How technical can first round interviews get?

BasedHedge's picture
Rank: Monkey | 54

I have an upcoming interview next week with a top BB and have been told that it will be highly technical. I feel solid on DCF, CAPM, WACC, Comps, and other more traditional SA interview topics. What are the chances it will get much worse than that (LBO, Merger model, etc.)? What else could they mean?

Comments (81)

Nov 6, 2014

Very technical. Very tricky accounting questions, brainteasers, in depth valuation concepts.

I have found first rounds are sometimes way more technical than superdays.

Nov 6, 2014

Don't memorize.

Nov 6, 2014

If you listed experience with LBO's and merger models on your resume, I wouldn't be surprised if you get tested on them. If you haven't you'll be fine.

Nov 6, 2014

Ya, don't memorize. Actually understand the material.

Robert Clayton Dean: What is happening?
Brill: I blew up the building.
Robert Clayton Dean: Why?
Brill: Because you made a phone call.

Nov 6, 2014

Could definitely get lbo and merger modelling questions even if not listed on your resume, beware of listening to posters (above) who say don't worry about them.

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Nov 6, 2014

Know accounting concepts well also - for example during my first interviews I was grilled on minority interest questions in both an accounting and transaction sense.

Nov 6, 2014

Also cost of capital stuff you may want to know - more than calculating WACC. How it may affect purchase price paid etc (pretty straightforward)

Best Response
Nov 6, 2014

What is AR? Is it a current asset or liability? How does it flow through the 3 statements?
What is AP? (same questions as above)

Know CapM, be able to calculate it mentally when given the beta and risk premium (know 10 & 30 year treasury rates)
Anything and everything DCF. What valuations are valid with negative cashflows?
Walk through an LBO

If company A decides to do an operating lease and company B decides to capitalize and depreciate assets, which will have a higher EV/EBITDA multiple? On that note, any multiple question is fair game

Speak intelligently about recent news, develop your own thesis on what will happen with the markets in the next 6 months, 1 year, 5 years

What is 9 cubed?
What is 17*26?

What are the valuation methodologies? How do you value a local pizza shop when no comparables or company information is available?

Why should we hire you over the other monkeys, when just about everyone we are interviewing can do a good job?

Good luck.

    • 4
Nov 6, 2014

be sure to visit ibankingfaq.com as well, good technical interview prep

Nov 8, 2014

@km190 thanks for the source, found it very useful. Any other recommendations for technical interview prep?

Nov 6, 2014

Most definitely prepare for merger model, advanced accounting (M&A/purchase price allocation intricacies), and LBO questions. I've been asked all three in SA first rounds. Some banks asked almost exclusively about M&A/accretion/dilution/etc.

Nov 7, 2014

Is this for real? I've done two first rounds so far and I don't think we even touched LBO.

Nov 7, 2014

LBO's can definitely appear in a first round.

Nov 6, 2014

Accretion/Dilution, LBO, all are fair game

Nov 7, 2014

My experience with the large banks is that they were not as technical as interviews at boutiques, but thats on a pretty small sample.

My experience with highly technical interviews is that they are not so much about breadth of finance topics, but about having an in depth understanding of the core concepts of accounting/finance. Rather than worrying about exotic topics your time would generally be better spent on making sure you have a good understanding of the basics, and have not just deluded yourself into thinking you understand because you've memorized the guides.

Among the finance stuff two of the things that I found stressed often were (1) how to properly make adjustments when preparing multiples (ev/ebitda will be the most common focus) and to understand the strengths and weaknesses of various types of multiples, and (2) understanding accretion/dilution. By (2) I don't mean they asked some kind of complicated merger question, instead just more basic questions (should I buy back stock with debt if stock trades at 15x earnings and I can raise debt at 7%?, ie just seeing that you can look and see that doing so would raise earnings because stock trades at a 6.67% yield and I can raise debt at ~4-5% after tax).

For (1) know very well what goes into enterprise value and what doesn't. Why don't you put accounts receivable in enterprise value? Would you put pension liabilities in there? And then in the denominator, know the kinds of adjustments you'd make to EBITDA to get a figure you'd compare across comps.

Another thing I got often was various spins on "you are a manager, and need to boost earnings a bit to meet expectations. What things can you do quickly to boost reported earnings? What effect might these things have on the long run health of the business?"

When it comes to accounting, anything kind of goes, there are so many things they could ask that you just have to have a good understanding of accounting. I have a business background so got a lot of stuff but you might not if you aren't doing undergrad business.

