Investment banking is a highly competitive field and getting hired as an investment banker requires a rigorous interview process. One of the most challenging aspects of interviewing for an investment banking position is preparing for the questions that are likely to be asked.
In this article, we’ll discuss 400 potential investment banking interview questions and provide tips on how to answer them effectively. By the end of this article, you’ll have a solid understanding of what to expect during an investment banking interview and how to prepare accordingly.
General Investment Banking Questions
- What specific area of investment banking interests you?
- Why did you choose investment banking as your career path?
- Can you explain what investment banking entails?
- What do you think you could bring to our firm?
- Can you describe your knowledge of finance and accounting principles?
- How would you define an IPO?
- What are some recent mergers and acquisitions that caught your attention?
Technical Finance Questions
- How would you calculate the weighted average cost of capital (WACC)?
- Can you break down a company’s cash flow statement for me?
- What is enterprise value (EV) and how is it calculated?
- How would you value a company using discounted cash flow (DCF) analysis?
- What is beta in finance and how do we use it when calculating risk-adjusted returns?
- Can you explain the difference between yield-to-maturity (YTM) and current yield on a bond?
Behavioral Questions
- Tell me about yourself.
- Give me an example of when you had to work with a difficult coworker or team member.
- Describe a time when you had to make a difficult decision.
- Can you tell me about your greatest accomplishment thus far in your career?
- Explain a situation when you had to solve a complex problem.
- Give an example of how you managed competing priorities.
- What are some skills that you would like to improve on?
Skills and Competency Questions
- How do you manage your time effectively?
- Describe your organizational skills and attention to detail.
- Tell me about a time when you had to think creatively in order to solve a problem.
- How do you handle stressful situations?
- What motivates you?
Industry-Specific Questions
- Can you discuss the impact of interest rates on the housing market?
- Explain the differences between private equity and venture capital investing.
- What trends are currently affecting the tech industry?
- How does an economic recession impact investment banking activity?
- Can you discuss some of the challenges faced by emerging markets?
Company-Specific Questions
- Why do you want to work for our firm specifically?
- Can you describe what sets our firm apart from other investment banks?
- Which area of our business interests you the most? (M&A, Capital Markets, Trading etc).
- Have there been any recent deals that our firm has executed that particularly caught your attention?
- What do you think this role will entail on a day-to-day basis?
Investment Banking Technical Interview Questions
36-50 Accounting and Financial Statement Analysis
- Walk me through a company’s income statement.
37.What is EBITDA, and why is it commonly used in financial analysis?
38.What is working capital management, and why is it important for companies?
39.How would an increase in accounts receivable impact cash flow?
40.What are deferred tax liabilities, and how are they treated in financial analysis?
41.How would stock options be treated in financial statements?
42.Walk me through how consolidation accounting works
43.Why might we use different accounting methods to calculate depreciation?
44.How would you account for revenue recognition in a long-term project?
45.Why might a company restate its financial statements, and what would be the impact of restating a balance sheet?
46.What is goodwill impairment, and how does it affect financial analysis?
47.How would you calculate net present value (NPV)?
48.What are some common ratios used to analyze the financial health of a company?
49.Explain what accretion and dilution mean in regards to mergers and acquisitions.
50.How is debt capacity calculated?
51-75 Equity Valuation
51.What is enterprise value (EV), and how is it calculated?
52.How do we calculate equity value from enterprise value?
53.What is free cash flow (FCF), and why do we use it for valuation?
54.Why might we use different discount rates for different companies when using discounted cash flow (DCF) analysis?
55.What is terminal value, and how do we incorporate it into our DCF model?
56.How would you create a sensitivity analysis in Excel for a DCF model?
57.Explain the difference between yield-to-maturity (YTM) and current yield on a bond.
58.Can you explain the dividend discount model (DDM)?
59.How might we use multiples such as P/E or EV/EBITDA to value companies?
60.What is the Gordon Growth Model, and when might it be useful to apply this approach to valuation?
61.Explain what WACC represents in valuation, and how it’s calculated.
62.In what types of scenarios would public company comparables be more appropriate than precedent transaction comparables in valuing a company?
63.How does calculating price-to-book ratio differ from other valuation methodologies like discounted cash flow or comparable analysis?
64.When might an investor buy into an IPO versus waiting for shares to become available on secondary markets?
65.How do we estimate beta for a company?
