Investment Analyst Interview Questions & Answers

1

Two companies are almost exactly the same in every way, except Company A is trading at 20 P/E and Company B is trading at 18 P/E. Which would you invest in?

Reference answer

P/E is the price-to-earnings ratio, which demonstrates the cost per $1 of earnings. In this situation, it's best to invest in Company B because a lower price/earnings ratio is a better investment — you are paying less for each $1 of earnings.

2

What was your favorite class in college?

Reference answer

While I found all of my business courses interesting, the most interesting class I took was Psychology. I found the science of human behavior fascinating, and I've identified a number of such findings that can be applied to better understanding the capital markets.

3

Which Profitability Model Would You Use to Determine if a Project Will Be Profitable?

Reference answer

Net present value is a good model for forecasting, since it finds the difference between the present value of cash inflows and the present value of cash outflows over a period of time. If a company was investing in a project, you'd want the required return, the number of periods, and the cash flow coming in over that time. You'd take cash flow, divide it by one plus your hurdle rate to the power of the time period, subtract your initial investment and that would give you your net present value. What this should tell you is the value today of this future stream of payments. As long as it's positive, that means the project is worth doing.

4

How might you select a set of comparable public companies for use in a valuation?

Reference answer

You screen based on geography, industry, and size. For example, your screen might be 'U.S.-based steel manufacturing companies with over $500 million in revenue' or 'European legacy airlines with over €1 billion in EBITDA.'

5

How does minority interest affect enterprise value?

Reference answer

Minority interest (or non-controlling interest) represents the portion of a subsidiary's equity not owned by the parent company. It is added to enterprise value because the parent company's financial statements consolidate 100% of the subsidiary's revenue and EBITDA, so the enterprise value must reflect the total claim — including the minority holders' share. If you excluded minority interest from EV but included 100% of EBITDA, your EV/EBITDA multiple would be artificially low.

6

What drives the PB multiple? Or, how can two companies in the same industry have very different PB multiples?

Reference answer

The PB multiple or Price-to-Book ratio can be shown to be PE x ROE. It is therefore driven by return on equity and the drivers of the PE multiple. It can also be shown that the PE multiple is driven by (1 – g/ROE) / (r – g) where r is the cost of equity, g is the growth rate, and ROE is return on equity. Since the PB multiple is PE x ROE, this means the PB multiple is ( ROE – g ) / (r – g). If we assume a zero growth rate, the equation implies that the market value of equity should be equal to the book value of equity if ROE = r. The PB multiple will be higher than 1 if a company delivers ROE higher than the cost of equity (r).

7

Tell me about a time when you…

Reference answer

"Tell me about a time when you" questions are designed to see how you would react in specific scenarios. For example, the interviewer may ask you to tell them about a time when you disagreed with a manager. Using the STAR method (Situation, Task, Action, and Result) can help you give clear and concise answers – describe the situation and what task or challenge you were dealing with, then say what actions you took to overcome the issue and the outcome of your actions.

8

How do you establish and monitor effective internal controls for financial reporting?

Reference answer

Effective internal controls for financial reporting start with a robust control framework that balances security with operational efficiency. At its core are fundamental principles like segregation of duties and clear authorization hierarchies. For example, the person who approves payments shouldn't be the same person who reconciles bank statements, and system access should be granted based on specific job requirements. This creates natural checks and balances while maintaining operational efficiency. The monitoring aspect is equally important and requires a combination of preventive and detective controls. I implement regular reconciliation processes, exception reporting mechanisms, and clear audit trails for all significant transactions. But controls are only as good as their execution, so regular training and clear documentation are essential. I also focus on continuous improvement - regularly assessing control effectiveness, identifying automation opportunities, and adapting controls as business processes evolve. The goal is to prevent errors and fraud while ensuring financial reporting remains reliable and efficient.

9

How do you evaluate and recommend hedging strategies for managing various types of financial risk?

Reference answer

Developing effective hedging strategies requires first identifying and quantifying the specific risks facing the company. I typically categorize risks into market risks (including interest rate, currency, and commodity price risk), credit risk, and liquidity risk. The key is understanding not just the risks themselves but how they interact and impact the company's overall risk profile. For example, a manufacturer might face both commodity price risk in raw materials and currency risk from international sales. Rather than trying to eliminate all risks, I focus on managing those that could materially impact financial performance. The choice of hedging instruments depends on factors like cost, complexity, and effectiveness. Natural hedges, like matching currency flows or adjusting pricing strategies, are often the most cost-effective starting point. Financial instruments like forwards, futures, or options can then be used to address remaining exposures. The goal is to create a balanced hedging program that protects against significant risks while remaining cost-effective and operationally manageable. Regular review and adjustment of hedging strategies ensures they remain aligned with the company's risk tolerance and business objectives.

10

Do you plan on going to business school? Why or why not?

Reference answer

This behavioral question gauges the candidate's educational aspirations and timing.

11

What is the difference between cash-based accounting and accrual-based accounting?

Reference answer

Cash-based accounting recognizes sales and expenses when cash flows in and out of the company. Accrual-based accounting recognizes revenues and expenses as they are incurred regardless of whether cash flows in or out of the company at that exact time. Accrual-based accounting is the more common method for large corporations.

12

Explain the difference between Enterprise Value (EV) and Equity Value.

Reference answer

Understand how debt impacts a company's overall value.

13

How do you calculate WACC, and why does it matter?

Reference answer

WACC is calculated as: (E/V × Re) + (D/V × Rd × (1-T)), where E is market value of equity, D is market value of debt, V is total firm value, Re is cost of equity, Rd is cost of debt, and T is the tax rate. Cost of equity is typically derived using CAPM: Risk-free rate + Beta × Equity risk premium. Cost of debt is the yield on the company's outstanding debt, adjusted for the tax deductibility of interest. WACC matters because it represents the minimum return a company must earn on its existing asset base to satisfy its investors and creditors. In DCF analysis, it's the discount rate for enterprise cash flows. In capital budgeting, projects with returns above WACC create value; those below destroy it. A 1% change in WACC can shift a valuation by 10–15%, which is why I always sensitize my analyses around this assumption.

14

Why do DCF projections typically go out between 5 and 10 years?

Reference answer

The forecast period is driven by the ability to reasonably predict the future. Less than 5 years is often too short to be useful. More than 10 years becomes difficult to forecast reliably.

15

How do you ensure accuracy when handling large amounts of data or particularly stressful deadlines?

Reference answer

Accuracy is crucial in financial analysis. If you're building a financial model, you need to make sure all the data is correct, or the forecast will be vastly inaccurate. Financial analysts also typically work under pretty intense deadlines that may make double-checking work complicated. Remember to answer honestly, but some common ways professionals ensure they're using the correct data regardless of how stressful the situation are: - Asking coworkers to spot-check their work - Building a habit of rechecking numbers as they go - Managing their time and other work wisely to leave time to check the numbers

16

When should a company buy back stock?

Reference answer

A company should buy back its own stock if it believes the stock is undervalued when it has extra cash. However, if it believes it can make money by investing in its own operations, or if it wants to increase its stock price by increasing its EPS by reducing shares outstanding or sending a positive signal to the market. Also, a stock buyback is the best way to return money to shareholders, as they are tax-efficient when compared to dividends.

17

Why did you choose Kellogg?

Reference answer

(This is a sample question for a Post-MBA Associate position. No sample answer provided in the text.)

18

How does leverage affect WACC? (FIG)

Reference answer

WACC decreases at low levels of leverage due to the tax shield created by interest payments and then increases exponentially due to the increasing riskiness of investing in a highly levered company.

19

What personal characteristics do you possess that make you an ideal investment analyst for our company?

Reference answer

Tests the candidate's ability to think dynamically and reveals their confidence in their abilities.

20

What do you invest in?

Reference answer

This investing question asks about the candidate's personal investment choices or interests.

21

A room with no windows has 3 light bulbs. You are standing outside with 3 switches that control each of the three bulbs. If you can only enter the room once, how can you determine which switch controls which bulb?

Reference answer

First, turn on two switches: call them Switch 1 and Switch 2. Leave them on for a couple of minutes to let them get nice and hot. Then, turn off Switch 1 and enter the room. The bulb that is lit should be the one that is controlled by Switch 2. Of the remaining two bulbs, the hot one is the one controlled by Switch 1. The last one, off and not hot, is controlled by Switch 3.

22

What are the major factors that drive mergers and acquisitions?

Reference answer

Major factors that justify mergers and acquisitions are:

23

What's an ideal LBO candidate?

Reference answer

Price is the most important factor because almost any deal could work at the right price (i.e., one that's low enough) – but if the price is too high, the chances of failure increase substantially. Beyond that, stable and predictable cash flows are important, there shouldn't be a huge need for ongoing CapEx or other big investments, and there should be a realistic path to exit, with returns driven by EBITDA growth and Debt paydown instead of multiple expansion.

24

Tell me about major items in Shareholder's Equity.

Reference answer

- Common Stock – The sort of stock most individuals invest in, is a common stock, which represents a portion of ownership in a business. - Retained Earning – The amount of Net Income that has been “saved up” over time by the company. - Treasury Stock – The monetary value of the shares purchased by the corporation. - Additional Paid in Capital – This records the number of new shares created by employees exercising their stock options as well as the amount of stock-based remuneration that has been granted. It also takes into account how much extra money a business receives through an IPO or another equity issuance. - Accumulated Other Comprehensive Income – This serves as a “catch-all” for various things that don't fit anyplace else, such as the impact of fluctuating exchange rates for foreign currencies.

25

Can you describe a situation when you had to adapt your investment strategy due to a shift in the economic climate?

Reference answer

Situation: The economic climate shifted unexpectedly, impacting the investment strategy. Task: Your responsibility was to adapt the investment strategy as needed to remain effective in the new climate. Action: Explain the steps you took to adapt the investment strategy, including any research or analysis performed and any new measures implemented. Result: Discuss the outcomes achieved and any positive results for the clients or investors.

26

What factors would you consider when conducting a fundamental analysis of a company?

Reference answer

I would consider financial metrics such as revenue growth, profit margins, debt levels, and cash flow. I would also analyze qualitative factors like management quality, competitive advantage, industry position, and regulatory risks. Additionally, I would evaluate macroeconomic factors, including interest rates and consumer trends, to contextualize the company's performance. This comprehensive approach ensures a holistic view of the company's intrinsic value.

27

What is enterprise value?

Reference answer

Enterprise Value is the value of a firm as a whole from the perspective of its owners, including both debt and equity holders. In its simplest form, you calculate an Enterprise Value by taking the market value of equity (aka the company's market cap), adding the debt and the value of the outstanding preferred stock. Then you add the value of any minority interests the company owns and then subtract the cash the company currently holds.

28

You've changed jobs twice in the past two years, and now you're trying to switch once again. How do I know you won't just leave our firm next year?

Reference answer

Emphasize that you changed jobs twice because it was your original, long-term plan to do so. You won't change jobs yet again because working at an investment bank was your plan all along. For example, you started out in audit, went to a boutique valuation firm to gain client and valuation experience, and now you want to move into banking to work on the entire deal process from beginning to end. That has been your goal since you started out in audit, but you knew you couldn't just move directly from audit to IB.

29

The person in the room next door has perfect grades from Harvard or Oxford. You had lower grades and went to a state school. Why should I hire you over him?

Reference answer

Because it's the person who does the work, not the degree. Point out that you had to put in far more effort to get into this room than the other person did. You're also motivated to stay in banking for the long term because it's your actual end goal; almost everyone from 'elite schools' wants to get into private equity ASAP, which runs contrary to the long-term commitment that banks are now trying to encourage.

30

How do rising interest rates affect M&A, IPO, and DCM activity? (JPMorgan)

Reference answer

An increase in the interest rates will affect the cost of borrowing for companies. This means a lesser amount of funding from banks, which leads to companies having slower growth on average as compared to before the interest rate hike. The higher cost of borrowing will also affect DCM. I would expect companies to issue fewer bonds or maintain the same capital structure but cut back on other expenses e.g. layoffs. Given the slower growth of companies, I would expect lesser interest from investors on IPOs. The slower growth and low valuations will then lead to an increase in M&A by strategics. On the other hand, the higher cost of borrowing might reduce the amount of leveraged M&A activity at the same time. Overall, I feel that the increase in interest rates will affect M&A and capital markets negatively, and thus hiring will be down next year.