Nov 7, 2014

what ive come across

paper lbos
accretion dilution with complex consideration mixes as well as tax synergies (and dis synergies due to regulatory quirks) to account for
m+a accounting and purchase price allocation as well as different treatments under stock sales or asset sales

etc

Nov 8, 2014

when I want to be an ass with a candidate, I usually start with discussions around dividend yield. Super basic concept, but noone in M&A looks at it, and it relates to some extremely basic concepts of finance

Nov 10, 2014

The only technical interviews I've come across are at MS. If that is the case then be prepared. Otherwise pretty much every interview was behavioural with some very basic finance thrown here and there.

Understand the basics, even if you don't know the answer try to reason through it properly. If you know the answer, explain your reasoning. Don't regurgitate memorised answers.

I haven't read what the above have posted but anyhow: Know accretion/dilution analysis (basic), LBO (what it essentially is, what companies are good targets, what would happen if xyz happens to return). Know your accounting regarding BS/IS/CFS and how they're linked.

Can't stress this enough: even if you don't know the answer - highly likely if they're going the technical route - then reason and explain. Then ask for what they would think it should be. It shows you don't BS and are eager to learn. Good things to show in interviews.

    • 1
Nov 14, 2014
OptimusPrimate:

Can't stress this enough: even if you don't know the answer - highly likely if they're going the technical route - then reason and explain. Then ask for what they would think it should be. It shows you don't BS and are eager to learn. Good things to show in interviews.

I've heard conflicting advice as to answering questions you're unsure of. Some people seem to recommend delivering your best guess with full confidence, while others believe it better to admit right away that you know you don't know, and reason through it as best as possible.

What do people think about projecting confidence vs making a type 1 error or showing Socratic ignorance?

I don't have it in front of me but I think the WSP guide recommends pushing forward confidently.

Obviously one can admit the limits of their knowledge in a confident way, but I hope people get what I'm trying to ask here.

Nov 10, 2014

Much much much better to over prepare than under prepare
Definitely know the classic valuation models and how you would go about valuing a company with each, along with the classic inputs / multiples:
-DCF (Know WACC, CAPM, FCF calc, Exit Multiple Method, Perp. Growth)
-Precedent (Multiples you'd use, how you would choose transactions)
-Comps (Multiples you'd use, how you'd choose comps)
-LBO (very basic, compare to buying a house with debt and paying down mortgage, or debt, over life of investment, be able to speak about what companies make good candidates and why)
-Be able to compare which ones produce higher values and why (usually ranking precedent / DCF first because precedent has control premium and DCFs are usually optimistic, then comps, then LBO)

Basic accounting is key:
-How to connect financial statements
-What happens with $10 increase in depreciation
-Walk through of items on each of the financial statements (i.e. is deferred revenue an asset or liability, walk through from revenue all the way down to NI hitting on major line items, 3 sections of CFS)

Basic Accretion Dilution:
-Company with higher p/e buying company with lower p/e and all stock = Accretive (also vice versa)

-As mentioned, definitely follow recent deals and be able to speak about rationale, multiples, advising banks, etc. You need to show you're interested. Use Dealbook for this or SDC platinum if you have access through your school

-Speak about why one would raise debt over equity and vice versa

I have absolutely 0 connection to Wall Street Oasis, but loved their "Wall Street Prep" guide. In addition to preparing me for interviews, I felt it even prepared me well for the actual analyst role.

Feel free to message me if you have any more questions

    • 1
Nov 10, 2014
new111234:

I have absolutely 0 connection to Wall Street Oasis, but loved their ""https://gv142.isrefer.com/go/wso15/wsoasis/" target="_blank" rel="nofollow">Wall Street Prep" guide. In addition to preparing me for interviews, I felt it even prepared me well for the actual analyst role.

You have absolutely no connection to WSO, but you are using a referral link to advertise a product? Hmmm.

Nov 10, 2014

I actually did not even add that link -- Guess it is something WSO automatically does. Milking us for all we've got.

Nov 10, 2014

I actually did not even add that link -- Guess it is something WSO automatically does. Milking us for all we've got.

Nov 15, 2014

I see you listed LBO as the lowest -- I have typically ranked Precedent Transactions > LBO > DCF > Comparable Companies. LBO also includes a control premium because the private equity firm is buying out the entirety of the company, but the premium isn't as high as in a precedent transaction because in a precedent transaction, you have a strategic buyer who is willing to pay a higher purchase price (greater premium) due to the synergies gained after they acquire the target.

