Investment banking – a term that signifies prestige, challenging work, and rewarding compensation. As the driving force behind major financial transactions and corporate decisions, investment banking plays a crucial role in the global economy.
But with great influence comes immense competition, making the road to becoming an investment banker a highly selective process, with the interview stage often being the make-or-break point.
General Overview of Investment Banking Interviews
Investment banking interviews are notoriously rigorous and can range from phone screenings to first-round interviews and final Superdays. They typically cover behavioral and technical aspects, with some firms throwing in market-related questions and brain teasers for good measure. Let’s explore each of these categories.
Preparation for Investment Banking Interviews
To succeed in an investment banking interview, you need more than just a degree in finance or a knack for numbers. Preparation is paramount. You need to familiarize yourself with financial concepts, accounting principles, and investment banking jargon. Resources like investment banking textbooks, online courses, and mock interviews can prove invaluable.
Also, don’t forget to keep up-to-date with financial news and global market trends. Interviewers appreciate candidates who can discuss recent financial events with insight and acumen.
Common Fit/Behavioral Investment Banking Interview Questions
Fit or behavioral questions aim to assess whether you’d mesh well with the team and handle the pressures of investment banking. They often relate to your experiences, interests, and skills.
Here are some common fit questions:
- Tell me about yourself.
- Why have you chosen investment banking as a career?
- Can you describe a situation where you demonstrated leadership?
- How do you cope with high-stress situations?
- Describe a situation where you had to work as part of a team.
Let’s dive deeper into the above behavioral questions and provide some examples, anecdotes, and tips for how you could approach these questions –
1. Tell me about yourself
This question is almost guaranteed to be the first one you’ll face in an interview. It may seem straightforward, but it’s your first opportunity to leave a strong impression. You should prepare a concise, compelling pitch that covers your educational background, relevant experience, and why you’re interested in investment banking. Remember to focus on your achievements and skills that make you suitable for the role.
Anecdote: Instead of just listing your qualifications, you could say something like: “During my internship at XYZ Corp, I was able to assist on an M&A deal which reinforced my interest in investment banking and helped me develop my financial modeling skills.”
2. Why have you chosen investment banking as a career?
Your interviewer wants to see your passion for the industry. Discuss what attracts you to investment banking, whether it’s the fast-paced nature of the work, the opportunity to work on high-stakes transactions, or the steep learning curve. Also, make sure your reasons align with the realities of the job – long hours, high stress, and all.
Tip: Show that you’ve done your research about the industry and are aware of the challenges, not just the glamorous parts. You might say, “I am drawn to investment banking for the rigorous analytical work and the chance to gain a deep understanding of businesses across different sectors.”
3. Can you describe a situation where you demonstrated leadership?
Interviewers ask this question to assess your leadership skills and teamwork. Talk about a time when you took the lead on a project or initiative, focusing on the actions you took and the results you achieved.
Anecdote: “In my previous role, I led a team of five to work on a complex project under tight deadlines. I delegated tasks effectively, motivated the team, and ensured we maintained open communication. Our team successfully completed the project on time, resulting in a 15% increase in efficiency.”
4. How do you cope with high-stress situations?
Investment banking is known for its high-stress environment. Your interviewer wants to know that you can handle this pressure. Discuss your stress management strategies such as prioritization, efficient time management, or mindfulness practices.
Tip: Provide an example of a high-stress situation you’ve faced, how you dealt with it, and what you learned from the experience. This showcases your problem-solving skills and resilience.
5. Describe a situation where you had to work as part of a team.
Investment banking involves a lot of teamwork. This question aims to assess your ability to work with others. Share an experience that shows your ability to collaborate, resolve conflicts, and achieve a common goal.
Anecdote: “During a group project at university, our team faced a disagreement over the project’s direction. To resolve this, I suggested we list the pros and cons of each approach and vote on the best one. This helped us move forward and ultimately, we received high praise for our work.”
When answering fit/behavioral questions, your goal should be to showcase your skills, experiences, and personal qualities that make you an excellent fit for investment banking. Be authentic, concise, and structured in your responses, and always tie your answers back to why you’d excel in the role.
Common Technical Investment Banking Interview Questions
The technical component of an investment banking interview is where your financial knowledge is put to the test. Common topics include financial modeling, valuations, M&A, LBOs, and DCF analysis.