31

Why do we look at enterprise value and equity value?

Reference answer

Enterprise value and equity value are two common methods for evaluating a business, but each of them provides a slightly different perspective. Equity value represents the total market value of shareholders' ownership stake, calculated as the current share price multiplied by diluted shares outstanding. Enterprise value offers a more comprehensive measure by including debt and excluding cash, representing the total value of the business's core operations to all capital providers. Enterprise value (EV) quantifies the theoretical acquisition price for a business, covering all capital providers. Unlike intrinsic value, which reflects a company's true economic worth, EV is susceptible to market sentiment fluctuations. It's important to look at both enterprise value and equity value to get a broader perspective of the company's potential after the merger or acquisition and define the selling cost more accurately. The key point is that regardless of how a company is financed, its enterprise value — and enterprise value-based multiples — do NOT change. Equity value, however, may change depending on its share count and any shares it issues or repurchases.

32

A company goes from 20% Debt / Total Capital to 30% Debt / Total Capital. How do its Cost of Equity, Cost of Debt, and WACC change? Assume it only has Debt and Equity.

Reference answer

As a company uses more Debt, the Cost of Debt and Cost of Equity always increase because more Debt increases the risk of bankruptcy, which affects all investors. As the company goes from no Debt to some Debt, WACC decreases at first because Debt is cheaper than Equity, but it starts to increase at higher levels of Debt as the risk of bankruptcy starts to outweigh the lower Cost of Debt. In this case, we can't tell how WACC will change because we don't know where we are on this 'curve' – but we guess that WACC will likely decrease because 30% Debt / Total Capital is still in a fairly low/normal range for most industries.

33

Why do companies acquire other companies?

Reference answer

The primary motivations include: gaining market share or entering new geographies, acquiring capabilities or technology that would take years to build organically, achieving cost or revenue synergies, defensive moves to prevent a competitor from acquiring the target, and financial engineering (buying a company at a lower multiple than you trade at). The best deals have a clear strategic rationale beyond just financial engineering — pure financial acqui-hires rarely create lasting value.

34

Walk me through a DCF analysis.

Reference answer

A DCF analysis estimates a company's intrinsic value based on the present value of its expected future free cash flows. I start by projecting unlevered free cash flows for a forecast period, typically five to ten years. This requires modeling revenue growth, operating margins, capital expenditures, depreciation, and changes in working capital. Next, I calculate the terminal value — usually via the perpetuity growth method (applying a long-term growth rate to the final year's cash flow) or the exit multiple method (applying an EV/EBITDA multiple to the terminal year). Terminal value often represents 60–80% of total enterprise value, so the assumptions here are critical. I then discount all cash flows back to present value using the weighted average cost of capital (WACC), which blends the cost of equity (via CAPM) and after-tax cost of debt based on the company's target capital structure. Finally, I subtract net debt and add cash to arrive at equity value, then divide by shares outstanding for an implied per-share price. I always present a range of values using sensitivity tables varying the discount rate and terminal growth rate.

35

How do you make investment recommendations in uncertain market conditions?

Reference answer

“During market volatility caused by geopolitical tensions, I recommended a diversified approach to our equity investments at XP Investimentos. I analyzed correlation metrics and market trends, which led to a strategic allocation towards defensive sectors. This strategy protected our portfolio, resulting in a 10% outperformance against our benchmark during that quarter. It highlighted the need for flexibility and thorough analysis under pressure.”

36

A company you have invested in is facing a crisis, such as a major lawsuit or product recall. How do you assess the impact on the investment and determine whether to hold or sell?

Reference answer

I would immediately assess the crisis's financial and reputational impact by reviewing legal documents, press releases, and management guidance. I would model potential scenarios, including worst-case liabilities and recovery timelines. I would then evaluate the company's ability to manage the crisis, considering its cash reserves and management track record. Based on the severity and our investment horizon, I would decide to hold if the long-term outlook remains intact, or sell if the risk outweighs potential returns.

37

What's your greatest strength, and what's your greatest weakness?

Reference answer

Your greatest strength should be easy (e.g., hard work, drive, attention to detail) and supported with a quick story. For your greatest weakness, pick one that's 'real' but not too damaging for the role. For example, don't say you can't delegate tasks well at the Associate level. If you say you take too long to make decisions, back it up with a 'failure' story, such as how it took you too long to remove a non-contributing team member to avoid conflict, which hurt the team.

38

Explain the structure and significance of a cash flow statement.

Reference answer

The cash flow statement has three sections that together explain how cash moved during a period. Operating activities reflect cash generated or consumed by core business operations — this is where you see if the business is self-sustaining. Adjustments for non-cash items like depreciation and changes in working capital reconcile net income to actual cash. Investing activities capture cash spent on or received from long-term assets: property purchases, equipment investments, and acquisitions. Consistent large outflows here may indicate aggressive expansion, while persistent inflows (from asset sales) can signal downsizing. Financing activities detail cash flows from debt issuance or repayment and equity transactions. A company that consistently relies on financing cash flows to fund operations deserves scrutiny. I always analyze these sections together. For example, strong operating cash flow combined with heavy investing outflows is typically a healthy growth signal, while weak operating cash flow masked by debt financing is a red flag.

39

What is the difference between accounts receivable and deferred revenue?

Reference answer

Accounts receivable is revenue, which has been earned and recognized because the product has been delivered, but the customer has not yet paid the cash. Deferred revenue is cash that has been collected for products that have not yet been delivered, so the revenue has not yet been recognized. Accounts receivable is an asset on the Balance Sheet, whereas deferred revenue is a liability.

40

Why investment banking? Why our bank?

Reference answer

(This is a sample question for a Post-MBA Associate position. No sample answer provided in the text.)

41

If enterprise value (EV) is $80mm, and equity value is $40mm, what is the net debt?

Reference answer

Enterprise Value = Equity Value + Net Debt + Preferred Stock + Minority Interest. If we assume there is no minority interest or preferred stock, then Net Debt will be $80mm – $40mm, or $40mm.

42

Three people are wearing hats that are either red or blue. Each person can see the other two hats but not their own. They need to guess the color of their hat or pass, and they can't communicate with each other once the game starts. What strategy should they use to maximize the number of correct guesses?

Reference answer

One strategy is for each person to assume that if they see two hats of the same color, they must be wearing the opposite color. If they see one red and one blue, they pass. This way, if the hats are RR or BB, one person will guess correctly and the other two will pass. If the hats are RB or BR, they all pass. Over many iterations, this strategy maximizes correct guesses.

43

Can you describe a time you used financial modeling to influence an investment decision?

Reference answer

“At Itaú Unibanco, I developed a comprehensive DCF model to evaluate a potential merger. By incorporating various scenarios and sensitivity analyses, I highlighted key risks and opportunities. The model indicated a 20% upside potential, which influenced the decision to proceed with negotiations. This experience taught me the importance of clear assumptions and adaptability in financial modeling.”

44

How important do you think it is to be maintaining connections in this industry? (Credit Suisse Fit)

Reference answer

While networking is generally seen as important for advancing one's professional career irrespective of industry, there is significantly more weight placed on its value within the investment banking industry relative to other industries. Ideally, your answer should acknowledge this fact, and you should support this with examples of you maintaining connections with a variety of professionals and the insights you have learned through their shared experiences.

45

Let's say it is a 100% Stock deal. The Buyer has 10 shares at a share price of $25.00, and its Net Income is $10. It acquires the Seller for a Purchase Equity Value of $150. The Seller has a Net Income of $10 as well. Assume the same tax rates for both companies. How accretive is this deal?

Reference answer

The buyer's EPS is $10 / 10 = $1.00. It must issue $150 / $25.00 = 6 additional shares to do the deal, so the Combined Share Count is 10 + 6 = 16. Since both companies have the same tax rate and since no Cash or Debt is used, Combined Net Income = $10 + $10 = $20, and Combined EPS = $20 / 16 = $1.25, so the deal is 25% accretive.

46

Why do you want to be an investment banker?

Reference answer

This is just the last part of your story. It shouldn't even be a question if you've told your story properly. But just in case, see the 'Why investment banking?' article.

47

Why do you think you'll be successful as a hedge fund analyst?

Reference answer

The candidate should discuss their analytical abilities, work ethic, and investment judgment.

48

What is one concern you have about investment banking?

Reference answer

One possibility: Honestly, my biggest concern with investment banking is the politics that come along with the business world. I definitely had a first-hand experience with this problem during my internship. It was complicated by the fact that I had to move locations and, on top of that, change groups. I currently have an offer with Bank of America Merrill Lynch Healthcare, and it's the offer I wanted since it's arguably one the strongest groups at BAML, but it wasn't one of my favorite experiences of the summer. Another possibility: One concern I have about investment banking is the balance between work life and family life. Family and friends are an important part of my life because they have shaped the person that I am today. That is why my #1 priority is to stay in New York. If I'm going to be working 90-100 hours a week, then I want to be as close to family as possible.

49

You have 10 black marbles, 10 white marbles, and 2 buckets. I am going to pick one of the two buckets at random and select one marble from it at random. How would you fill the two buckets with marbles to maximize the odds that I select a white marble?

Reference answer

For this scenario, you want to put one white marble in one bucket and put the other 19 marbles in the other bucket. Due to this setup, the bucket with the lone white marble will be chosen nearly 50% of the time. When the alternative bucket is selected, the odds that a white marble is pulled are still nearly 50%. Setting up the situation this way makes the overall odds of a white marble selection almost 75%.

50

What happened in the markets in the past three months?

Reference answer

The candidate should summarize key events and trends in equities, bonds, and currencies.

51

Tell me about a time you applied financial theories to a real-world investment scenario.

Reference answer

“In my internship at Deutsche Bank, I analyzed a potential equity investment in a tech startup. I employed a discounted cash flow analysis and comparative company analysis to assess its valuation. My findings indicated that the startup was undervalued by 20%, prompting our team to recommend a buy. This project taught me the importance of rigorous data analysis and consideration of market trends.”

52

How is scenario analysis utilized in macroeconomic forecasting for portfolio management?

Reference answer

Scenario analysis is employed to model different macroeconomic environments—such as recession, inflationary growth, or monetary tightening—to estimate their probable effects on asset prices and portfolio performance, helping to inform risk management and strategic allocation decisions.

53

How would you value a company with negative earnings?

Reference answer

Be prepared to discuss alternative valuation methods like using multiples or precedent transactions.

54

Describe a time when you had to handle sensitive or confidential information.

Reference answer

In my previous role, I was brought into conversations about a potential acquisition weeks before it was public. I was the only person on the IR team with full details because I needed to prepare talking points in case the deal fell through and we needed to manage investor questions. During this time, I had colleagues reaching out casually asking about strategic direction. I kept all my responses focused on what we'd already disclosed publicly. Even my calendar entries were deliberately vague—I'd write ‘planning call' instead of anything specific. I made sure to review our insider trading policies and kept meticulous records of who knew what and when. When the deal finally closed and became public, we were able to announce it cleanly without any information having leaked. It reinforced for me how critical it is to compartmentalize information and respect the trust the company places in you.

55

How do you calculate a firm's terminal value?

Reference answer

There are two ways to calculate terminal values. The first is the multiples method. In order to use this method, you choose an operation metric (most commonly EBITDA) and apply a comparable company's multiple to that number from the final year of projections. The second method is the perpetual growth method, where you select a modest growth rate, typically just a little bit higher than the inflation rate and lower than the GDP growth rate, and assume that the company can grow at this rate infinitely. Then you multiply the FCF from the final year by 1 plus the growth rate and divide that number by the discount rate (WACC) minus the assumed growth rate.

56

What methods do you use to identify and account for potential biases in financial forecasts?