76-100 Leveraged Buyouts (LBOs)
76.Why might a private equity firm be interested in pursuing an LBO investment?
77.What are the benefits of using debt to finance an LBO?
78.How does debt impact returns for the sponsor and investors in an LBO scenario?
79.What is the difference between senior secured debt and subordinated debt?
80.How might we calculate interest coverage ratios for a company?
81.Explain covenant-lite loans and how they differ from traditional senior secured loans.
82.What could cause an LBO deal to fall through or not succeed as planned?
83.How would you determine if a company could support an LBO based on its current financial situation?
84.Can you walk me through how you would approach modeling out different scenarios for an LBO deal?
85.Why might accretion and dilution be important when considering debt tranches for an LBO deal?
86.How would you determine the amount of equity required in order to complete an LBO transaction?
87.Explain how exit multiples can impact both return expectations and deal structure.
88.How might sponsors attempt to maximize returns by working with management teams post-acquisition?
89.In what types of industries are management buyouts most commonly found, versus other types of transactions?
101-125 Mergers & Acquisitions
101.Can you describe the different types of M&A deals?
102.What factors would influence whether a stock-for-stock transaction or cash transaction is used in a merger situation?
103.How does the concept of goodwill impact financial models following mergers or acquisitions?
104.What is a "poison pill" defense mechanism, and what are some examples of how it can be implemented by companies undergoing M&A activity?
105.Investors often analyze acquisition multiples – explain what this means.
106.Explain why acquisitions may fail to deliver expected benefits or synergies outlined during their announcement.
107.Describe the primary methods used to analyze and evaluate potential M&A targets.
108.What is the difference between a hostile and friendly takeover?
109.How might a company defend against a potential hostile takeover in order to protect shareholder value?
110.What are the advantages of pursuing an M&A strategy versus organic growth?
111.Why might an acquirer choose to keep certain divisions of a target company separate from its core operations?
112.In which industries might we see more vertical integration strategies pursued during M&A activity?
113.Explain how reverse mergers work, and when they are most commonly used.
114.Can you walk me through a scenario in which a private equity firm would use the platform investment strategy in order to maximize returns following a merger or acquisition?
115.How does “target painting” change the way buyers approach potential acquisition targets?
116.What factors should be considered when deciding whether or not to divest a business unit as part of an M&A deal?
117.What is an earnout, and how does it differ from traditional methods of payment during M&A deals?
118.Describe some reasons why companies might need to divest assets in order to manage debt levels.
119.How would you determine whether or not a proposed acquisition cost was reasonable based on historical pricing multiples for similar transactions?
120.Explain how cross-border acquisitions can impact both the acquiring company and target’s shareholders.
121.For what types of companies would vertical acquisitions represent an attractive growth opportunity?
122.Can you think of any recent examples involving strategic partnerships that led to potential changes in industry dynamics as well as stock valuations for involved firms?
123.Why is it important for firms who have gone through mergers & acquisitions to focus on cultural integrations strategies post-deal closing?
124.How do SOX regulations affect mergers & acquisitions activity?
125.Describe various ways that synergy benefits may be realized following a merger or acquisition.
126-150 Corporate Finance
126.What are the key responsibilities of corporate finance teams?
127.How do corporate finance teams impact a company’s financial performance?
128.Describe various methods of capitalization for debt and equity.
129.Why is it important for companies to manage working capital effectively?
130.What role do finance teams play in determining dividend policy, and how does this affect shareholder value?
131.How might investors evaluate a company’s payout ratio?
132.How might we model out changes in stock price based on changes in share buyback plan announcements?
133.Describe typical uses of capital expenditure modeling for large corporations.
134.Explain the relationship between IRR and NPV when evaluating investment opportunities.
135.What is the difference between project and program management, and why might this distinction be important for managing investments?
136.Can you explain the concept of total shareholder return (TSR)?
137.How does the use of leverage impact a company’s weighted average cost of capital (WACC) calculations?
138.Explain how growth equity investments differ from traditional buyout investments.
139.How would you determine whether or not to pursue an organic versus acquisitive growth strategy for your business unit?
140.Describe some considerations that should be taken into account when deciding whether or not a portion of a business unit should be divested.
141.In which situations might a “pivot” strategy make sense for companies looking to shift their focus away from current products or services offerings?
142.Can you describe any recent examples where private equity firms have used bolt-on acquisitions as part of their overall value creation strategies?
143.How can asset-light approaches be used by companies to drive profitability growth over time?