What is your rationale on ranking LBO at the bottom? Not saying you're wrong, just saying my POV.

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Nov 10, 2014

Pretty technical. Was asked about valuation methodologies and the nuances frequently. Only a handful asked about LBO and they prefaced that they knew that I may not know the answer, but give it a shot anyway. Probably only a handful asked about mergers.

Nov 11, 2014

Geez. Houston first rounds were a piece of cake compared to what some of y'all are talking about...

Nov 12, 2014

Wait, is this SA or FT?

Nov 14, 2014

SA - summer analyst, FT - full-time analyst

Nov 14, 2014

Sorry, just realized, that was another question

Nov 14, 2014

For the first round it really depends on a bank and location. Some banks tend to have only competency based interviews. But some turn to be very tricky.

I've got a lot of questions on LBO, Accretion/Dilution, Terminal value, Cost of capital, EV->equity value calculation, Multiples, Ratios, FCF forecasting at DCF.

Generally I feel that if it is your first IB experience (first SA), than questions tend to be around the standard stuff like DCF, Comparable analysis, Precedent transaction analysis, Accounting.

If you already had IB experience, than you are likely to get more in-depth question on accounting and valuation, including Accretion/dilution, LBO, AVP, Merger model.

Nov 15, 2014

I was asked about basic valuation models, DCF, how to calculate FCF or something. Pretty basic stuff.

Nov 16, 2014

I think everyone needs to chill out. I guarantee you that the kid that knows PIK interest flow throughs in the statements and the different capital tranches in a LBO gets fewer girls and fewer offers than his peer in the homo fraticus species.

It's a summer analyst position..... 90% of the interview is them liking you and determining if you are a bro. Ever wonder how certain ethnicities that study soooooo hard for the technicals yet the people getting the Goldman and Lazard offers are fratty and WASPy? These are the people who don't understand how to build and accretion model but know how to smash ladies of the sorority kind. I'm pretty certain people only ask detailed technicals if they don't like you and the interview is going poorly.

TL:DR- Almost no technicals in SA. Focus on being cool and interesting. That is what gets people offers.

Nov 11, 2014
jcpenny:

I think everyone needs to chill out. I guarantee you that the kid that knows PIK interest flow throughs in the statements and the different capital tranches in a LBO gets fewer girls and fewer offers than his peer in the homo fraticus species.

It's a summer analyst position..... 90% of the interview is them liking you and determining if you are a bro. Ever wonder how certain ethnicities that study soooooo hard for the technicals yet the people getting the Goldman and Lazard offers are fratty and WASPy? These are the people who don't understand how to build and accretion model but know how to smash ladies of the sorority kind. I'm pretty certain people only ask detailed technicals if they don't like you and the interview is going poorly.

TL:DR- Almost no technicals in SA. Focus on being cool and interesting. That is what gets people offers.

Very true. Ended up talking about football, hunting and backpacking with my interviewers...got the offer.

Nov 6, 2014

Although I agree with this to a large degree (and it's been true for me - chatted about sports, travel etc during my best interviews) - it's probably bad advice to tell the OP to chill out and not worry about technicals if the bank specifically told him the interview will be "highly technical."

For example, a friend of mine from a non-target who ended up at JPM was absolutely grilled on technicals in his first round interview.

Nov 16, 2014

Yeah none of my first rounds were really technical for SA positions. Only really basic stuff like which of the 3 valuation methods will yield the highest value or is debt or equity cheaper.

Nov 16, 2014

Won't the valuation methods depend on various other factors? I did a self study valuation and I would say if you have peer companies that are doing very well, depending on the multiples you use, then you can most definately get a higher one there. l

Nov 16, 2014
BillieJean:

Won't the valuation methods depend on various other factors? I did a self study valuation and I would say if you have peer companies that are doing very well, depending on the multiples you use, then you can most definately get a higher one there. l

Sure, but generally precedent transactions should give you a higher valuation than public comps. And then explain that's because of control premiums, synergies, etc.

Nov 17, 2014

I was asked treasury stock method, valuation, and lots of dcf questions

Dec 1, 2014

Soo most technical 1st rounds I have had:

Buyside Credit Fund: (In-Person 1st round)

- Company X with Ebitda Y and multiple Z.. Walk me through a scenario that would result in the company going bankrupt... Walk me through everyone's recoveries in bankruptcy

Associate at Rothschild/Laz/HLHZ Rx Group (Phone Interview with VP)

- $500m Debt, $100m EBITDA and 4x EV/EBITDA.. What is equity value? Give examples what would make equity value be negative?