Reference answer

Addressing forecast bias requires both systematic analysis and a good understanding of human behavior in financial modeling. The first step is always looking backward – I review previous forecasts against actual results to identify patterns of over- or under-estimation. This historical analysis often reveals systematic biases, such as being consistently too optimistic about growth rates or underestimating seasonal fluctuations. To mitigate these biases, I employ several practical strategies. I always use multiple forecasting methods, combining both top-down and bottom-up approaches to cross-validate results. For example, while forecasting revenue, I might compare industry growth rates and market share analysis (top-down) with detailed customer segment projections (bottom-up). I also incorporate probability-weighted scenarios and conduct peer reviews of key assumptions. Regular forecast reviews and feedback loops are crucial – when actuals deviate from forecasts, I document the reasons why and use these insights to improve future forecasting accuracy. The goal isn't perfect prediction but rather understanding and accounting for our inherent biases to produce more reliable forecasts.

57

What do you think of the markets in general right now?

Reference answer

The candidate should provide a current market overview with reasoning.

58

Company A has 10 shares at $25/share, Net Income $10. Company B has 10 shares at $25/share, Net Income $10. If Company A acquires Company B using stock, is the transaction accretive or dilutive? (Credit Suisse)

Reference answer

Company A's EPS is $10 / 10 = $1.00. To complete the deal, Company A must issue 6 ($150 / $25.00) new shares which means that the combined share count after the deal is 16 (10 + 6). Since no cash or debt was used and the tax rates are the same and the combined net income = Company A net income + Company B net income = $10 + $10 = $20. The Combined EPS, therefore, is $20 / 16 = $1.25, which is an increase of 25% in the EPS, and this is what is called accretion.

59

How would you evaluate the success of a post-merger integration?

Reference answer

Evaluating post-merger integration success requires monitoring both quantitative and qualitative metrics across multiple timeframes. In the short term, I focus on operational continuity metrics: customer retention rates, employee turnover, supply chain disruptions, and system integration milestones. These early indicators help identify potential integration issues before they become significant problems. On the financial side, I track progress against the original deal thesis, particularly synergy realization. This includes cost synergies like overhead reduction and operational efficiencies, as well as revenue synergies from cross-selling opportunities and market expansion. However, numbers alone don't tell the full story. Cultural integration often determines long-term success, so I also monitor employee satisfaction, retention of key talent, and adoption of shared processes and values. The key is establishing clear baselines pre-merger and having realistic timelines for the achievement of different integration goals.

60

Where do you think interest rates are going? What is driving them?

Reference answer

This question tests the candidate's macro analysis and understanding of monetary policy.

61

What is WACC? Why is it important for an investor?

Reference answer

WACC stands for the weighted average cost of capital. It calculates the organization's capital after proportionally weighing each capital type. The formula used to calculate WACC is as follows: WACC = cost of equity * proportion of equity + cost of debt * proportion of debt (1-tax rate). WACC represents the cost of an investment for which an investor is going to stake his or her money. After WACC is calculated, the investor can decide whether he or she should invest in a particular opportunity or not.

62

How do the three financial statements link together?

Reference answer

Net income from the Income Statement flows to the top of the Cash Flow Statement and into retained earnings on the Balance Sheet. The Cash Flow Statement bridges the two balance sheets — ending cash becomes the cash line on the current Balance Sheet. Any capital expenditure on the CFS reduces PP&E on the BS, while debt issuance or repayment on the CFS changes the liabilities section.

63

What are some of your strengths?

Reference answer

Going into the interview, you should have your three top strengths in mind and a story ready to go for each of them. When you answer this question, make sure you identify your greatest strength and explain it clearly. Don't dance around the answer. The strength you describe must be a quality that will help you become a great junior employee. If you can, bring up a strength that doesn't appear on your resume but could catch attention. For example, if you have performed in concert or theatre all your life, learning to be poised in front of strangers and/or large groups, it may be a good strength to share.

64

Can you provide examples of successful deals or transactions that you believe had a significant impact on the market or your organization?

Reference answer

The purchase of Company X by our company is one notable instance of a successful transaction that had a substantial effect on the market. With the addition of a new client base and an expanded product line, this purchase helped our business develop in terms of market share and revenue. The agreement strengthened our position as a major player in the sector and our competitive edge. Tips for answering the question: Mention the deal or transaction by name and provide key details about its impact on the market or organization. Emphasize how the deal brought positive changes and advantages to the company. If possible, include quantifiable data to showcase the deal's significance, such as increased market share, revenue growth, or cost savings.

65

You already have two years of work experience. Why couldn't you get into an investment bank as an undergrad? Were you a failed candidate?

Reference answer

Never admit this, even if it's true. Answer by saying you got interested in banking very late in the process, when it was too late to get the required sequence of internships (plausible if you went to a non-target school; not believable if you went to Harvard or Wharton). Alternatively, say you knew about banking but deliberately chose something else, but then realized you should have done banking and have been working toward it from the start of your full-time role (though this story is much tougher to make work). You must be clear that you didn't 'just' get interested in IB – you've been interested for a long time and completed specific client work/jobs to move closer over time.

66

Walk me through an investment you'd make or have made.

Reference answer

I'm currently quite interested in 'GreenPower Innovations Inc.', a publicly traded company specializing in advanced grid-scale battery storage solutions. I'd make an investment in them today for several key reasons, anchored by a strong investment thesis focused on the accelerating energy transition and their specific competitive advantages. My investment thesis for GreenPower Innovations hinges on the fundamental shift towards renewable energy sources like solar and wind, which are inherently intermittent. This creates a massive and growing demand for reliable, efficient energy storage solutions to stabilize the grid and ensure continuous power supply. Government incentives globally, alongside falling battery manufacturing costs, are creating tailwinds for this sector. I believe GreenPower Innovations is exceptionally well-positioned to capitalize on this trend. First, the market opportunity is enormous. The International Energy Agency projects significant growth in battery storage deployments over the next decade. Utilities and independent power producers are rapidly adding storage capacity to integrate renewables and enhance grid reliability. GreenPower's current pipeline of projects and recent contract wins, including a multi-year deal with a major European utility to deploy 500 MWh of storage across several sites, validate this market demand. I've analyzed their quarterly reports and investor presentations, and their order book consistently shows strong growth, indicating robust future revenue. Second, GreenPower Innovations possesses a strong competitive advantage through its proprietary battery management system (BMS) and modular design. While they don't produce the battery cells themselves, their BMS software is what optimizes performance, extends battery life, and ensures safety, giving them a critical edge in system integration and efficiency. Their modular approach allows for rapid deployment and scalability, reducing project timelines and costs for their customers. I've read their patents and technical specifications, and the granularity of control their BMS offers significantly improves overall system efficiency compared to many competitors. This differentiation gives them pricing power and contributes to higher project margins. Third, their management team has a proven track record. The CEO has prior experience scaling a successful cleantech startup, and the CFO has a strong background in project finance and has successfully raised significant capital, including their recent convertible bond offering. Their strategic decisions, such as focusing on utility-scale deployments rather than smaller commercial projects, demonstrate a clear understanding of market dynamics and where the highest value lies. I've followed their leadership's public comments and earnings calls, and I'm impressed by their clear vision and disciplined capital allocation. From a valuation perspective, I've modeled GreenPower Innovations using a DCF and comparable company analysis. My DCF analysis projects robust free cash flow growth driven by increasing project deployments and service revenues. I've used conservative assumptions for their battery cell costs decreasing and their system integration margins stabilizing as they scale. Applying a WACC derived from a peer group of renewable energy developers and storage providers, my intrinsic value range suggests GreenPower Innovations is trading at a significant discount to its fair value. On a comparable basis, their EV/Sales and EV/EBITDA multiples are below the average of their closest public peers, even when accounting for their slightly earlier stage of scaling compared to some larger incumbents. This suggests the market isn't fully appreciating their growth potential and competitive position. In terms of risks, I recognize potential challenges like commodity price volatility for raw materials, competition from other storage technologies, and regulatory changes. However, GreenPower's strategic sourcing agreements and hedging policies help mitigate material cost risks, and their strong R&D investment ensures they're continuously innovating to stay ahead. My detailed scenario analysis suggests the company has sufficient resilience to withstand moderate market downturns or project delays. Given the substantial market opportunity, GreenPower Innovations' unique technological edge, capable management, and attractive valuation, I'm confident in this investment. I expect a 25-30% internal rate of return over a three-to-five-year holding period, primarily driven by revenue growth, margin expansion, and multiple re-rating as the market better recognizes their value.

67

Why do you want to work for our firm in particular? What is attractive about our firm?

Reference answer

The candidate should demonstrate knowledge of the firm's strategy, culture, or performance.

68

What is EBITDA?

Reference answer

EBITDA stands for Earnings before Interest, Taxes, Depreciation, and Amortization. It gives us a good idea of a company's profitability and is a quick metric for free cash flow because it will allow you to determine how much cash is available from operations to pay interest, CAPEX, etc. EBITDA = Revenue - Expense (except depreciation and amortization) It is also often used for rough valuations in a comparable company or precedent transaction analysis as part of the EV/EBITDA multiple.

69

How do you calculate WACC for a private company? (ECM)

Reference answer

Since a private company has no market capitalization and no beta, you would most likely use the WACC for a comparable public company adjusted upwards for the lack of liquidity.

70

A company has learned that due to a new accounting rule, it can start capitalizing R&D costs instead of expensing them. Part a) What is the impact on EBITDA? Part b) What is the impact on Net Income? Part c) What is the impact on cash flow? Part d) What is the impact on valuation?

Reference answer

Part a) EBITDA increases by amount capitalized; Part b) Net Income increases, the amount depends on depreciation and tax treatment; Part c) Cash flow is almost constant – however, cash taxes may be different due to depreciation rate Part d) Valuation is constant – except for cash taxes impact/timing on NPV

71

What's the difference between investment banking and commercial banking?

Reference answer

An investment bank offers advisory services in M&A and other corporate transactions, and also acts as an intermediary between investors and companies in need of capital. Commercial banks work more on the monetary/transactional side, where they take deposits from clients and lend money to individuals and insitutions.

72

What are the easiest decisions for you?

Reference answer

This question probes the candidate's decision-making style and comfort zone.

73

How would you figure out how much an aircraft carrier weighs without using a scale?

Reference answer

This question displays how you break down difficult problems. There are a lot of different ways to tackle this question. For example, you could ask an engineer who is familiar with aircraft carriers, or try to gauge how much individual components of the aircraft carrier weigh. The solution itself is less important than showing how you work through this problem.

74

How is valuing a resource company (e.g., oil and gas, a mining company, etc.) different from valuing a standard company?

Reference answer

First, you need to project the prices of commodities and the company's reserves. Rather than a standard DCF, you use a Net Asset Value (NAV) model. The NAV model is similar, but everything flows from the company's reserves rather than a simple revenue growth / EBITDA margin projection. You also look at industry-specific multiples such as P / NAV in addition to the standard multiples.

75

What are your thoughts on the current market conditions and how do you approach investing in a volatile market?

Reference answer

Current market conditions are characterized by high inflation and geopolitical uncertainty, leading to increased volatility. I approach such markets by focusing on quality companies with strong balance sheets and pricing power. I use dollar-cost averaging to mitigate timing risk and maintain a diversified portfolio. I also increase cash reserves to capitalize on potential buying opportunities during downturns.

76

How do you determine the fair value of a stock, and what methodology do you typically use?

Reference answer

I typically use discounted cash flow (DCF) analysis to estimate intrinsic value by projecting future cash flows and discounting them to present value. I also complement this with relative valuation methods, such as price-to-earnings or enterprise value-to-EBITDA ratios compared to peers. I consider sensitivity analysis to account for assumptions like growth rates and discount rates, ensuring a robust valuation range.

77

Name and briefly describe three financial statements.

Reference answer

Three common financial statements include cash flow statements, balance sheets, and income statements. A cash flow statement shows a finance manager the net change in the company's cash. A balance sheet, meanwhile, delves into the assets and liabilities of a company and is used to make various financial decisions regarding investments and other activities. An income statement displays the revenues and expenses of a company. It typically gives income figures over a particular period.

78

Are you interviewing for jobs outside of investment banking?

Reference answer

NOTE: I would say no to this. You want to get across that you're interviewing at only investment banks or at least that banking is by far your main focus. Even if you are hedging bets by interviewing in other fields, it's important to not give the interviewer any reason to doubt your commitment to the investment banking analyst role.

79

Walk me through how you would value a company for a potential acquisition.

