I was in your shoes about five or six years ago. I worked as an investment banking analyst at a Moelis/Houlihan/Evercore type firm in restructuring, got an offer for direct promotion to associate, passed on that to go to grad school in Europe, and have recently returned to take my associate perch in the same group. Take my word for whatever you will.
I drill my analyst interview candidates hard on technicals. Not obscure things, I just test how well they know the basics, how they think about things, and if they can apply and think on their feet a bit.
Here's a five-step plan in getting you prepared from top to bottom:
Investment Banking Interview - The 1st Impression
- The Entrance
- A simple "Nice to meet you. Thank you guys for taking the time," is a great hello.
- Don't flub the handshake. Stay standing until I sit down.
- Don't come on too strong/overenthusiastic or I'll think I will be annoyed with you the first week on the job. Sit up in your chair. Don't wear weird socks. Fake smiles/laughs are a no-no. A quick joke is a gamble – it could be a plus, or I could just think you're silly.
- How to Carry Yourself
- The biggest thing I am looking for is humble confidence - someone I would like to have a beer with.
- Be punchy, brief, and learn how to end a sentence. I can't tell you how many times people have gotten into trouble by rambling off into some ass-backward irrelevant tangent. Learn to be comfortable with a little silence here and there while we absorb your answer.
- Listen, listen, listen!!! So many mistakes come from just not listening carefully and not being in the moment.
Investment Banking Fit Questions (And Answers)
You've reached the interview. This means that the firm believes you are smart enough for the job. At this point, the little things matter. Fit questions are a major part of the IB analyst interview. The focus of fit questions is to see who you are and how you would fit into the firm's culture.
- Walk Me Through Your Background/Resume
Dial-in a cohesive 90 second resume walkthrough that focuses on the positive motivating factors behind every transition (school to job, job to better job, most recent job to grad school). E.g.
Be deliberate. Every move you made should have a reason (preferably that you initiated). Don't be negative. Never say you left because you were bored or "wanted to try something new." "I went to school to design cars, but after one internship I realized I liked interacting with clients directly and pursued full-time roles with a sales bent. In that role, I develop solid sales skills as well as gaining exposure to a, b, and c. I wanted to continue honing those and branch out to focus on x, y, and z. I sought a new role/promotion which provided that opportunity..."
- Why Investment Banking?
Here's a complete guide to answering the "why investment banking" question. The reality is you need to tailor the question to yourself. It varies with your background, how substantive you want to get, and what follow-up questions you want the interviewer to ask. No matter what, the answer here should be well rehearsed as well as the scenarios that could follow.
- "Tell me about a time when...
Ideally, you can come up with 6-8 stories that cover the 30-40 basic questions, with only slight modifications. Don't wing it. For every potential question, map out the story using the SOAR framework. Describe the Situation (10-15 seconds), Obstacle (10-15s), Action (60-75s), and Result (15-30s). Stories for these questions should be 1.5-2 minutes long and focus only on what's important.
- What are the Three Main Financial Statements?
The three main financial statements are the Income Statement, the Balance Sheet, and the Statement of Cash Flows. The Income Statement shows a company's revenues, costs, and expenses, which together yield net income. The Balance Sheet shows a company's assets, liabilities, and equity. The Cash Flow Statement starts with net income from the Income Statement; then it shows adjustments for non-cash expenses, non-expense purchases such as capital expenditures, changes in working capital, or debt repayment and issuance to calculate the company's ending cash balance.
- If you Could Use Only One Financial Statement to Evaluate the Financial State of a Company, Which Would You Choose?
I would want to see the Cash Flow Statement so I could see the actual liquidity position of the business and how much cash it is using and generating. The Income Statement can be misleading due to any number of non-cash expenses that may not truly be affecting the overall business. And the Balance Sheet alone just shows a snapshot of the Company at one point in time, without showing how operations are actually performing.
- How would a $10 increase in depreciation expense affect the three financial statements?
- What is WACC and how do you calculate it?
WACC is the acronym for Weighted Average Cost of Capital. It is used as the discount rate in a discounted cash flow analysis to calculate the present value of a company's cash flows and terminal value. It reflects the overall cost of a company raising new capital, which is also a representation of the riskiness of investment in the company.
