The Five Most Common Technical Investment Banking Interview Questions

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It’s no secret that being fully prepared for your investment banking interview is essential. Interviews are incredibly competitive and the people interviewing you will assess you to see if you are the best candidate for their organization.

Before the interview, you should clearly understand the role of the position. You will be asked about your understanding of what the role entails, and failure to answer with certainty and clarity will mean your interview is over before it begins.

You also need a thorough understanding of mergers and acquisitions, accounting standards, investments, valuation, and banking. Finally, you need to be clear with investment banking fundamentals, roles and KPIs – the Fmi Investment Banking course is a great resource.

Our experts at IMF have put together what we believe are the top five technical interview questions for investment banking interns and graduates. Additionally, we’ve included a suggested method to help you with your answer. Before the interview, you should practice answering these questions, but don’t learn the answer word for word. It would be better if you fell naturally and passionately.

Answering these questions clearly and confidently will help you sell yourself to the interviewer, showing that you have prepared well in advance and are highly motivated to learn and work.
1. How do you rate a company?
Answer:
Step 1 – Start your answer by stating the two main valuation methods, which are absolute valuation (discounted cash flow valuation) and relative valuation (comparable/multiple valuation) approaches
Step 2 – Briefly explain each method covering all critical aspects of the methods
Step 3 – End by talking about the importance of using these methods in conjunction with each other to assess the true value of a business.
2. Please provide me with the three financial statements.
Answer:
Step 1 – State the three financial statements explaining each with a line
Step 2 – For each statement, explain what it includes, how the statement relates to other
statements and what the statement tells an analyst about the Company
Step 3 – Conclude by briefly explaining how the three financial statements are used when valuing a business.
3. When should a company consider issuing debt instead of equity?
Answer:
Step 1 – Begin by explaining some critical reasons why a business may need financing (e.g. investment
organic growth or growth by acquisition)
Step 2 – Explain the difference between debt and equity and their connection to the life cycle of a
Company
Step 3 – List the advantages of issuing debt rather than equity (eg it is a cheaper source of funding)
Step 4 – Conclude by mentioning how excessive leverage could harm a business
4. What makes a good financial model?
Answer:
Step 1 – Begin by explaining what a financial model is and isn’t
Step 2 – Give some examples of financial models and mention the benefits of construction
models. Highlight areas that demonstrate a thorough understanding of financial models such as sensitivity analysis)
Step 3 – Conclude by explaining how a financial model would be used to value a business
5. “A company learned that due to a new accounting rule, it can start capitalizing R&D costs instead of expensing them.”
a) What is the impact on EBITDA?
b) What is the impact on the net result?
c) What is the impact on cash flow?
d) What is the impact on valuation?

Answer:
Step 1 – Explain what R&D costs are and why they are expensed
Step 2 – Answer each of the sub-questions individually, giving a clear answer
Step 3 – (optional) mention what the effects would be on the sub-questions without the change
Step 4 – Conclude by mentioning the advantage for a Company of continuing to use the same method;
it is easier to evaluate and compare current and historical figures.

Conclusion:
The key to successfully answering these technical questions is to apply the concepts you learned in your studies or professional experiences and test yourself.

Don’t give too much background information during the interview. Investment bankers are very efficiency conscious and they have many people to interview. You’ll demonstrate a deeper understanding than talking too long by responding concisely.

Finally, be confident and let your passion shine through.

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