Reference answer

A comprehensive acquisition valuation requires multiple approaches to arrive at a well-supported value range. I start with Discounted Cash Flow (DCF) analysis as the foundation, projecting future cash flows and determining an appropriate discount rate that reflects the company's risk profile. The challenge here isn't just in the mechanics but in developing realistic growth assumptions and understanding how the business might evolve under new ownership. Next, I analyze comparable companies and recent transactions in the industry to provide market-based perspectives. This means looking at trading multiples like EV/EBITDA and P/E ratios but going deeper than just the numbers. Understanding why certain companies trade at premium multiples while others don't help inform where our target should fall in the range. I also consider deal-specific factors that could affect value, such as potential synergies, integration costs, working capital needs, and any restructuring required. The final valuation typically presents a range based on these different approaches, weighted according to their relevance and reliability for this specific situation.

80

Tell Me About a Time When You Had to Present Financial Data.

Reference answer

As a company, we were considering acquiring another competitor and needed to identify what the combined financials of the companies would look like. I had to identify synergies related to head count, technology, payroll, redundant internal services, and ultimately forecast the financials to show the combined companies. I started by making sure I knew exactly what numbers the decision-makers in my company were focused on and why and then dived into the modeling component, sharing with colleagues for verification and input along the way. Once the bulk of that work was done I put together a slide deck that included a model output and highlighted the most important conclusions I'd come to. I presented my findings with specific recommendations to my team as well as a group of executives. They had several follow-up questions, as was expected, many of which I was able to answer on the spot but a few required me to go back to the model and incorporate some of their feedback. In the end, the majority of my recommendations were adopted but I learned the most from the few that had to be altered. The next time I had to put together a similar presentation, I tried to anticipate these kinds of questions and my recommendations were sharper for it (and got adopted with barely a tweak).

81

Can you describe what a banker does in an IPO or M&A deal?

Reference answer

Review articles on mergers & acquisitions and initial public offerings (IPOs) for a detailed explanation.

82

How do you value a company with no revenue?

Reference answer

In order to value a company with no revenue, such as a start-up, you must project the company's cash flows for future years and then construct a discounted cash flow model of those cash flows using an appropriate discount rate. Alternatively, you could also use other operating metrics to value the company. If you took a start-up website with 50,000 subscribers, but no revenue, you could look at a similar website's value per subscriber and apply that multiple to the website you are valuing. Valuing a company with no revenue comes down to determining the market opportunity for a company and assigning a value per user, customer, or subscriber, and then discounting that back at an appropriate rate that accounts for the inherent execution and market risk.

83

What are equity and derivative instruments, and what are the key differences between them?

Reference answer

In simple words, Equity instruments represent ownership in a company, while derivative instruments derive value from an underlying asset without ownership. In order to explain this question you can use the following points of differences. | CRITERIA | EQUITY | DERIVATIVES | | Types | Common stock, preferred stock, REITs, ETFs, etc. | Futures, options, swaps, and forwards are common types. | | Purpose | Investors buy equity to gain ownership and share in the company's profits. | Derivatives are used for hedging, speculation, and arbitrage purposes. | | Trading Location | Equities are traded on stock exchanges like NYSE, NASDAQ, etc | Derivatives are primarily traded on specialized derivatives exchanges or OTC (over-the-counter) markets. | | Contract Duration | Ownership in equities is perpetual unless sold | Derivative contracts have specific expiration dates, varying from days to years. | Tips for answering the question: Elaborate on the use cases: Provide specific examples for instance, explain how investors use derivatives to hedge against price fluctuations in commodities. Recent market trends: If available, mention any recent developments in the equity and derivatives markets. Practical experience: If you have personal experience or expertise in either equity investments or derivatives trading then showcase your understanding.

84

What happens to free cash flow if net working capital increases?

Reference answer

Intuitively, you can think of working capital as the net dollars tied up to run the business. As more cash is tied up (either in accounts receivable, inventory, etc.), free cash flow will be reduced. Remember that if the assets go up in value (denoting a purchase of assets), this is a use of cash; and if a liability goes up (denoting funds received), it is a source of cash. You subtract the change in Net Working Capital when you calculate Free Cash Flow, so if Net Working Capital increases, your Free Cash Flow decreases and vice versa.

85

How would a current event (e.g., COVID-19 Delta Variant or a Nigerian election) impact the stock market? (JPMorgan)

Reference answer

Sample Answer 1: The COVID-19 Delta Variant is predicted to cause an upsurge in total worldwide cases, therefore volatility would increase within the stock market as speculating investors debate the impact of the variant. This may cause a runover effect with the Federal Reserve System keeping interest rates low moving forward. Sample Answer 2: The Nigerian election takes place in February. Four years ago, President Muhammadu Buhari gained power on a surge of optimism, pledging to restore security and end corruption. His Presidential record has been mixed, and his popularity and health have declined (he recently denied rumors of being replaced by a body double). The old regime may regain political power, impacting the free flow of goods through the country.

86

Walk me through how you will calculate working capital.

Reference answer

The mathematical formula for working capital shows the company's working capital at a particular time. The formula that one should use is as follows: working capital = current assets – current liabilities.

87

Four people need to cross a bridge at night. They have one flashlight, and the bridge is too dangerous to cross without it. Only two people can cross at a time. Each person walks at a different speed: 1 minute, 2 minutes, 7 minutes, and 10 minutes. What is the fastest time for all four to cross the bridge?

Reference answer

The fastest solution is as follows: - First, the 1-minute and 2-minute people cross the bridge (2 minutes). - The 1-minute person returns with the flashlight (1 minute, total: 3 minutes). - The 7-minute and 10-minute people cross the bridge (10 minutes, total: 13 minutes). - The 2-minute person returns with the flashlight (2 minutes, total: 15 minutes). - Finally, the 1-minute and 2-minute people cross the bridge again (2 minutes, total: 17 minutes). - Total time: 17 minutes.

88

How do the 3 financial statements link together? Assume the Indirect Method for the Cash Flow Statement.

Reference answer

To link the statements, make Net Income at the bottom of the Income Statement the top line of the Cash Flow Statement. Then, adjust this Net Income number for any non-cash items such as Depreciation & Amortization. Next, reflect changes to operational Balance Sheet items such as Accounts Receivable (AR), which may increase or decrease the company's cash flow depending on how they've changed. (We might project some of these items, such as AR, with methods such as the Days Sales Outstanding.) That gets you to Cash Flow from Operations. Next, reflect investing and financing activities, which may increase or decrease cash flow, and sum up Cash Flow from Operations, Investing, and Financing to get the net change in cash at the bottom. Link Cash on the Balance Sheet to the ending Cash number on the CFS, and add Net Income to Retained Earnings within Equity on the Balance Sheet. Then, link each non-cash adjustment to the appropriate Asset or Liability; SUBTRACT links on the Assets side and ADD links on the L&E side. Link each CFI and CFF item to the matching item on the Balance Sheet, using the same rule as above. Check that Assets equals Liabilities + Equity at the end; if this is not true, you did something wrong and need to re-check your work.

89

If you had the opportunity to jump early to a Private Equity or Hedge Fund like some of the other analysts/associates here, would you do so?

Reference answer

No I would not. I firmly believe in loyalty and I plan on committing to the firm for my full two year program. I think investment banking will give me a great platform if I were to choose to join the buyside, but I definitely would not leave early.

90

What is a fairness opinion?

Reference answer

A fairness opinion is a formal letter from an investment bank's valuation team stating that the proposed transaction price is fair, from a financial point of view, to a specified party (usually the target's shareholders). It relies on the same methodologies — DCF, comps, precedent transactions — and serves as legal protection for the board in demonstrating it fulfilled its fiduciary duties. Fairness opinions are standard in virtually every public M&A deal.

91

What is PIK interest and when is it used?

Reference answer

PIK (payment-in-kind) interest is not paid in cash each period — instead, it accrues and is added to the principal balance of the debt. It is common in mezzanine financing and LBOs where the company's near-term cash flow cannot support full cash interest payments. PIK benefits the borrower by preserving cash flow, but it increases the total debt burden over time. Lenders accept PIK because they charge a higher rate and the compounding effect increases their total return.

92

What is a weighted average cost of capital, and how is it calculated?

Reference answer

The WACC demonstrates the company's overall cost of raising capital. It also represents the risk of investing in the target company. To calculate WACC, investment banking experts use the following formula, which includes debt, common equity, and, importantly, preferred stock if the company has issued it: WACC = Cost of equity × (% equity) + Cost of debt × (% debt) × (1 – Tax rate) + Cost of preferred stock × (% preferred stock) Where: - Cost of equity = The annualized return demanded by equity investors for bearing ownership risk - % Equity = The proportion of total capital funded by shareholders (equity / total capital) - Cost of debt = The after-tax interest rate a company incurs on its borrowings - % Debt = The proportion of total capital financed with debt (debt ÷ total capital) - Tax rate = The corporate tax rate; debt interest is tax-deductible, so we adjust for taxes - Cost of preferred stock = The required return by preferred shareholders, usually the dividend yield - % Preferred stock = The proportion of total capital coming from preferred stock Sample inputs: - Cost of equity = 10.5% - % Equity = 50% - Cost of debt = 6.0% - % Debt = 30% - Cost of preferred stock = 7.5% - % Preferred stock = 20% - Tax rate = 25% Calculation: WACC = (10.5% × 50%) + (6.0% × 30% × (1 – 25%)) + (7.5% × 20%) = 8.10%

93

What are your thoughts on the current market conditions?

Reference answer

Briefly discuss relevant economic factors and how they might affect investment banking activity.

94

Explain the purpose of financial modeling.

Reference answer

Financial modeling allows analysts to predict the future and anticipate how decisions today may impact the business down the line. Analysts also rely on financial modeling to perform due diligence on investments — the better we understand a potential investment, the more informed our decisions are and the more reliable our outcomes will be. Other reasons analysts use financial models include: - Trying different scenarios or situations to avoid risk or maximize profits - Planning strategically - Allocating funds - Assessing competition

95

What is the tax shield in an LBO?

Reference answer

A tax shield in LBO takes place when the interest expense a company pays on debt is taxable, which helps the company to save money on taxes and, as a result, increase its cash flow.

96

What is the appropriate discount rate to use in an unlevered DCF analysis?

Reference answer

Since the free cash flows in an unlevered DCF analysis are pre-debt (i.e. a helpful way to think about this is to think of unlevered cash flows as the company's cash flows as if it had no debt – so no interest expense, and no tax benefit from that interest expense), the cost of the cash flows relate to both the lenders and the equity providers of capital. Thus, the discount rate is the weighted average cost of capital to all providers of capital (both debt and equity). - Cost of Debt → The cost of debt is readily observable in the market as the yield on debt with equivalent risk, while the cost of equity is more difficult to estimate. - Cost of Equity → The cost of equity is most often estimated using the capital asset pricing model (CAPM), which links the expected return on a security to its sensitivity to the broader market.

97

Describe your ideal work environment?

Reference answer

In my mind, at least in finance, the most crucial aspect of the working environment is the people you are working with on a daily basis. Suppose you do not enjoy the company of your colleagues or teammates. In that case, the environment will be especially challenging because you'll often be working countless hours per week, over multiple years, with these same people. My ideal workplace is one where everyone works hard, communicates well, and trusts each other to get the job done right and on time. As a result, the team is then rewarded and evaluated based on our performance.

98

What industry do you follow and what numbers do you look at to determine if a firm is doing well in the industry?

Reference answer

The candidate should specify an industry and key metrics such as revenue growth, margins, market share, or comparable company analysis.

99

How do net operating losses (NOLs) affect the financial statements?

Reference answer

NOLs create a deferred tax asset on the Balance Sheet, representing future tax savings. When the company becomes profitable, it uses NOLs to offset taxable income, reducing cash taxes paid. On the Cash Flow Statement, this means higher operating cash flow than net income alone would suggest. In IB models, we track the NOL balance carefully because it directly impacts the company's free cash flow and therefore its valuation.

100

Why our bank, specifically?

Reference answer

See above. If you've mentioned something the bank is good at in your story, it shouldn't even be a question. But just in case, see the 'Why our bank?' article.

101

How does the yield curve look like?

Reference answer

The yield curve typically slopes upward, indicating higher yields for longer maturities. It can also be flat or inverted.

102

How is it possible for a company to have a positive net income but go bankrupt?