Analyst at Elite Boutique (Phone Interview with Associate)

- Rev = 10
- Exp. = 4
- D&A = 1
- Taxes = 40%
- NWC = 1
- CapEx = 4

What is FCF? Walk me through the changes through the 3 statements.

- the EB also asked a negative Equity Value question

Dec 1, 2014

I got grilled on Hamada equation. 100% technical for first round screen

Dec 3, 2014

Does it matter what school you are coming from? Like if you are coming from a liberal arts school with no finance/accounting (only econ), will you likely get more or less technical questions? I understand it likely depends on firm/interviewer, but any input would be appreciated.

Dec 3, 2014

bump - thanks. anyone with elite boutique final rounds could give an idea of how technical phone vs superdays are

Dec 3, 2014

How is levering beta more subtle than accretion/dilution and LBO? If anything, the concepts behind it are pretty fundamental to finance.

BX is very technical and M&I/WSO isn't enough. Experiences vary with the other three on the list. However, you're a fluff major so they may not hit so hard on technical competence and more on whether your supposed "deep interest in finance" is reflected in your understanding of key general concepts.

Dec 3, 2014

i've interviewed in final rounds for all the firms list minus BX. i had an offer with one of them.

i would not refer to the interviews as "very technical." it is fairly random, but usually summer analysts or incoming analysts would not be expected to know much about finance. that being said, levering beta, leverage, minority interest, wc are all very basic. you do need a little more than a couple days of cramming to get a finance job. not much more but still more.

Dec 3, 2014

bump, who wouldn't want some silver bananas?

Dec 3, 2014
Ibundergrad:

bump, who wouldn't want some silver bananas?

Phone interviews rarely ever get to the point where they become technical. Just know your resume, why you are interested in finance and banking, and why this specific firm. Maybe learn about some of the mandates they have beeen in.

Dec 3, 2014

In recent years, SA interviews have become fairly technical because of how many applicants there are. Some banks will grill you on technicals even in phone interviews. You should be able to give broad overviews of valuation, understand the three financial statements, and be able to walk people through the various financial models (DCF, LBO, and merger model). If you understand the concepts behind the questions in the various interview guides, you will be golden. But, do not forget to also practice for the fit questions. I have interviewed plenty of people who knew valuation cold, but their answers to my fit-based questions were terrible, so they got dinged. Good luck.

Dec 3, 2014

Was asked about a LBOs and DCFs in a phone interview at a BB last week. The DCF question wasn't even a "walk me through a DCF" it was 100% conceptual.

Nov 16, 2014

It depends on your background too. Liberal arts? Probably won't be asked super complicated technicals, but might be asked a couple simple ones to confirm that you're not a clueless idiot. When I was interviewing for SA I had a bunch of phone interviews from both MMs and BBs, and some involved 0 technicals while others involved like walking through a DCF.

Dec 3, 2014

superday with tier 1 IBD firm yesterday. not a single technical question. guy flat out told me he doesn't really care. and that he assumed we could learn it. mileage may vary. cubicle next to me overheard multiple brain teasers.

Dec 3, 2014
expresstrain56:

Are they more technical for non-targets?

IMO - yes. all of the non-target kids I talked to on superdays had demonstrated that they are hardcore finance in some way. generally speaking though, technicals depend on your experience. If you have IB experience already they will grill the shit out of you. If not, they will probably take it easy on the technicals. if you are a finance/acct major they will ask you accounting questions regardless of experience, but the M&A stuff will be left out.

"Ride your bike. Drink good beer."
- Fat Tire Amber Ale

Dec 3, 2014

does that mean any school that doesnt get recruited or just "not great" schools. e.g. if Princeton doesnt get recruited for a certain firm and you interview with them are you considered a non-target or still a target?

Dec 3, 2014

Does knowing a 6 letter acronym constitute knowing a lot about finance???

Dec 3, 2014

There are some three and four letter ones that are important too

Dec 3, 2014

If you don't know what EBITDA stands for you are probably in a little bit of trouble... coming from a non-target you need to prove to the interviewer that you are REALLY into finance, and prepping yourself for the technical interview questions and knowing them cold is a great way to do that. Check out the WSO Guides to prep for your interviews.

Dec 3, 2014

I'd say at least be able to talk about the markets, basic financial statements, deals going on that are public knowledge, basic financial ratios, etc. You probably won't be expected to answer a 'Walk me through a DCF' type but know all of the basics... including something as simple as EBITDA.