144.For what types of businesses would franchising represent an attractive alternative to traditional expansion strategies such as opening new locations or pursuing M&A activity?
145.Can you describe how foreign currency translations can impact a company’s financial statements?
146.What is the difference between an operating and finance lease, and how do they impact a company’s balance sheet?
147.Explain the various types of debt that might be found on a corporate balance sheet.
148.How does EBITDA coverage influence borrowing capacity for firms?
149.What impact might currency fluctuations have on import/export businesses, both in terms of profitability and financial risk?
150.How has the role of finance changed over time within larger corporations?
151-175 Capital Markets
151.Describe how companies can use equity capital markets to raise funds for their operations.
152.How do buybacks work at publicly traded firms, and why might companies choose to buyback shares rather than distribute dividends?
153.Explain how secondary offerings differ from IPOs.
154.Describe different ways that companies may look to signal investor confidence by taking stock positions in themselves or other firms.
155.Why might a company go public via SPAC rather than traditional IPO methods?
156.Describe how interest rates can impact bond issuances.
157.How does an institutional investor consider credit rating when evaluating potential investments?
158.In what types of scenarios would we see more convertible bond issuances versus traditional equity offerings?
159.Can you explain what “dark pools” are, and why institutional investors may choose to utilize them when making trades?
160.What is the difference between primary and secondary markets for public securities?
161.How do market makers generate profit, and what role do they play in capital markets activities?
162.Explain how the Federal Reserve impacts interest rates and other key aspects of capital markets.
163.In what situations might it make sense for companies to issue preferred shares versus common stock or bonds?
164.Describe the relationship between yield curves and central bank policies such as quantitative easing (QE).
165.How do convertible bonds differ from non-convertible debt investments, such as high-yield bonds?
166.Describe the role that rating agencies play in capital markets, and some recent challenges facing these institutions.
167.How do “green” or socially responsible investment strategies differ from more traditional approaches to investing?
168.Explain how volume-weighted average price (VWAP) is calculated, and how traders might use this as a benchmark when making trades.
- What factors should be considered when deciding which of your company’s assets or projects might be suitable for securitization?
170.What is the difference between straight debt and convertible debt offerings?
171.How might companies benefit by using dividend reinvestment plans (DRIPs)?
172.In what types of market conditions might it make sense for companies to issue floating rate notes instead of fixed-rate bonds?
173.Explain how credit ratings impact both borrowing costs and investor risk assessments.
174.Describe the typical role of an investment banker in underwriting equity offerings.
175.How investment banks manage market risk while engaging in trading activities on behalf of their clients?
176-200 Trading
176.Can you describe some different types of financial instruments that traders might trade on a daily basis?
177.Why is it important for traders to consider liquidity levels when making trades?
178.How do technical analysts differ from fundamental analysts in their approach to evaluating stocks and other securities?
179.What is the difference between long and short positions, and how do traders use these concepts when making trades?
180.Explain what a “stop-loss” order is, and why it may be used by traders looking to mitigate potential losses.
181.Describe different ways that margin trading can enhance potential returns for investors.
182.What are some common strategies used by quantitative traders?
183.In what situations may it make sense for companies to pursue trading as part of their overall business model?
184.Explain how program trading works, and why institutional investors may choose to utilize this strategy when making trades.
185.How do market makers generate profit, and what role do they play in capital markets activities?
186.What are some common types of arbitrage strategies used by traders, and how can these be used to generate returns?
187.Explain the difference between market orders, limit orders, and stop-loss orders.
188.How do HFT (high-frequency trading) firms operate in today’s markets?
189.For what types of investors might ETFs represent appealing investment options?
190.Describe different ways that traders might use technical analysis to identify potential trades.
191.How do investors use seasonal trends and other historical patterns when making trades?
192.Explain how derivative products work, and why they may be attractive to traders looking to hedge risks or speculate on price movements.
193.In what types of market conditions might it make sense for traders to pursue shorting opportunities instead of traditional long positions?
194.Can you explain how quantitatively-driven investment strategies differ from those that rely more heavily on qualitative analysis?
195.What role do clearinghouses play in managing risk during trading activities?
196.Describe different methods that may be used to calculate volatility levels for different financial instruments.
197.How does game theory factor into trading decisions made by both institutional and retail investors?
198.What is the difference between buy-side and sell-side trading activities?
199.How has technological advancements impacted the overall landscape of trading over time?