Reference answer

This is possible if working capital erodes (such as increasing accounts receivable, lowering accounts payable, lower inventory turnover) or the company is growing so fast that it's unable to raise enough capital to fund operations. Another possibility is the existence of financial fraud.

103

Describe the basics of the LBO model.

Reference answer

There are five steps involved in creating an LBO model. The first step involves creating assumptions on the Purchase Price, Debt/Equity Ratio, Interest Rate on Debt, and other variables. Depending on the amount of information you have, you may also make assumptions regarding the business's activities, such as Revenue Growth or Margins. The second step is to construct the Sources & Uses section that outlines your funding sources. This also reveals how much the investor paid for the deal and what you did with the money and how much investor equity is necessary. In order to balance everything, step three involves updating the company's balance sheet to reflect the new debt and equity amounts as well as adding goodwill and other intangibles to the assets side. The fourth step entails projecting the income statement, balance sheet, and cash flow statement of the business in order to calculate the amount of debt that will be repaid annually based on the available cash flow and the necessary interest payments. The fifth step involves making assumptions about the departure after a number of years—typically, an EBITDA Exit Multiple—and calculating the return based on how much equity is given to the company.

104

What would your work colleagues say about you?

Reference answer

This behavioral question asks for a professional reference-style description.

105

How is goodwill created in an acquisition?

Reference answer

Goodwill equals the purchase price minus the fair market value of the target's net identifiable assets (tangible and intangible). It represents the premium paid above what the assets are worth on a standalone basis — reflecting synergies, brand value, customer relationships, and strategic positioning. Goodwill sits on the acquirer's Balance Sheet and is tested annually for impairment under current accounting standards rather than being amortized.

106

Why do you want to be an investment banker?

Reference answer

Responder #1: As I have grown in my career, I have had the opportunity to work in various jobs and have been able to converse with people involved in a variety of career tracks in different fields. Among these are law, education, entrepreneurship, medicine, non-profit organizations, investment banking, and sales and trading. Based on these experiences and contacts, I decided that the most appealing field to me was investment banking. In particular, I believe investment banking offers the best environment for growth and development in the areas of finance, economics, and accounting—all important areas for business. Banking offers a tremendous amount of training, a steep on-the-job learning curve, a competitive work environment, and talented people to work with. As a result, I believe it offers the best opportunity to enhance my skill set and apply it on a real-life and current basis. Furthermore, I enjoy situations that involve analyzing strategies, environmental conditions, structure, and future opportunities. There is no other industry that I know of that offers a first-year graduate with the amount of responsibility that investment banking offers. I can't think of a better way than to hit the ground running right out of school. Responder #2: The best advice my father gave me was “whatever you do, put yourself in a position to succeed.” And I think right out of college, investment banking offers the best experience available for people who want to work in the corporate arena, hands down. I know the work was going to be tough and the hours excruciating, but I enjoy the pressure and challenge to deliver that seems to come up on a daily basis. Also, in my view, finance is unpredictable and exciting; I enjoy the fact that there is never a typical day. Responder #3: I think for me the work is rewarding. Nowhere else out of college will you get a better corporate experience. The work will always be challenging and you're going to be working with some of the brightest people. This fosters a competitive environment in which you are almost forced to grow professionally on a daily basis. I think that's one of the main reasons I want to come to New York: the competition. One of the great advantages working out of New York is the networking opportunities available with so many bright, hard-working young professionals around. Chicago will always be my home, but New York is the center of the financial world and I want to get the best experience possible.

107

A company has Debt/EBIT of 5x and an interest coverage ratio of 5x. What is the interest rate on the debt? (Restructuring)

Reference answer

This depends on the formal definition of the leverage ratio, but assuming debt/EBIT is implied we can set up two simple equations: - Debt/EBIT = 5 - EBIT / (Debt * Interest rate) = 5 Solving these equations we find that the interest rate is 4%.

108

What might a shareholder analysis tell you about an equity deal?

Reference answer

For an existing public company, a shareholder analysis compares current institutional investors to ones that the company might target in a new equity offering. You could also use this analysis to find institutional investors with similar industry holdings that have not yet invested in your client and target them in the offering.

109

What are the factors that may cause a company's present value (PV) to increase or decrease? (Goldman Sachs)

Reference answer

Factors that may cause a company's PV to increase: - An increase in cash flow causes an increase in future value (FV) - An increase in the growth rate of future cash flows Factors that may cause a company's PV to decrease: - Increased discount rate - Delay in receiving future cash flows - Reduction in the growth rate of future cash flows

110

Why did you attend [insert school] college?

Reference answer

Upon graduating high school, I was accepted to 8 schools, among which were UNC and IU. Relative to other schools I visited, the combination of business curriculum, research facilities, specific professors, atmosphere on campus and personal fit allowed me to make this decision and I felt without a doubt that [insert school] was the school I wanted to attend. I knew going in that I would have to work extremely hard to differentiate myself not only from my classmates, but also from the candidates I would be facing in the banking interviews. I have pressed myself to learn as much as possible about the banking industry. While I understand that I have an incredibly long journey ahead of me, I believe that my personal, professional and academic accomplishments to date have positioned me for success in the banking world. NOTE: To the extent that it's honest, be sure to say that you looked at a lot of colleges and you chose this college because of a strong business/finance/economics program or a strong academic curriculum. If you attended the school for some sort of scholarship (academic, sports, musical, etc.), be sure to point that out.

111

What separates you from other candidates?

Reference answer

This question asks the candidate to articulate their unique value proposition.

112

What's an Earnout and why would a buyer offer it to a seller in an M&A deal?

Reference answer

An Earnout is a contractual term that states that the seller of a firm will receive more pay in the future if the business meets specific financial targets, which are typically expressed as a percentage of gross sales or earnings. An earnout provision can be used if an entrepreneur trying to sell a business is asking for a higher price than a buyer is willing to pay. Usually, it is dependent on financial success or other objectives. The buyer can say, “We'll offer you an additional $20 million in 4 years if you can exceed $200 million in revenue by then.” Buyers use it to reward sellers for maintaining high performance and to deter management teams from accepting the money and leaving.

113

How do you calculate Net Working Capital (NWC)?

Reference answer

Net working capital shows a company's ability to cover short-term liabilities. You calculate NWC by subtracting a company's current liabilities from its current assets.

114

What are synergies and how do you estimate them?

Reference answer

Synergies are the incremental value created by combining two companies that neither could achieve alone. Revenue synergies come from cross-selling, expanded distribution, or pricing power — they are harder to quantify and less certain. Cost synergies come from eliminating redundant headcount, consolidating facilities, or renegotiating vendor contracts — these are more concrete and typically realized within 1–3 years. Bankers usually model cost synergies at 50–75% of the identified total to build in conservatism.

115

Where did the S&P 500/Dow Jones Industrial Average/NASDAQ close yesterday?

Reference answer

This question is used to gauge your general interest in the financial markets. You probably will not be expected to know the number to the penny, but knowing the levels of the three major exchanges/indices, as well as whether they were up or down and why will show your interviewer that you keep track of what is going on in the world of finance. You should know how the market moved (up or down) the previous day and why it moved. You can find this information by watching CNBC, reading the WSJ, or just by using Google. Yesterday the XXXX closed at XXXX, up/down XXX from the open. I also noticed that it was up XXX from the day before due to … It would also be a good demonstration of market interest to know the overall valuation levels of the three major indices. The P/E ratios for the overall Dow, S&P 500, and Nasdaq are publicly available on major financial news publications.

116

Tell me when you would see a company with a high EV/EBITDA multiple but a low PE multiple.

Reference answer

This relationship implies a significant difference between the firm's enterprise value and its equity value. The difference between the two is “net debt”. As a result, a company with a significant amount of net debt will likely have a higher EV/EBITDA multiple.

117

Can you walk me through the structure of an investment bank? (BoA)

Reference answer

The investment banking division is sometimes referred to as corporate finance and is broadly split into 2 sectors, products and industries. The purpose of both is to provide advisory on transactions, mergers, and acquisitions and to arrange (and sometimes even provide) financing for these transactions. Investment banking product groups are broken down into: - Mergers and Acquisitions (M&A): Advisory on sale, merger, and purchase of companies. - Leveraged Finance (LevFin) - Issuance of high-yield debt to firms to finance acquisitions and other corporate activities. - Equity Capital Markets (ECM) - Advice on equity and equity-derived products (IPOs, shares, capital raises, secondary offerings, etc.) - Debt Capital Markets (DCM) - Advice on raising and structuring debt to finance acquisitions and other corporate activities. - Restructuring – Improving the structures of a company to make it more profitable or efficient.

118

If you were asked to evaluate a potential investment in a market you're unfamiliar with, how would you approach the analysis?

Reference answer

I would start by researching the market using reputable financial sources and reports. I'd look into the country's economic conditions, industry trends, and competitor performance. I'd also reach out to industry experts or local contacts to gain deeper insights. I would then analyze the data I've collected, benchmark it against similar markets, and build a financial model to forecast potential returns.

119

Walk me through a Leveraged Buyout (LBO) model.

Reference answer

Explain how debt financing is factored into valuation and how the capital structure affects returns.

120

What is the difference between a DCF and a Dividend Discount Model (DDM)? (FIG)

Reference answer

A DCF involves predicting the unlevered free cash flows that a business will generate, discounting it into the present and then adding it up to get the enterprise value. A DDM on the other hand only looks at dividends the company pays, and then divides it using the required rate of return to find the value of equity. A DCF typically spits out an enterprise value whereas DDM is an equity value based on the present value of projected free cash flow to equity (% of dividends for a bank since they have regulatory capital requirements, which is a limiter on growth assumptions on a bank DDM).

121

What is Beta and how to calculate beta for a company?

Reference answer

The beta (β) of investment security (i.e., a stock) is a measure of its volatility of returns in comparison to the market as a whole. It serves as a risk indicator and is crucial to the Capital Asset Pricing Model (CAPM). A higher beta means greater risk and higher expected profits for the company. Because 1.0 is the benchmark for beta, everything above 1.0 is more variable and carries more inherent risk. β Unlevered = β(Levered) / [1 + (Debt/Equity) (1-T)] β Levered = β(Unlevered) * [ 1+ (Debt/Equity) (1-T)]

122

How do you value a company?

Reference answer

This question, or variations of it, should be answered by talking about 2 primary valuation methodologies: Intrinsic value (discounted cash flow valuation), and Relative valuation (comparables/multiples valuation). - Intrinsic Value (DCF) → The intrinsic value techniques, namely the DCF, is the more academically respected approach. The DCF states the value of a productive asset equals the present value of its future free cash flows (FCFs). The answer should run along the line of project free cash flows for 5–20 years, depending on the availability and reliability of the information, and then calculate a terminal value. Discount both the free cash flow projections and terminal value by an appropriate cost of capital (weighted average cost of capital for unlevered DCF and cost of equity for levered DCF). The unlevered DCF, the more common approach, yields the company's enterprise value (i.e. firm valuation), from which we need to subtract net debt to arrive at equity value. To arrive at the equity value per share, divide the equity value by the company's diluted shares outstanding. - Relative Valuation (Comps) → The comps approach involves determining a comparable peer group – companies that are in the same industry with similar operational, growth, risk, and return on capital characteristics. Truly identical companies of course do not exist, but you should attempt to find as close to comparable companies as possible. Calculate appropriate industry multiples. Apply the median of these multiples on the relevant operating metric of the target company to arrive at a valuation. Common multiples are EV/Rev, EV/EBITDA, P/E, P/B, although some industries place more emphasis on some multiples vs. others, while other industries use different valuation multiples altogether. It is not a bad idea to research an industry or two (the easiest way is to read an industry report by a sell-side analyst) before the interview to anticipate a follow-up question like 'tell me about a particular industry you are interested in and the valuation multiples commonly used.'

123

A company generates $200 of cash flow next year, and its cash flow is expected to grow at 4% per year for the long term. You could earn 10% per year by investing in other, similar companies. How much would you pay for this company?

Reference answer

Company Value = Cash Flow / (Discount Rate – Cash Flow Growth Rate), where Cash Flow Growth Rate < Discount Rate. So, this one becomes: $200 / (10% – 4%) = $3,333.