Here are some example technical questions:
- Can you explain the difference between enterprise value and equity value?
- How do you value a company?
- Can you walk me through a discounted cash flow (DCF) analysis?
- How would you model an M&A deal?
Let’s dive deeper into the technical questions you might face during an investment banking interview –
1. Can you explain the difference between enterprise value and equity value?
Enterprise value (EV) and equity value (also known as market capitalization) are two measures used to determine a company’s value. Equity value is the total value of a company’s equity and can be calculated by multiplying the company’s share price by its number of shares outstanding. On the other hand, EV is a measure of a company’s total value, including equity and debt, minus cash and cash equivalents.
Tip: Remember, EV is a more comprehensive measure as it accounts for a company’s entire capital structure. It’s often used in scenarios like acquisitions, where the buyer would need to assume the company’s debts.
2. How do you value a company?
There are several methods to value a company, including the discounted cash flow (DCF) analysis, comparable company analysis (Comps), and precedent transaction analysis.
- A DCF analysis values a company based on the present value of its projected free cash flows.
- Comps involves comparing the company’s valuation multiples to those of similar companies in the market.
- Precedent transaction analysis values a company based on recent M&A transactions involving similar companies.
Anecdote: During my finance coursework, I utilized the DCF method to value a technology start-up as part of a case study. This helped me understand the real-world application of these valuation models.
3. Can you walk me through a discounted cash flow (DCF) analysis?
A DCF analysis involves estimating a company’s future cash flows and then discounting them back to present value using an appropriate discount rate (usually the weighted average cost of capital, or WACC). The sum of these discounted cash flows gives us the enterprise value.
Tip: When walking through a DCF analysis, be sure to discuss key assumptions like revenue growth rates, operating margins, tax rates, and the discount rate. These assumptions can significantly impact the valuation.
4. How would you model an M&A deal?
Modeling an M&A deal involves several steps, including:
- Determine the purchase price and how the deal will be financed.
- Adjust the target’s balance sheet to reflect the transaction (add goodwill, write-ups, new debt, etc.).
- Project financials for the combined company.
- Calculate financial metrics and ratios to analyze the impact of the transaction.
Anecdote: As an intern, I had the opportunity to assist in building an M&A model for a client in the healthcare industry. This allowed me to understand the strategic and financial implications of M&A transactions.
50 More Technical Questions
Do you want to get ahead of the competition by mastering the questions that industry insiders swear by? Download our Free Comprehensive Guide on 50+ Technical Questions & Answers, which were actually asked in Investment Banking Interviews by top companies!
Technical questions can seem daunting, but with adequate preparation, you can handle them effectively. Make sure to brush up on your financial concepts and be comfortable with valuation methodologies. Try to relate these concepts to real-world scenarios or experiences when possible, as this shows your practical understanding of these principles.
Common Market-Related Investment Banking Interview Questions
Market-related questions probe your understanding of the broader financial landscape and your ability to form opinions based on current events. Staying abreast of the news and being able to articulate how different factors influence each other in the global economy will help you excel in this category.
Examples of these questions might include:
- How do you see interest rates moving in the next 12 months and why?
- What do you think about the current state of the stock market?
- Can you explain how a change in the Federal Reserve’s policy might impact our clients?
- How do recent economic events impact the M&A landscape?
Let’s dig deeper into some common market-related questions and provide you with more examples, anecdotes, and tips for handling these types of questions.
1. How do you see interest rates moving in the next 12 months and why?
This question tests your understanding of economic indicators and their impact on the market. You should base your answer on current economic trends, monetary policy, inflation rates, and other relevant data.
Tip: Be sure to articulate your thoughts clearly and justify your predictions with sound reasoning. For instance, you might say, “Given the recent signals from the Federal Reserve and current inflation trends, I believe we might see a gradual increase in interest rates over the next 12 months.”
2. What do you think about the current state of the stock market?
For this question, interviewers are looking for your insights on market conditions, trends, and possible future developments. Keep up-to-date with market news and be ready to discuss recent events, such as shifts in market indices, sector performance, or major announcements from central banks.
Anecdote: You could share an experience where a stock market event had an impact on a project or investment you were working on. This shows that you can apply market knowledge in practical scenarios.