- Why would a company issue equity rather than debt to fund its operations?
- If the company feels its stock price is inflated they can raise a large amount of capital compared to the percentage of ownership sold
- If the projects the company plans to invest in with proceeds may not produce immediate or consistent cash flows to pay debt
- If the company wants to adjust cap structure or pay down debt
- If the owners of the company want to sell off a portion of their ownership
- How/Why do you lever or unlever beta?
Unlevering beta allows one to remove the debt effect in the capital structure. This will show you the risk of a firm's equity compared to the market. Also, if you are trying to do a market comparison with a company that's not on the market (so no beta), you can take a comparable company and unlever its beta as a proxy for the unlisted company's beta.
- What are some ways you can value a company?
Comparable Companies/Multiples Analysis: Most often an analyst will take the average multiple from comparable companies (based on size, industry, etc) and use that multiple with the operating metric of the company being valued.
Market Valuation / Market Capitalization: The market value of equity is used only for publicly traded companies. It is calculated by multiplying the number of shares outstanding by the current stock price.
Discounted Cash Flow Analysis: The sum of the present values of all those cash flows is the estimated present Enterprise Value of the from according to a discounted cash flow model.
- Which of the valuation methodologies will result in the highest valuation?
- Name major factors that drive M&A activity (mergers and acquisitions)?
- Create synergies and save on costs
- Acquire new tech or product pipelines
- Grow share in the market by removing a competitor
- Buying a supplier or distributor to increase supply chain pricing power
- Improve financial metrics and numbers
- General Things to Remember
Walk me through every calculation you are doing. I want to hear you think out loud. The process matters far more than your answer and gives you a chance to demonstrate a grip on the concepts. I sometimes just ask of a simple calculation, "Are you sure?" to put on a little pressure and see how you respond. I am looking here for you to take five seconds, double-check your math, and answer with a confident, "Yes, I am sure."
Don't be afraid to say, "I don't know" to a tough technical. As an analyst, I expect you to ALWAYS tell me when you don't know something, and never BS an answer. If you give an, "I don't know" follow it with, "But here is what I am thinking. Tell me if I am on the right track." And walk me through your thoughts. This is a great analyst quality because it shows that you'll think about a problem critically before you call me and ask about it.
See the below link for more detailed technical interview questions and answers in finance:
'Pitch Me A Stock'
Many interviewers will ask you in one way or another to pitch a stock if you have any experience with trading, a private wealth management internship, a hedge fund internship, really anything that deals with market transactions. If this is you, spend 30 minutes to a couple of hours finding a stock you like and why. Even if it doesn't, better safe than sorry. Here's a good explanation for this question provided by user BankerC159.
You have to follow the market a little bit but I think the underlying concept they are trying to get out of you is if you actually know what drives a business. What are the key drivers of the business (both revenue and cost)? Why is it a good investment? What are the potential opportunities available? What's their competitive advantage? Etc.
For more details and many examples on how to pitch a stock, you should also check out the WSO Hedge Fund Interview Course.
Investment Banking Interview - Wrapping Up
- Before you ask us questions, it's nice to say "I've done lots of research on your firm and talked to a lot of people, so I know your firm pretty well. I really want to hear more about your own personal experiences here."
- Some good questions to ask your interviewers: 1) Tell me about a recent deal you've worked on that you liked. 2) What are the next steps from here? 3) How have you liked your experience here so far? Anything surprise you, good or bad? 4) Tell me about what you guys do for fun.
- Some questions to avoid: 1) What are the hours like here? (Get that info later from an insider that you know better.) 2) Anything related to compensation. 3) What are your plans after banking? (We can't answer that, and we'll all say we're planning on staying in the near term…duh…)
- Don't stand up until I stand up.
Questions, disagreements, comments? Fire away. As always, if you like it, put a banana on it. Silly enough, it actually encourages me to write more. (Bravo, Patrick and Andy. Bravo!)
IB Interview Course with 7,548 Questions
The fact of the matter is you won't improve unless you practice. While this guide is a great starting point, you need to get real questions and answer them as a simulation for interviews. The WSO investment banking interview course is designed by countless professionals with real-world experience, tailored to people aspiring to break into the industry.