I had a question about differentiating answers to technical questions. I have a first-round interview coming up for a firm and from people who have already taken the interview, I have been told that it'll be completely technical.
Knowing this and the fact that there won't be more than a couple of behavioral questions, how can I differentiate my answers to successfully move on to the next round?
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The most basic level of understanding is “what”. Anyone can look up and memorize a definition, a formula, or a ratio. The next level is “how”, but just because you can explain how something works doesn’t exactly set you apart either.
I really think when someone can explain “why”, it really shows their understanding. WHY do we make this calculation? WHY this formula gives us a good picture of x and not y? WHY an alternative measure will not work in this particular case? Being able to explain the intuition and reasoning behind each answer shows you truly understand the material.
A few more tips:
I may be misunderstanding you, but I'm confused when I should "use as few words" as possible vs. trying to explain the "why."
For example, I had an interview lately in which I was asked "what are the main valuation methods" as well as "what are the tranches of debt"? I just said the answers without going into the "why." (10 seconds or less per question). My expectation is that if the interviewer wants to test my knowledge, they would just ask follow up questions.
Could this have been misinterpreted as me not knowing the concepts?
I'd say for simple technicals like those, you should stick with the textbook answers unless they follow-up. I think LCinCRE's advice is more applicable when you are walking through a transaction and pitching a stock for example. Here, you don't want to just say, DCF gave me x, Comps gave me x, etc. You can really stand out here by giving the "why" to each of the methods you used.
For example, when I talk about the LBO I built for the buyside advisory transaction I completed, I preface it by saying, "Given the strong secular growth drivers and consistent cash flow generation of the business in addition to the lack of reasonable strategic bidders, we expected a high level of competition from private equity buyers. Therefore, we focused on building an LBO model assuming a 20-25% target IRR to determine what private equity bidders would bid, so that we could lock them out in the first round bid"
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