124

What is your greatest weakness? (How to answer with a real weakness like low GPA, non-target school, or lack of experience)

Reference answer

Find your top 3 “real” weaknesses by comparing yourself with the ideal investment banking candidate. For example, if you went to a non-target university, say that you couldn't afford to attend a top school, so you accepted generous financial aid at a lesser-known school. If you lack accounting/finance knowledge, point to self-study, the CFA, and any other certifications you're working toward, and offer to prove your skills with a case study or other modeling test (NOTE: You must be very confident of your skills to make that offer…). If you have a late start to finance, say that you became interested in finance at a late stage since hardly anyone at your university went into the field, but once your interest developed, it has been “your plan all along” to move into the industry, and you've been moving closer through a series of internships and full-time roles.

125

Which commodity or stock would you invest in if you wanted to give a client medium-risk growth?

Reference answer

Reveals the candidate's understanding of investment strategies.

126

Describe a time you identified a financial risk. How did you handle it?

Reference answer

While analyzing quarterly reports, I noticed accounts receivable days had increased by 25% over two consecutive quarters while revenue growth remained flat. This pattern suggested a deteriorating collections process that could create a significant cash flow problem if left unchecked. I prepared a concise analysis showing the trend, projected cash flow impact over the next two quarters, and benchmarked our AR days against industry peers. I presented the findings to our finance director with three recommended actions: tightening credit terms for new customers, implementing automated payment reminders, and escalating accounts past 60 days. Within one quarter of implementing these changes, we reduced AR days by 15% and improved our cash conversion cycle meaningfully. The experience reinforced my belief that proactive monitoring of leading indicators is often more valuable than reactive analysis of lagging ones.

127

What is the difference between MOIC and IRR? (TMT)

Reference answer

MOIC's simplistic calculation tells investors how much money they're ultimately receiving from an investment while IRR includes the impact of time over which the returns were generated.

128

What is the difference between an IPO (Initial Public Offering) and an M&A (Mergers & Acquisitions) deal?

Reference answer

Explain the purpose of each and the role of an investment bank.

129

How do you handle high-pressure situations and tight deadlines that are common in front-office positions?

Reference answer

The trick to answering this question is to highlight your strengths: Handling high-pressure situations and tight deadlines, you thrive on the challenge: You start by prioritizing tasks and creating a clear plan of action to manage your time efficiently and ensure meeting deadlines without compromising quality. Remaining calm and composed is your strong suit: even in the face of pressure. You take deep breaths and stay focused on the task at hand, allowing yourself to think rationally and make well-informed decisions. You understand the power of teamwork: you are not afraid to seek support from your colleagues when the pressure is on. Proactively communicate with stakeholders: keeping them informed about your progress and any potential hurdles you might encounter.

130

Give me an example of how you have demonstrated flexibility in the past. How did you adapt to changing circumstances or unexpected challenges, and what was the outcome?

Reference answer

In a previous role, our team was asked to shift focus from equity to fixed-income analysis due to a market downturn. I quickly learned new valuation techniques and attended training sessions. I also adjusted my workflow to incorporate new data sources. As a result, I successfully delivered a bond portfolio recommendation that outperformed the benchmark, demonstrating adaptability to changing market conditions.

131

Which is more beneficial to increase: the volume of software sold or the price of pens, and why?

Reference answer

It could be beneficial to increase the volume of software sold and increase the price of pens, as the incremental cost of each additional software license sold is relatively low, and almost all of the additional revenue would flow directly to margins, not to mention its scalability. Increasing the price of pens has more advantages from a financial standpoint as they have a higher incremental cost (cost of producing a pen scales with quantity sold).

132

What is investment banking?

Reference answer

Investment banking is a division of banking that helps individuals, corporations, and governments raise capital and provide financial consultancy services. Investment banks assist with mergers and acquisitions (M&A), initial public offerings (IPOs), underwriting, and other large, complex financial transactions.

133

How do you structure an M&A deal to address buyer and seller concerns while maximizing transaction value?

Reference answer

Successful M&A deal structuring is about finding creative solutions that align the interests of both parties while managing risk. I start by understanding each party's key objectives and concerns. For buyers, this often means concerns about valuation certainty, integration risks, and potential liabilities. Sellers typically focus on maximizing value, tax efficiency, and in some cases, ongoing involvement in the business. The art of deal structuring lies in using various mechanisms to bridge gaps between buyer and seller expectations. For example, earnouts can help bridge valuation gaps by linking part of the purchase price to future performance, though they need careful structuring to avoid future disputes. Working capital adjustments ensure fair treatment of short-term assets and liabilities, while representations and warranties (backed by insurance if needed) can address risk allocation. For key concerns like employee retention or customer relationships, I might recommend specific provisions in the purchase agreement or separate management agreements. The goal is to create a structure that provides appropriate incentives and protections for both parties while keeping the deal executable. Success often comes from understanding which issues are truly material versus those where compromise is possible.

134

Give me an example of a time you worked as part of a team.

Reference answer

Most recently, I had to work as part of a team for my Management and Organizational Analysis class. We organized the teams at the beginning of the semester and were required to create a business idea. From there, we issued various reports on strategy, structure, and culture, and developed a presentation and final report encompassing the development plan for this business. I discovered that working in a group can be challenging due to differences in working styles and personalities. Conflicts can arise and team dynamics are hard to manage. As a team member, I sometimes would take lead roles of organizing research assignments, meeting times, and the production of a final product. However, I helped others and received help in return. Each member contributed in his or her own manner—someone would invariably step up when the need arose—and there was always a system of checks and balances.

135

Can a company have negative book equity? (Citigroup)

Reference answer

Yes, a company could have a negative book equity value if the owners are taking out large cash dividends or if the company has been operating for a long time at a net loss, leading to the company having to take on debt to fund loss of cash. Eventually, equity can be negative implying that the entire operation is funded by debt.

136

Did you receive an offer from your previous internship?

Reference answer

NOTE: Tell the truth here. If you did, then great. If not, then say you did not receive an offer. There are plenty of potential reasons why a company might not hire you back: Your group was simply not hiring full-time, the poor economy forced cutbacks in the hiring program, etc.

137

How do you handle ethical dilemmas, such as if your friend stole an exam and gave it out to your classmates?

Reference answer

Ethical questions are easy because the correct answer is that you always do the ethically correct thing – so if your friend steals an exam and distributes it, you tell the professor, anonymously if possible so that you preserve the friendship while also making sure grades are legitimate. If they don't believe you, give an example of when you did something like that in the past.

138

What are some key considerations in restructuring?

Reference answer

Restructuring involves assessing the company's financial health and identifying areas for improvement. Key considerations include reducing debt through negotiations with creditors, selling non-core assets to raise capital, and implementing cost-cutting measures to enhance operational efficiencies. The goal is to improve the company's financial stability and position it for long-term success while considering the interests of all stakeholders involved.

139

Describe a time when you had to evaluate a high-risk investment opportunity. How did you assess the risks and make a decision?

Reference answer

“At Nomura, I identified a high-risk investment in a biotechnology startup that was developing new drugs. I conducted a thorough analysis of the company's pipeline and market potential, assessing regulatory risks and competitive landscape. I presented my findings to the investment committee, suggesting a phased investment strategy to mitigate risk. Ultimately, the company secured FDA approval, and our investment yielded a 150% return over three years. This experience taught me the importance of thorough due diligence and proactive risk management.”

140

Walk me through your background/resume.

Reference answer

We recommend you dial in a cohesive 90-second resume walkthrough that highlights as well as explains all the on the positive and motivating factors behind every transition on your resume (school to job, job to better job, most recent position to grad school). A good example highlighting this is as follows, I initially went to school to learn how to design cars, but after my first internship in the field, I realized that I loved interacting with clients directly and decided to pursue full-time roles in B2B sales. In these sales roles, I learned and developed solid selling skills as well as gained direct exposure to A, B, and C. Since I wanted to continue refining that skill set and branch out to focus on X, Y, and Z, I am looking for a new role/promotion which provides that opportunity… Be deliberate with your delivery. Every decision you made should have a purpose (preferably that you initiated). Don't be negative with your answers. It's important to never say you left because you were bored or "wanted to try something new."

141

What is a liquidation preference and why does it matter?

Reference answer

A liquidation preference gives certain investors (typically preferred shareholders or VC investors) the right to receive their investment back before common shareholders get anything in a liquidation or sale event. A 1x liquidation preference means they get their investment back first; a 2x means double. Participating preferences allow investors to get their preference and then share pro rata with common holders. This significantly affects the effective equity value split and matters when modeling exit waterfalls in VC-backed companies or distressed M&A.

142

What are the three main financial statements?

Reference answer

- Income Statement – shows profitability over a period. - Balance Sheet – shows financial position at a point in time. - Cash Flow Statement – tracks cash inflows and outflows.

143

What are the other valuation methods?

Reference answer

The most popular valuation methods are liquidation valuation, replacement value, leveraged buyout (LBO) analysis, the sum of the parts (SOTP), future share price analysis, and M&A premium analysis.

144

Why investment banking?

Reference answer

I used to work in marketing, and the firm I worked for was acquired by another company. It was interesting to see the changes that took place after the acquisition. My salary was increased, but I watched a lot of my coworkers get let go. After seeing this, I decided to get my MBA and venture into finance. M&A seems like something I would be interested in after seeing firsthand how M&As affect companies.

145

What are synergies and their main types?

Reference answer

Synergies in mergers and acquisitions happen when the acquiring company gets more value out of the deal than was predicted. There are two types of synergies: - Revenue synergies This type of synergy happens when a combined company gets an opportunity to sell products to new customers or sell new products to current customers, and, as a result, revenue increases. - Cost synergies Cost synergy occurs when the combined company consolidates property, lays off employees, or shuts down physical stores and, as a result, saves cash, which results in increased revenue.

146

What is deferred revenue and how does it affect the statements?

Reference answer

Deferred revenue arises when a company collects cash before delivering goods or services — common in SaaS and subscription businesses. On the Balance Sheet, cash increases and deferred revenue (a liability) increases by the same amount. No revenue hits the Income Statement until the service is delivered. As revenue is recognized over time, deferred revenue decreases and revenue flows through the Income Statement.

147

Tell me about a time when you had to make a decision based on incomplete information. How did you handle it?

Reference answer

While analyzing an international market for expansion, there were gaps in the economic data due to limited reports from that region. I worked with local experts and industry analysts to gather as much qualitative data as possible. I recommended a cautious investment with a focus on monitoring regional trends, which later proved successful as the market grew rapidly.

148

What is EBITDA, and why is it important?

Reference answer

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It's a measure of a company's operational profitability and is commonly used for comparing companies in the same industry.

149

How would you pitch an investment to a client? (S&T)

Reference answer

Two steps. I'd look at what they're interested in, and then I'd look at how they wanted to change.

150

How do you build a sensitivity analysis around a DCF?

Reference answer

Create a two-variable data table, typically varying WACC (columns) and terminal growth rate or exit multiple (rows). Each cell shows the resulting implied share price. This reveals how sensitive your valuation is to your two most subjective assumptions. A good practice is to highlight the "base case" cell and show investors the range. If a small change in WACC swings the valuation by 30%+, your DCF is heavily terminal-value-dependent and you should flag that.

151

You have 12 identical-looking balls, but one is either heavier or lighter. You have a balance scale. So, how can you determine which ball is the odd one out and whether it is heavier or lighter in just three weighings?

Reference answer

Divide the balls into three groups of four. Weigh two groups (Group A vs. Group B). If they balance, the odd ball is in the third group (Group C). If they don't balance, the odd ball is in the heavier or lighter group. Take the suspected group, divide it into three smaller groups, and repeat the process. With careful elimination, you can determine the odd ball in three weighings.

152

What is higher - the cost of equity or the cost of debt?

Reference answer

Because the cost of debt is tax deductible, the cost of equity is always larger than the cost of debt. Furthermore, the cost of equity is higher since, unlike lenders, equity investors do not receive predictable payments. Because interest payments are regarded as expenses, debt is less expensive. In a company's capital structure, debt is also prioritized. As a result, in the event of liquidation or bankruptcy, debt holders are paid first, followed by equity investors.

153

How do you use SQL and financial databases to enhance your financial analysis?

