
Tips to prepare this question

The right answer for you depends on your level of experience. In general, the less experienced you are, the more you can afford to convey uncertainty in your outlook. After all, if you’re a university student who has never stepped foot into Investment Banking before, it’s obvious that you can’t know for sure if you plan to stay in this industry longer term until you gain a first IB experience.

 On the other hand, if you have 2-3 years of experience, recruiters will usually expect you to show strong, long-term commitment to investment banking.

Example of answer

Say that you could be wrong, but based on your current interest for the Investment Banking industry and the fact that you like to commit strongly whenever you start something, it’s fair to assume that you will want to work on M&A deals over the next 5-10 years (or whatever field of interest you have, could be ECM, Leveraged Finance, etc.)

 Highlight that you don’t have a crystal ball, and that you’re aware that sometimes people change jobs or industries unexpectedly. But as of now, you are very willing to pursue a career in M&A over the next few years to learn from the industry’s best practices and become increasingly more involved in M&A deals.

 Note: Some people consider that it’s a bad thing to inject some uncertainty into your answer like that. I think this is BS. 

From my experience, many recruiters find it really refreshing when one candidate chooses to be honest by subtly mentioning that nothing is set in stone, that we may change our mind in the future. 

Recruiters are humans like you, and they also like to keep their options open. So in most cases, you will be rewarded for adding a bit of “calculated honesty” like that.

Technical questions

Question: What are the main valuation methodologies?
Example of answer

The three most common valuation methodologies are: discounted cash flow analysis (DCF), comparable comps analysis, and precedent transactions

  • A DCF is an absolute measure of valuation that involves estimating the intrinsic value of a company by forecasting its future cash flows and discounting them back into the present.
  • Comparable Companies is a relative valuation methodology used to estimate the value of a stock using trading multiples from comparable companies, such as P/E, EV/EBITDA, EV/EBIT, etc.
  • Precedent Transactions is another relative valuation methodology that involves estimating the value of a company by comparing it with other comparable businesses in the same industry that have been acquired.
  • The price at which these businesses were bought can be used to give an indication of what the company you’re trying to evaluate could be worth.
  • Relying on this valuation method may potentially result in an inflated value vs other methods, because these transactions include the take-over premium: the premium that the acquirer paid to take control of these businesses.
Question: Could you run me through a DCF?
Example of answer
A DCF is a valuation method used to estimate the intrinsic value of a company based on the future cash flows it is expected to generate.
  • The first step is to build the financial statements, by including historical numbers and by modeling pro forma numbers using several assumptions
  • The second step would be to forecast the future cash flows of this company
  • The third step would be to compute the WACC, the discount rate at which these cash flows will be discounted back into the present.
  • The fourth step would be to calculate the terminal value of a stock, which is the expected value of the company after the forecasting period, assuming a stable growth rate into perpetuity.
  • The fifth step would be to discount all of these cash flows as well as the terminal value back into the present.
  • The sixth step would be to add these present values together to obtain the intrinsic value of the company.
Question: How do you compute the discount rate for a DCF valuation?
Example of answer

The WACC or discount rate is the weighted average cost of capital that is used to discount the future cash flows of a company in a DCF valuation.

 To compute the discount rate of a company we need to know 5 things:

1. The share of equity (% of the total value of a firm’s financing, i.e. equity and debt, that is equity. If the total value of financing is $100m and the value of equity is $50m, then the share of equity is 50%)
2. The share of debt (% of the total value of a firm’s financing, i.e. equity and debt, that is debt)
3. The cost of equity (how much it costs to issue new equity)
4. The cost of debt (how much it costs to issue new debt)
5. The tax rate of this company
Then, we can calculate the WACC with the following formula:
  • WACC= (% of equity) x (cost of equity) + (% of debt) x (cost of debt) x (1 – tax rate)
Question: How do you build a Comparable Companies or Precedent Transactions analysis?
Example of answer

To find comparable companies and transactions, it’s good practice to search for companies that have a similar or comparable industry classification (e.g., Mobile Apps if you’re trying to value a company designing mobile applications). 

If we want to be more specific, we can include financial criteria into the screening process (e.g., revenue, market capitalization, EBIT, etc.).

 For precedent transactions, we can look at previous transactions that happened within the same geographical area (or at least in areas in which markets obey to comparable rules), in a relatively recent past (1-2 years ideally).

