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.
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.
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.
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:
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.
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.
The three most common valuation methodologies are: discounted cash flow analysis (DCF), comparable comps analysis, and precedent transactions
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:
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.
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.
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.
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.
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:
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
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.
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.
He founded Alpha Lane to help students and young professionals achieve their highest professional ambitions, by securing offers at top-tier financial institutions.
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