Reference answer

Modern financial analysis relies heavily on efficiently handling large datasets, and SQL has become an essential tool in my analytical toolkit. I use SQL primarily for two key purposes: data extraction and analysis automation. When working with large financial databases, I write SQL queries to pull exactly the data I need, often combining information from multiple sources. For example, I might join transaction data with customer information to analyze revenue patterns across different customer segments or geographic regions. The real power of SQL comes in creating repeatable analysis workflows. I develop stored procedures for regular reporting needs and create custom views for frequently accessed data combinations. For instance, to analyze customer profitability, I might create a view that automatically calculates key metrics like customer lifetime value, acquisition costs, and retention rates. This not only saves time but also ensures consistency in how metrics are calculated across different analyses. The key is writing clean, well-documented queries that others can understand and modify as business needs evolve.

154

How do you approach risk analysis when considering investment opportunities?

Reference answer

I assess risk by analyzing financial ratios, industry trends, and macroeconomic conditions. I look at the historical performance of the asset, its volatility, and the potential for market shifts. I also consider qualitative factors like management quality and strategic fit to gauge overall investment risk.

155

Stock deal vs. cash deal — what are the trade-offs?

Reference answer

A cash deal is simpler, avoids dilution of existing shareholders, and signals confidence in the acquisition. However, it requires available cash or debt capacity and creates immediate tax liability for target shareholders. A stock deal preserves cash, lets target shareholders participate in upside, and can facilitate larger transactions. The downside is dilution, execution risk (share price may move), and a signal that the acquirer believes its stock is overvalued. Most large deals use a mix of both.

156

What does the term delta mean? What does Alpha mean?

Reference answer

Delta measures the rate of change of an option's price relative to a $1 change in the underlying asset. Alpha measures an investment's excess return relative to a benchmark index.

157

What is CAPM and what is its purpose?

Reference answer

CAPM stands for the Capital Asset Pricing Model. This model aims to find the expected return on investment. It is more likely to predict the risk factor associated with an investment. WACC is most often calculated using this model. Investment bankers use this method to gauge the expectancy of the return on investment, thereby offering better consultancy services to their clients.

158

What is Terminal Value and how do you calculate it?

Reference answer

The worth of a firm, project, or asset after the period for which future cash flows can be predicted is known as its terminal value (TV). After the projected period, terminal value assumes a company will continue to expand at a specific pace indefinitely. A significant portion of the total assessed value is frequently made up of terminal value. The formula for calculating the Terminal value is: [FCF * (1+g)]/(d-g) Where - FCF = free cash flow for the last forecast period - g = terminal growth rate - d = discount rate

159

How do precedent transactions differ from comparable companies analysis?

Reference answer

Precedent transactions use multiples paid in actual M&A deals, so they inherently include a control premium (typically 20–40% above trading values). They are backward-looking and reflect market conditions at the time of each deal. Comparable companies analysis uses current trading multiples and does not include a control premium. Precedent transaction multiples are almost always higher than trading comps for the same company.

160

What is a football field chart and why do bankers use it?

Reference answer

A football field chart is a horizontal bar chart showing the implied valuation range from each methodology — trading comps, precedent transactions, DCF, and sometimes LBO analysis — side by side. It gives clients a visual summary of where the valuation range converges and highlights any outlier methods. Bankers use it in pitch books and fairness opinions to support their recommended valuation range.

161

What is the difference between cash-based accounting and accrual accounting?

Reference answer

When cash is actually received or spent, cash-based accounting records revenue and expenditures accordingly. However, accrual accounting records revenue when it is reasonably certain that it will be collected (i.e., when a customer has placed an order for the goods) and records expenses when they are incurred rather than when cash is actually spent. Due to the widespread usage of credit cards and lines of credit for payment these days, most large organizations use accrual accounting; nevertheless, very small firms may choose to employ cash-based accounting in order to streamline their financial statements.

162

You have a jar with 50 red jelly beans and 50 blue jelly beans. You want to separate them into two jars such that each jar contains at least one jelly bean, and the probability of picking a red jelly bean from one of the jars is maximized. How do you do it?

Reference answer

Put one red jelly bean in the first jar. Put the remaining 49 red jelly beans and all 50 blue jelly beans in the second jar. As a result, the probability of picking a red jelly bean is now maximized because: - Probability from the first jar = 1. - Probability from the second jar = 49/99. - The overall probability of picking a red jelly bean is maximized to (1/2)(1) + (1/2)(49/99) = 0.745.

163

How does convertible debt affect valuation?

Reference answer

Convertible debt is treated as debt in enterprise value calculations (added to net debt). However, if the conversion price is below the current share price (i.e., the converts are "in the money"), you should treat them as equity — add the converted shares to the diluted share count (using the treasury stock method) and remove the debt. This matters for both the equity value bridge and for calculating diluted EPS in an accretion/dilution analysis.

164

You have three offers — from Goldman Sachs, a PE fund, and a tech company. Which do you choose and why?

Reference answer

Goldman Sachs — because at this stage of my career, the breadth of deal exposure, the caliber of colleagues, and the technical training in IB cannot be replicated elsewhere. PE is an incredible career path, but I want to build the technical foundation and see a wide range of deal types first. The tech company may offer better near-term lifestyle, but the two-year IB analyst programme provides a skillset that compounds throughout a 30-year career. I want to earn my seat in IB first.

165

Why equity research?

Reference answer

Given the wide variety of professional backgrounds that candidates come from, WSO has created a dedicated page to answer this question. WSO's “Why Equity Research?” page covers a variety of sample answers tailored for students and professionals looking to break into equity research.

166

How would you evaluate competing capital investment projects when there are limited resources?

Reference answer

Evaluating competing capital investment projects with limited resources requires both rigorous quantitative analysis and strategic thinking. The first step is calculating standard financial metrics like NPV, IRR, and payback period for each project. However, the real insight comes from risk-adjusted returns analysis - adjusting expected returns based on each project's specific risks and uncertainties. For example, a project with stable cash flows might be preferred over one with higher potential returns but greater uncertainty. Beyond the numbers, strategic fit is crucial. I evaluate how each project aligns with company strategy, contributes to competitive advantage, and impacts operational capabilities. Resource constraints also extend beyond just capital - we need to consider human capital requirements, technology needs, and organizational impact. Sometimes, a smaller project that can be executed well is better than a larger one that stretches resources too thin. The final recommendation needs to balance financial returns with strategic benefits while ensuring the selected projects can be implemented effectively with available resources.

167

Give an example of when you failed or made a mistake.

Reference answer

During my last internship I had to help out another intern. I taught him some concepts incorrectly because I was rushed, and I made the incorrect assumption that he would figure it out. He didn't and that friend had to quit the internship program. We were very close, and it was devastating. I felt responsible. From that experience, I learned that I had to take being a leader much more seriously, and that my example was crucial for others to succeed. I also learned that I must show better attention to detail and not assume everything is running well without my input. NOTE: Really think this one out and give a truthful answer. Again, this is another “weakness question.” Where possible, explain what you've learned from it and how you can improve.

168

How would you approach analyzing a new industry for a potential investment?

Reference answer

Steps: - Research: Gather industry reports, market data, and competitor analysis. - SWOT Analysis: Identify strengths, weaknesses, opportunities, and threats. - Economic Indicators: Evaluate macroeconomic factors affecting the industry. - Regulatory Environment: Understand regulations that may impact investment. Scenario: Analyzing the renewable energy sector, focus on trends like government incentives and technological advancements. Outcome: Provide a comprehensive report that highlights investment potential and risks. Reasoning: A structured approach ensures thorough analysis. Alternative Approaches: Engage with industry experts for deeper insights. Pitfall: Avoid relying solely on historical data; consider future trends. Follow-Up Points: Discuss how findings would influence investment recommendations.

169

What are examples of industry-specific multiples? (Morgan Stanley)

Reference answer

Examples of industry-specific multiples are: - Retail or Airlines: EV / EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortization & Rental Expense) - Energy: EV / EBITDAX (Earnings Before Interest, Taxes, Depreciation, Amortization & Exploration Expense), EV / Daily Production, EV / Proved Reserve Quantities - Technology (Internet): EV / Unique Visitors, EV / Page views Note: Feel free to use multiples that you have picked up from other sources. These are for illustrative purposes.

170

A windowless room contains three identical light bulbs. Each light is connected to one of three switches outside of the room. Each bulb is switched off at present. You are outside the room, and the door is closed. You have one, and only one, opportunity to flip any of the external switches. After this, you can go into the room and look at the lights, but you may not touch the switches again. How can you tell which switch goes to which light?

Reference answer

Switch on switches 1 & 2, wait a moment and switch off number 2. Enter the room. Whichever bulb is on is wired to switch 1, whichever is off and hot is wired to switch number 2, and the third is wired to switch 3.

171

How are unlevered free cash flows for the DCF analysis calculated?

Reference answer

For this, investment bankers use a dedicated formula: Unlevered free cash flow (UFCF) = EBIT × (1 – Tax rate) + Depreciation & amortization – Change in net working capital – Capital expenditures Where: - EBIT = Earnings before interest and taxes - Tax rate = The effective corporate tax rate - Depreciation & amortization (D&A) = Non-cash charges added back - Change in net working capital (ΔNWC) = Change in (Current assets – Current liabilities) - Capital expenditures (CapEx) = Spending on physical assets like property, plant, and equipment (PP&E) Sample inputs: - EBIT = $200 million - Tax rate = 25% - Depreciation & amortization (D&A) = $30 million - Change in net working capital (ΔNWC) = $15 million (positive, so it's a cash outflow) - Capital expenditures (CapEx) = $50 million Calculation: - Calculate EBIT × (1 – Tax rate): $200 million × (1 – 0.25) = $200 million × 0.75 = $150 million - Add depreciation & amortization: $150 million + $30 million = $180 million - Subtract change in net working capital: $180 million – $15 million = $165 million - Subtract capital expenditures (CapEx): $165 million – $50 million = $115 million

172

Two companies are identical in earnings, growth prospects, leverage, returns on capital, and risk. Company A is trading at a 15 P/E multiple, while Company B trades at 10 P/E. Which would you prefer as an investment?

Reference answer

Company B. Given the 10x P/E ratio, a rational investor would rather pay less per unit of ownership.

173

Discuss a behavioral bias and its impact on investment decisions.

Reference answer

One behavioral bias I constantly work to counteract in my investment process is confirmation bias. This is the tendency to seek out, interpret, and favor information that confirms one's existing beliefs or hypotheses, while simultaneously giving less consideration to alternative possibilities or disconfirming evidence. In investing, it can be incredibly insidious and lead to significant errors. Confirmation bias impacts investment decisions in several ways. Primarily, it can lead to overconfidence in an initial investment thesis. Once I've formed a view on a company or a market trend, I might subconsciously start looking only for news articles, analyst reports, or data points that support my conviction. For example, if I've decided to invest in 'Quantum Tech Innovations' because I believe their new product will revolutionize the industry, I might spend my time reading glowing press releases or reports from bullish analysts, while inadvertently ignoring or downplaying concerns raised by competitors, short-sellers, or more critical market commentators about potential regulatory hurdles or market saturation. This selective information gathering can lead to a dangerously incomplete picture of reality. It can cause me to hold onto losing positions for too long, as I rationalize away any negative news or underperformance, always expecting the original thesis to play out. Conversely, it might lead me to sell winning positions too early if I encounter minor negative news that subtly confirms an existing, perhaps unvoiced, doubt I had about a stock I bought with less conviction. Essentially, it prevents an objective, balanced assessment of an investment's prospects and risks. To mitigate confirmation bias, I employ several deliberate strategies. First, I actively seek out dissenting opinions and contradictory information. If I'm researching a company, I make it a point to read reports from analysts with bearish ratings or even listen to arguments from short-sellers, not to agree with them necessarily, but to understand the counter-arguments and potential flaws in my own thinking. For instance, when I was researching 'BioTech Innovators,' a small-cap pharmaceutical company, I developed a strong conviction due to a promising drug trial. I found myself reading only positive news about its efficacy. I had to force myself to read articles discussing the competitive landscape and potential regulatory hurdles from their rivals, which made me reassess my position sizing and set a clearer stop-loss based on a more balanced risk assessment. Second, I establish clear, pre-defined investment criteria and exit strategies before making an investment. This helps create an objective framework against which to measure performance and new information, rather than moving the goalposts to fit my existing belief. Third, I often engage in a "devil's advocate" exercise, where I deliberately try to poke holes in my own investment thesis, listing all the reasons why an investment might fail. This forces me to consider alternative scenarios and strengthens my understanding of the risks involved. Finally, peer review is invaluable. Discussing an investment idea with a trusted colleague who hasn't been immersed in the same research can provide a fresh, unbiased perspective, often pointing out aspects I might have overlooked due to my own biases. Acknowledging that confirmation bias exists and consciously working to combat it is a continuous process, crucial for making sound, rational investment decisions.