 For instance, if you’re trying to value a tech company that builds mobile games in France using the Precedent Transaction valuation method, you may want to look at all mobile gaming companies that were acquired in Western Europe within the past 2 years. It wouldn’t be a good idea to look at US transactions because the valuation multiples tend to be significantly higher than Europe.

In every comparable or transaction analysis, the more criteria you include in your screening, the lower the number of results you will get. It’s generally a good thing to use precise criteria to maximise the relevance of comparable companies/transactions. 

That said, you don’t want to go too far with specificity, because if you do, you may not have enough companies in your list to perform a sound valuation analysis.

As a rule of thumb, it’s a good practice to have at least 4-5 comparable companies/transactions to determine the value of a target based on Comparable Companies/Precedent Transactions analysis.

Question: What are the common valuation multiples?
Example of answer
Common valuation multiples include:
  • P/E ratio = Stock Price/Earnings Per Share
  • EV/EBITDA = Enterprise Value/EBITDA
  • EV/EBIT = Enterprise Value/EBIT
  • EV/Sales = Enterprise Value/Sales
  • PEG ratio = (P/E)/growth rate
Question: Why do some investors prefer EBIT multiples to EBITDA?
Example of answer

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.

Question: Could you explain to me what beta is?
Example of answer
Beta is a measure of stock volatility relative to the market. It is a commonly used measure to evaluate the relative risk of a stock.
  • A beta of 1 means that a stock price will move proportionally to the market
  • A beta higher than 1 means that a stock price will move more than the market for a given market move
  • A beta lower than 1 means that a stock price will move less than the market for a given market move

In general, a high beta means more risk than average, but also greater potential returns. Conversely, a low beta means less risk than average, but also lower potential returns.

 Beta is a critical indicator to look at to manage the market risk of a portfolio. Hedge fund managers who want to hedge themselves against market risk (basically they become indifferent to either increases or decreases in market price) can employ a beta neutral strategy, where the weighted-average beta of their portfolio is equal to zero.

Question: What is the difference between enterprise value and equity value?
Example of answer

Enterprise Value is the total value of a firm’s assets (excluding cash). It comprises both equity and debt. This is the total value a buyer would pay if it were to buy the entire business. As such, it is a popular metric to measure the value of a potential takeover candidate.

Enterprise value can be computed as such:
  • (Number of shares outstanding x Share price) + Total debt – Cash

Equity value, on the other hand, is the total value of firm equity. It’s the value that remains once you have stripped out the debt of the enterprise value (and adding back cash). This metric is commonly used by equity analysts because analysts are typically interested in estimating the value of a stock, and this value is based on the equity value, not the total value of the firm or enterprise value.

 Equity value can be computed using these two formulas:

  • Number of shares outstanding x Share price
  • Enterprise value – Debt + Cash
Question: What is the internal rate of return (IRR)?
Example of answer

The IRR is the effective compounded interest rate in an investment. Let’s say you invest $10,000 today and your investment becomes $15,000 after 4 years. The IRR is the interest rate you would have to earn on your initial $10,000 to end up with $15,000 after four years.

 The IRR is a critical metric used by investors when evaluating investment opportunities (e.g., an oil & gas company considering several expansion projects will calculate individual IRRs for each potential project). All other things equal, the higher the IRR, the more profitable the project.

 Expressed differently, the IRR is discount rate at the which the Net Present Value (NPV) of an investment is equal to 0

Question: Explain to me how the three financial statements interact with each other
Example of answer

The Cash Flow Statement starts with Net Income, adjusts for non-cash costs and working capital changes, and then displays cash flow from investing and financing operations, with the company’s net change in cash at the bottom.

 Net Income from the Income Statement flows into Shareholders’ Equity on the Balance Sheet and into the top line of the Cash Flow Statement to tie the sections together.

On the Cash Flow Statement, changes to Balance Sheet items appear as working capital changes, while investing and financing activities affect Balance Sheet items like PP&E, Debt, and Shareholders’ Equity

 The Balance Sheet’s Cash and Shareholders’ Equity items operate as “plugs,” with Cash pouring in from the Cash Flow Statement’s last line.

To go further…

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.


A word about the author

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.

He founded Alpha Lane to help students and young professionals achieve their highest professional ambitions, by securing offers at top-tier financial institutions.