Dec 3, 2014

There is a huge degree of variance in how technical your interviews are be. A lot depends on your educational background and previous finance experience. This is where some people who oversell themselves on their resume get into trouble. Non-target candidates are usually business majors, and they have more to prove, so it would be fair to say that their interviews will be more technicals.

Another significant factor is the group/office you are interviewing for. In general, groups/offices that do full execution and modeling will place a much greater emphasis on technical ability.

Dec 3, 2014

whats the best way to deal with a technical question that you dont know

Dec 3, 2014
diplodocus:

whats the best way to deal with a technical question that you dont know

"We've discussed that topic in my finance class, and while I know the basics of it, we haven't gotten into the details. I am familiar with..."

Basically, mention that you know what it is and acknowledge that you don't know how to answer it. Then, instead of letting them sit there and reflect on the fact that you can't answer their question, casually shift to a more basic topic and say what you do know about it.

Dec 3, 2014

Personally I did not get a single technical question at a bulge bracket bank superday in NY. I come from a state school, non-finance background. I think it depends on what you put on the resume. The more finance experience and courses you put on your resume, the more likely you'll get those questions.

Dec 3, 2014

What you claim to know on your resume (the one they used to select you for the interview) does indeed matter. I had a bullet on mine about taking a financial modeling course- I had to defend what I learned and describe/walkthrough a few of the different models as they specifically asked.

Dec 3, 2014

Yes

Dec 3, 2014

Yes

Dec 3, 2014

Understand that no matter how much you know, the person across the table knows more. When it comes to technicals, many interviewers can, and will give you enough rope to hang yourself.... So yes, they will ask you all the aforementioned technicals, and then some.

Dec 3, 2014

Don't underestimate what questions a banker can throw at you. This job is very high payment and in demand. It only commands the best.

Dec 3, 2014

I am going to disagree with the above --- if your able to display genuine interest, and have some knowledge of finance or business in your own way (whether thats technical or qualitative), have very good grades and some experience that displays incredible work ethic -- AND MOST IMPORTANTLY, ARE ABLE TO GET YOUR INTERVIEWER TO LIKE YOU -- I think that trumps technical skills any day of the week.

I've interviewed with firms that have been characterized on this site as very technical -- and i don't have very good technical skills as of yet -- and was told that ultimately they train you, so their real concern is whether or not they would ever want to work/hang/be around you for 100 hours a week

Dec 3, 2014

He meant whether he will be getting those questions in the first place, not whether his answers to those technicals would be the determinant.

I agree with your point, but slightly off topic I believe.

Dec 3, 2014

thanks for all the insight. just curious, how do all the HPS econ students answer these questions? it seems as if wharton/stern students would be most prepared for these super technical interviews...will they hold econ students to a lower standard in these regards?

so basically I should somehow connect with the interviewer so that he will not have an intent to screw me on technicals huh...

Dec 3, 2014
BankorBust:

thanks for all the insight. just curious, how do all the HPS econ students answer these questions? it seems as if wharton/stern students would be most prepared for these super technical interviews...will they hold econ students to a lower standard in these regards?

so basically I should somehow connect with the interviewer so that he will not have an intent to screw me on technicals huh...

You don't have to get every technical question right to get an offer; generally a banker won't ask the same technical questions to an econ major that he would to a finance/accounting major, but he can fairly assume that you should know the basics at the very least. At some firms, where immediate technical proficiency is valued more (i.e. elite boutiques, because they only hire a few analysts), they'll grill you harder and expect you to know more, regardless of your major.

Someone above mentioned that what matters most is whether the interviewer likes you or not, and this is definitely true; technicals are mostly there to make sure you have some substance to back you up, and also to make sure you're not rock dumb.

Dec 3, 2014

Every technical I've ever been asked is covered to a degree in your standard interview guides: Vault, WSO, BIWS ... There isn't any reason you shouldn't be able to get comfortable enough with technicals to succeed in an interview. Its about preparation, not what degree your taking.

Dec 3, 2014

Depends on the bank. Interviewers will typically ask difficult technicals for two reasons:

1) They don't like you, so they are looking for an excuse to ding you; or
2) They think you know a pretty impressive amount, and want to see how far they can push you.

Of course, there are exceptions, like BX, that are heavily technical since the bank doesn't provide a rigorous training program like the BBs do.

Dec 3, 2014

levered beta is considered advanced?

Dec 3, 2014
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Dec 3, 2014
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'Before you enter... be willing to pay the price'

Dec 3, 2014
Dec 3, 2014