174

Walk me through how you would build a simple financial model to forecast revenue.

Reference answer

Building a revenue forecast model starts with a thorough historical analysis. I typically gather 2-3 years of historical revenue data to identify underlying trends, seasonal patterns, and year-over-year growth rates. This historical perspective provides a foundation for understanding the company's growth trajectory and cyclical patterns. Next, I identify key revenue drivers specific to the business model. For an e-commerce company, this might include metrics like active customers, average order value, and purchase frequency. For a subscription business, I'd focus on subscriber count, monthly recurring revenue, and churn rates. The key is understanding which factors truly drive revenue growth and how they interact. Then comes the forecasting phase, where I develop growth assumptions based on historical performance, market conditions, and company-specific factors. For example, if a company is expanding into new markets, I'd model different growth rates for existing and new territories. Throughout this process, I document all assumptions clearly and include sensitivity analyses for key variables. This makes the model both transparent and adaptable to changing conditions.

175

Why should we hire you?

Reference answer

I believe you should hire me because as a diligent, organized, and goal-oriented person, I will work hard in any task presented no matter how difficult or time consuming it might be. I always strive to perform the best that I can. Schoolwork is a good example— when assigned a task, I organize myself and my materials in order to work efficiently, and then set to work on the task. I perform the necessary research in order to ensure that no mistakes are made, and I check my finished work repeatedly to ensure that it is high quality. I believe my 3.83 GPA can attest to this.

176

Do you have an industry preference?

Reference answer

The interviewer wants to know if the candidate has a specific sector focus or expertise.

177

When should a company issue debt instead of equity?

Reference answer

Since the cost of debt is generally cheaper than the cost of equity, there are quite a few situations where issuing debt makes more sense than issuing equity. Issuing debt instead of equity makes sense if: - The company can get tax shields from issuing debt. - The company has stable cash flows and can make interest payments. - It results in a lower WACC. - The company can get a better return on investments with more financial leverage.

178

What makes you stand out / What should we remember you by? (JP Morgan Fit)

Reference answer

This is similar to the ‘What are your strengths?' question. Have a concise 30-second pitch prepared. Concentrate on the three main bullets highlighted in the introduction, and identify three of your traits that manifest those qualities. Examples include things like being extremely driven, never giving up, wanting to learn, looking for challenges, etc. Make sure you take only 20-30 seconds and speak with confidence, but make sure to avoid arrogance.

179

Tell me about a time you faced a challenging situation and how you overcame it.

Reference answer

Highlight your problem-solving skills and ability to work under pressure.

180

What role does the investment bank play in an M&A transaction?

Reference answer

On the sell side, the bank runs the process — preparing the information memorandum, identifying and contacting potential buyers, managing the data room, soliciting bids, negotiating terms, and rendering a fairness opinion. On the buy side, the bank helps the acquirer identify targets, conduct due diligence, structure the offer, arrange financing, and negotiate terms. The bank earns an advisory fee, typically a percentage of the transaction value, which is success-based.

181

How would you calculate beta for a company?

Reference answer

Calculating raw betas from historical returns and even projected betas is an imprecise measurement of future beta because of estimation errors (i.e. standard errors create a large potential range for beta). As a result, it is recommended that we use an industry beta. Of course, since the betas of comparable companies are distorted because of different rates of leverage, we should unlever the betas of these comparable companies as such: - Unlevered Beta (β)= β(Levered) ÷ [1+ (Debt/Equity) (1-T)] Then, once an average unlevered beta is calculated, relever this beta at the target company's capital structure: - Levered Beta (β) = β(Unlevered) × [1+(Debt/Equity) (1-T)]

182

What are some ways you can value a company?

Reference answer

The three most common ways of valuing a company are: Comparable companies or multiples analysis: This is the most common way to value a company. This method attempts to find a group of companies that are comparable to the target company and to work out a valuation based on what they are worth. The idea is to look for companies in the same sector and with similar financial statistics (Price to Earnings, Book Value, Free Cash Flow, EBITDA, etc) and then assume that the companies should be priced relatively similarly. Market valuation or market capitalization: In this method, the market value of equity is used and hence can only be used for publicly traded companies. It is calculated by multiplying the number of shares outstanding by the current stock price. Discounted cash flow analysis: This method involves calculating the sum of the present values of all future cash flows to give the value of the entire company including debt and equity, which is also called enterprise value.

183

Is 15 a high P/E (Price to Earnings) ratio?

Reference answer

It depends on the industry. For example, a P/E ratio of 15 in an industry like financial institutions may be considered a bit high, but if the company is a high-growth tech company, 15 may be considered relatively low.

184

What is the difference between capitalizing and expensing a cost?

Reference answer

Expensing records the full cost on the Income Statement immediately, reducing net income in the current period. Capitalizing puts the cost on the Balance Sheet as an asset and depreciates or amortizes it over its useful life, spreading the income statement impact across multiple periods. Capitalizing results in higher near-term net income but lower future net income, and the same total expense over the asset's life.

185

What are you biggest strengths? Biggest weaknesses?

Reference answer

Standard behavioral question asking for self-assessment with examples.

186

What is the difference between capital leases and operating leases?

Reference answer

Operating leases don't entail any ownership and are used for short-term leasing of property and equipment. On the Income Statement, operating lease expenses are displayed. Capital leases are used for longer-term items and offer the lessee ownership rights; they depreciate and involve interest payments and are classified as debt.

187

Why Do You Want to Work for Our Company?

Reference answer

When I think of a bank, I think of an institution that provides capital to entrepreneurs or large institutions, which basically fuels economic growth. I like the idea of being a part of the national and global economy and being able to contribute in that kind of way. I'm also very interested in working with entertainment and media companies, and I know this firm has a strong practice in media and telecom.

188

What is the difference between commercial and investment banking?

Reference answer

Commercial banks help their customers make deposits and issues them loans commercially. The investments that a commercial bank issues are recorded as the assets to that bank on their balance sheet. The investment bank, on the other hand, is an intermediary between investors and companies. Companies pool their shares in the investment banks. Investment bankers calculate the worth of companies by utilizing various valuation methods and provide consulting services to investors, identifying profitable investments for them.

189

What is a fairness opinion?

Reference answer

A fairness opinion is an independent assessment issued from an investment bank regarding the price offered in a merger or acquisition. It is provided for a fixed fee, typically by an institution not involved in the transaction.

190

How does LIFO vs. FIFO impact all three statements in a rising-price environment?

Reference answer

Under LIFO with rising prices, COGS is higher (using recent, more expensive inventory), so gross profit and net income are lower. This produces lower taxes paid — meaning higher cash flow. On the Balance Sheet, inventory is understated (older, cheaper costs), retained earnings are lower, but cash is higher from the tax savings. FIFO produces the opposite: higher reported income, higher taxes, lower cash, and higher inventory balances.

191

What is the cost of equity?

Reference answer

The cost of equity is usually calculated using the Capital Asset Pricing Model (CAPM). CAPM = Risk-free rate + Beta * (Expected market return - Risk-free rate)

192

What major factors affect the yield on a corporate bond?

Reference answer

Key factors include credit risk (default probability), interest rate risk, liquidity, time to maturity, and macroeconomic conditions.

193

Do You Prefer to Work Alone or in a Team Environment?

Reference answer

I prefer working in teams. In my previous job, I worked closely with a colleague to put together a business model for a client. They asked us to build a predictive financial model to outline where their business could be three years down the road. I got to do half of it, and my partner got to do half of it based on our expertise, and we were able to put it together and make a presentation to the client. I really enjoyed working with someone else to create the financial model and present it as a team and also learned so much from my partner that I was able to take with me to other analyses I did independently and with other colleagues down the line.

194

How will you gauge the value of a company?

Reference answer

There are different approaches that can be used to measure the value of a company. For instance, one can consider or use: - The value of all the company's assets - The company's revenue base - Discounted cash flow (DCF) analysis - Financial formulas The investment banker usually considers all these factors in their daily processes. After successfully gauging the value of a company, they can make wise investment decisions.

195

Pitch me a stock.

Reference answer

Structure: Company name and what it does (10 seconds). Your thesis — why it is mispriced (30 seconds). Two to three supporting catalysts with timeframes (30 seconds). Key risk and why you are comfortable with it (15 seconds). Valuation — current multiple vs. where you think it should trade and implied upside (15 seconds). Prepare one long idea and one short idea before every IB interview. Use a company you genuinely understand, not one you crammed the night before.

196

What do you consider to be your greatest accomplishment?

Reference answer

I consider one of my most significant accomplishments to be the work-life balance I have achieved between keeping my grades up while serving as the captain of my hockey team. As a result of this, I gained greater leadership skills as I led our varsity team through the entire season as well as structured our fall and spring workouts. This leadership role required me to polish my time management skills which were invaluable. I also wouldn't trade the friendships and connections I made during my time on the hockey team I made for anything else in the world.

197

What happened when you worked with a team and one member wasn't contributing? How did you respond?

Reference answer

This behavioral question evaluates teamwork and conflict resolution skills.

198

What are the typical debt tranches in an LBO?

Reference answer

Senior secured debt (bank debt or Term Loan B) has the lowest interest rate and first claim on assets — typically 3–5x EBITDA. Subordinated or mezzanine debt sits below senior debt, carries a higher interest rate (often with PIK component), and may include equity warrants. High-yield bonds are unsecured, have the highest fixed coupon, and offer the most flexibility (no amortization, fewer covenants). The total leverage typically ranges from 4–6x EBITDA depending on the company and market conditions.

199

Explain the Sum-of-the-Parts analysis.

Reference answer

In the Sum-of-the-Parts analysis, you evaluate each division of an organization using distinct comparable and transactions, obtain distinct multiples, and then sum up the values of each division to determine the overall value of the organization. For example, we have a manufacturing division with an EBITDA of $200 million, an entertainment division with an EBITDA of $200 million, and a consumer goods division with an EBITDA of $150 million. The median multiples for each division are 5x EBITDA for manufacturing, 8x EBITDA for entertainment, and 4x EBITDA for consumer goods. We have chosen comparable companies and deals for each division. For our calculation, the total value of the company would be $2.4 billion ($200 * 5x + $100 * 8x + $150 * 4x).

200

How would you approach building relationships with key institutional investors?

Reference answer

I'd start by mapping our investor base—who owns our stock, what their investment thesis is, and what matters to them. Then I'd prioritize. If we have a large pension fund holding 2% of our shares, they're worth focused attention. I'd set up quarterly check-in calls to understand what's on their mind and to share updates before we announce them to the market. I'd also pay attention to analyst reports—when an analyst raises concerns, that's a signal that investors have questions, so I'd proactively reach out. Beyond the formal stuff, I'd invite key investors to our offices for facility tours or to meet our product team directly. Investors want to believe in the company, and seeing innovation firsthand builds confidence. I'd also track sentiment—if an investor's tone shifts from positive to cautious in a call, that's a red flag worth investigating. Are they concerned about something? Did we miss on guidance? By staying connected, we catch issues early before they become broader market perception.

DON'T WANT TO MISS A THING?

Latest Cisco, PMP, AWS, CompTIA, Microsoft Materials on SALE
Get Now

Investment Analyst Interview Questions & Answers | SPOTO

Earn a certification to make your resume stand out.

DON'T WANT TO MISS A THING?

Latest Cisco, PMP, AWS, CompTIA, Microsoft Materials on SALE Get Now

Investment Analyst Interview Questions & Answers | SPOTO

Earn a certification to make your resume stand out.

Latest Cisco, PMP, AWS, CompTIA, Microsoft Materials on SALE
Get Now