3. Can you explain how a change in the Federal Reserve’s policy might impact our clients?
Interviewers use this type of question to assess your understanding of monetary policy and its effects on businesses. Changes in Federal Reserve policy can affect interest rates, which in turn can impact a company’s borrowing costs, capital structure decisions, and overall business strategy.
Tip: When answering, discuss both the direct impacts (e.g., changes to interest expenses for firms with debt) and the indirect effects (e.g., changes to consumer spending, which could affect a company’s revenues).
4. How do recent economic events impact the M&A landscape?
This question requires you to link macroeconomic factors to specific areas of investment banking, such as mergers and acquisitions. Economic events can influence M&A activity in several ways, such as changing the availability of financing, altering the valuation of potential targets, or impacting companies’ strategic decisions.
Anecdote: An example could be discussing how an economic recession led to an increase in consolidation within a specific industry.
To excel in answering market-related questions, you need to stay updated on current events, understand the macroeconomic landscape, and be able to link these factors to the world of investment banking. Also, remember to communicate your thoughts clearly and support your opinions with solid reasoning.
While they may seem out of place, brainteasers are sometimes used in investment banking interviews to test your problem-solving skills and how you handle pressure. Here are some examples:
- How many square feet of pizza is eaten in the U.S. each year?
- How many golf balls can fit in a Boeing 747?
- If you were shrunk to the size of a pencil and put in a blender, how would you get out?
Let’s dig deeper into these brainteasers and provide you with more examples, anecdotes, and tips for handling these types of questions
How many square feet of pizza is eaten in the U.S. each year?
This is an example of a market sizing question where you are expected to make reasonable assumptions to arrive at an estimate. Start by estimating the average size of a pizza, the frequency at which an average person eats pizza, and the population of the U.S.
Tip: Clearly articulate your thought process and the assumptions you are making. This shows your problem-solving approach and numerical reasoning skills.
How many golf balls can fit in a Boeing 747?
This type of question tests your estimation skills and creativity. You’d need to estimate the volume of a Boeing 747 and the volume of a golf ball, then divide the former by the latter.
Anecdote: “During an internship interview, I was asked a similar question about filling a room with basketballs. Though it seemed offbeat at the time, it tested my ability to think on my feet and solve problems under pressure.”
If you were shrunk to the size of a pencil and put in a blender, how would you get out?
This is an abstract brainteaser designed to assess your problem-solving skills and creativity. There is no right or wrong answer, but you’re expected to come up with a logical solution under pressure.
Tip: Try to stay calm and talk through your thought process clearly. For example, you could suggest tipping the blender over by using the pencil-size body as a lever.
When tackling brainteasers, it’s essential to stay composed, think logically, and articulate your thought process clearly. Interviewers are interested in how you approach the problem rather than the exact answer. Keep in mind that it’s okay to ask for a moment to think before you start answering. This shows that you’re thoughtful and won’t rush into complex problems without due consideration.
How to Close an Investment Banking Interview
Closing the interview effectively can leave a lasting impression. This is often the time when the interviewer asks if you have any questions. Use this opportunity to express interest and show you’ve done your research. Ask thoughtful questions about the role, the team, or recent transactions the firm has handled.
Post Interview Tips
After the interview, it’s good practice to send a thank you email to your interviewer. This shows appreciation for their time and can help you stand out from other candidates. If you haven’t heard back after a couple of weeks, it may be appropriate to follow up on your interview status.
Securing a role in investment banking is no small feat, and the interview process is just one of the many hurdles you’ll encounter on this career path. Remember, success in investment banking interviews isn’t just about regurgitating financial knowledge; it’s about demonstrating a deep understanding of financial principles, showcasing your problem-solving abilities, and proving your cultural fit within the company.
However, these interviews are also an opportunity for you to assess whether the role and the company are the right fit for you. After all, you’ll be investing a substantial amount of your time and energy into this job. Therefore, ensure that you’re as comfortable with them as they are with you.
A career in investment banking is undoubtedly challenging, but with the right preparation and mindset, you can navigate your interview confidently. So, take a deep breath, believe in yourself, and let your passion for investment banking shine through.
Frequently Asked Questions
Interviews typically include fit/behavioral questions, technical questions, market-related questions, and brainteasers to test a variety of skills and knowledge.
Brush up on financial modeling, valuation, corporate finance, and capital markets. Understand financial statements, recent deals, and current finance trends.