200.In what situations might it make sense for companies to engage with a hedge fund rather than a traditional bank loan?
201-225 Private Equity
201.Can you describe different types of private equity investments?
202.Explain why private equity firms may prefer LBO-based investments over other alternative investment opportunities.
203.Describe how private equity firms approach deal structuring during mergers, acquisitions, or divestiture situations.
204.What is the typical role of the lead sponsor in a private equity deal situation?
205.How might private equity firms use their portfolio companies to generate add-on acquisitions and build out larger platforms?
206.Explain how “roll-up” strategies may be used by private equity firms as part of value creation plans
FAQs
What is the purpose of asking 400 questions during an investment banking interview?
The purpose of asking 400 questions during an investment banking interview is to assess a candidate’s knowledge, skills, and fit for the position. It allows the interviewer to gain a comprehensive understanding of the candidate’s background, experience, and potential for success in the role.
How can one prepare for answering 400 questions in an investment banking interview?
One can prepare for answering 400 questions in an investment banking interview by researching industry trends, studying financial concepts and models, practicing behavioral interview techniques, networking with current industry professionals, and developing strong communication skills. Preparation is key to success in any job interview, particularly one as rigorous as investment banking.
What types of questions are typically asked during the 400 question interview process for investment banking positions?
Typical questions asked during the 400 question interview process for investment banking positions include technical finance queries on topics such as modeling, valuation methods, and accounting principles; behavioral inquiries on teamwork abilities; problem-solving scenarios; strategic hypotheticals; market trend predictions; personal strengths and weaknesses discussions; and articulations of long-term career goals.
What should candidates expect from a typical investment banking panel-style interview?
Candidates should expect a challenging and informative panel-style interview when interviewing for an investment banking position. This type of format typically involves multiple senior bankers from different departments within the firm interviewing candidates together. Panel interviews provide candidates with insight into various perspectives within the organization while also testing their ability to interact effectively with diverse groups of people.
How do you demonstrate your passion and interest in pursuing an investment banking career at the outset of an initial interview?
To demonstrate your passion and interest in pursuing an investment banking career at the outset of an initial interview, it’s essential to research both industry-specific and company-specific information beforehand. By thoroughly researching the firm’s history, recent deals, and corporate culture, candidates can provide thoughtful questions and answers that highlight their knowledge of the field. Additionally, bringing up specific examples of relevant experiences or skills shows a genuine commitment to pursuing an investment banking career.
What should you do if you don’t know the answer to a technical finance question during an interview?
If you don’t know the answer to a technical finance question during an interview, it’s important not to panic. Instead, ask any clarifying questions you may have to gain more context on the problem at hand. You can also articulate your thought process out loud or refer back to any financial models or examples from past work experience if applicable. Being transparent about areas where you may need additional training shows humility and willingness to learn.
How does networking with current industry professionals help candidates prepare for investment banking interviews?
Networking with current industry professionals helps candidates prepare for investment banking interviews by providing insight into the specific roles within an organization, as well as common challenges and trends within the industry itself. By building relationships with working professionals, candidates can gain valuable advice on how best to present themselves in interviews and what key skills they should possess for maximum success in their chosen role.
What are some common mistakes made during investment banking interviews?
Common mistakes made during investment banking interviews include being unprepared for technical questions; failing to ask insightful questions about the firm or role; appearing overly aggressive or arrogant; neglecting to showcase teamwork abilities; and not following up appropriately after the interview has concluded. To avoid these missteps, practice extensively beforehand and seek feedback from friends or mentors on your performance.
What are some examples of behavioral questions commonly asked during investment banking interviews?
Examples of behavioral questions commonly asked during investment banking interviews include “How have you handled disagreements with colleagues in the past?” “What motivates you to stay engaged and productive on a long-term project?” “How do you ensure accuracy and attention to detail when working under pressure?” By answering these types of questions, candidates can demonstrate their ability to handle difficult interpersonal scenarios, balance competing priorities, and maintain thoroughness during high stakes circumstances.
Why is articulating long-term career goals important during an investment banking interview?
Articulating long-term career goals is essential during an investment banking interview because it shows both commitment to the field and thoughtfulness around potential growth within the organization. Employers want to see that candidates have a clear sense of their trajectory and how it relates to the specific role for which they are applying. By outlining aspirations for leadership roles or seniority within a firm, candidates set themselves apart as driven and motivated individuals who are invested in the company’s success over time.