Essential Investment Banking Interview Questions and Answers

Investment banking interviews can be challenging, with questions ranging from your strengths and weaknesses to complex financial concepts. This guide provides you with sample questions and strategic answers to help you prepare and succeed.

Personal Questions

Q: What’s your greatest strength and your greatest weakness?

A: Highlight a strength relevant to the role, supported by a brief story. For your weakness, choose one that is real but not detrimental. For instance, avoid mentioning an inability to delegate if you’re applying for a role that requires it.

Example: "I sometimes take too long to make decisions because I want to avoid conflict. In one instance, I delayed addressing a non-performing team member, which ultimately impacted the project. I've since learned to act more swiftly."

Q: What feedback did you receive from your most recent internship or job?

A: This question assesses both your strengths and weaknesses. Choose one of each and back it up with a story.

Example: "During my internship, I received praise for working long hours and successfully completing a last-minute task, which led to a successful deal close. However, I was advised to be more proactive in following up on assignments."

Q: Can you describe a team situation where you worked with a difficult team member?

A: Discuss a specific scenario where a team member was uncooperative, unethical, or difficult to get along with. Explain how you managed the situation and led the team to success.

Example: "A team member resisted contributing to the project. I addressed this by assigning them tasks that wouldn't jeopardize the project while encouraging collaboration from the rest of the team."

Q: You have no experience in an investment bank. Why do you think your skills are relevant to this industry?

A: Briefly outline the skills required in investment banking and relate them to your previous experience.

Example: "My previous roles required long hours, client interaction, and analytical tasks. I've also studied accounting and finance, which are fundamental in banking."

Q: You already have two years of work experience. Why couldn’t you get into an investment bank as an undergrad? Were you a failed candidate?

A: Never admit failure. Instead, explain a plausible reason for the late interest in banking or deliberate choice of other opportunities.

Example: "I became interested in banking late in the recruitment cycle, making it difficult to secure the necessary internships. I've since gained relevant experience and have been focused on transitioning into banking."

Q: You’ve changed jobs twice in the past two years and now want to switch again. How do I know you won’t leave our firm next year?

A: Emphasize that your job changes were part of a strategic plan to gain diverse experience before settling into investment banking.

Example: "I planned my career to gain broad experience. I started in audit, moved to a boutique firm for client exposure, and now aim to join investment banking to work on complete deals."

Q: The person in the room next door has perfect grades from Harvard or Oxford. You had lower grades and went to a state school. Why should I hire you over them?

A: Highlight your determination and the effort you put into reaching this point. Emphasize your commitment to a long-term career in banking.

Example: "I've had to work harder to get here, which demonstrates my dedication. Unlike many from elite schools, I aim for a long-term career in banking, aligning with the firm's goals."

Q: Can you describe what a banker does in an IPO or M&A deal?

A: Review the roles and responsibilities involved in IPOs and M&As from reputable sources to provide a comprehensive answer.

Q: Why do you want to be an investment banker?

A: This should be the conclusion of your personal story, emphasizing your passion and suitability for the role.

Q: Why our bank, specifically?

A: Reference specific strengths or achievements of the bank that align with your career goals and interests.

Deal, Market, and Company Discussions

Q: Tell me about a recent deal.

A: Research a deal the bank has worked on recently, summarizing the background, rationale, financial stats, and your opinion.

Q: Tell me about a deal our bank worked on recently.

A: Similar to the previous question but specific to the bank you're interviewing with. Highlight your research on their recent activities.

Q: Tell me about a company you’re interested in.

A: Choose a company relevant to the industry and explain why it interests you, including key financial stats and market position.

Q: What makes Market X interesting to you?

A: Provide an analysis of the market size, key trends, drivers, major competitors, and your opinion on its future prospects.

Technical Questions

Q: How do the 3 financial statements link together?

A: Explain the connection between the Income Statement, Cash Flow Statement, and Balance Sheet, highlighting key linkages like Net Income and changes in Working Capital.

Q: What does the Change in Working Capital mean, intuitively?

A: It indicates whether a company needs to spend in advance of its growth or generates more money as it grows. Negative changes in working capital often mean more spending upfront.

Q: What does it mean if a company’s Free Cash Flow is growing, but its Change in Working Capital is increasingly negative each year?

A: It suggests that the company's Net Income or non-cash charges are growing faster than the negative impact of the Change in Working Capital.

Valuation Questions

Q: What do Equity Value and Enterprise Value mean, intuitively?

A: Equity Value represents the value of all assets available to equity investors, while Enterprise Value represents the value of core business assets available to all investors.

Q: A company issues $200 million in new shares and uses $100 million from the proceeds to issue Dividends to shareholders. How do Equity Value and Enterprise Value change?

A: Equity Value initially increases by $200 million and then decreases by $100 million. Enterprise Value remains the same throughout.

Q: What are the advantages and disadvantages of EV/EBITDA vs. EV/EBIT vs. P/E as valuation multiples?

A: EV/EBITDA excludes CapEx and Depreciation, EV/EBIT includes them partially, and P/E reflects a company’s bottom line but can be affected by various external factors.

Q: How might you select a set of comparable public companies for use in a valuation?

A: Screen based on geography, industry, and size. For example, “U.S.-based steel manufacturing companies with over $500 million in revenue.”

DCF Questions

Q: Explain the big idea behind a DCF analysis and how it is used to value a company.

A: A DCF values a company based on its projected cash flows, discounted to present value. The valuation is split into an explicit forecast period and a terminal period.

Q: Walk me through an Unlevered DCF.

A: Project the company’s Unlevered Free Cash Flows, discount them using WACC, estimate the Terminal Value, discount it, and sum everything to get the Implied Enterprise Value.

Q: Explain what WACC means intuitively and how you might calculate each component of it.

A: WACC is the expected annualized return if you invest proportionately in all parts of a company’s capital structure. Calculate it using the Cost of Equity, Cost of Debt, and Cost of Preferred Stock, weighted by their respective proportions.

Q: How do you calculate and sanity check Terminal Value in a DCF?

A: Use the Multiples Method or the Gordon Growth Method. Cross-check by comparing the implied Terminal FCF Growth Rate and Terminal Multiple to industry standards.

By preparing for these questions and answers, you can approach your investment banking interview with confidence and a thorough understanding of what interviewers seek.