Common Investment Banking Interview Questions

Investment banking is a highly competitive and sought-after career path, and preparing for an investment banking interview can be a daunting task. The interview process is typically rigorous, with interviewers asking a variety of questions designed to assess the candidate's technical knowledge, analytical skills, and fit with the company culture. In this article, we will explore some of the most common investment banking interview questions, providing tips on how to approach these questions.

Walk me through your CV.

One of the most common questions you're likely to encounter in an investment banking interview is 'Walk through your CV'. This question gives you the opportunity to provide an overview of your academic and professional background, highlighting your relevant experience and accomplishments.

When answering this question, it's important to be organized and structured. Start by sharing your academic background, highlighting any degrees or certifications that are relevant to the position you're interviewing for. Next, provide a high-level summary of your work experience, focusing on the most relevant and recent roles you've held. Be sure to highlight any achievements or accomplishments that demonstrate your skills and abilities. It's also a good idea to touch on any relevant extracurricular activities or volunteer experience that you have, particularly if they relate to the job or industry you're interviewing for.

When discussing your experience, be sure to provide specific examples of your work and accomplishments, as this can help you stand out from other candidates.

Tell me about yourself.

This is a common question asked in job interviews, and it's important to be prepared to answer it effectively. The key to a good response is to provide a concise and engaging overview of your relevant qualifications and experience.

Start with a brief introduction of yourself, including your name and any relevant personal details such as where you're from. Next, provide a summary of your educational background, highlighting any degrees or certifications that are relevant to the position you're interviewing for.

When discussing your work experience during an interview, it's important to prioritize the most relevant roles you've held. Emphasize any achievements or accomplishments that showcase your skills and abilities, and relate your experience to the job you're applying for. Additionally, it may be beneficial to briefly touch on any relevant hobbies or interests that pertain to the job or industry. This can demonstrate your enthusiasm and passion for the work you'll be undertaking.

While it's important to be concise and to the point, be careful not to waffle or provide too little information. Aim for a response that is no more than one or two minutes in length, and practice your answer beforehand to ensure that you're confident and articulate in your delivery.

Why do you want to work here?

The question "Why do you want to work here?" is a common question asked by interviewers during the recruitment process. It is important to understand the purpose of the question and prepare a thoughtful response that showcases your knowledge and interest in the company.

Firstly, it is essential to note that this question is not asking why you want to work in investment banking but instead is focused on the specific bank you are interviewing for. The interviewer is looking for insight into what makes the bank stand out to you from others and why you are interested in working for them.

If you have work experience at the bank or know people who work there, you can mention the company culture as part of your response. However, if you don't have any real insight into the culture, it is better to focus on the commercial aspects of the bank.

It is important to research the bank thoroughly before the interview to gain an understanding of its recent transactions, sector or product strengths, league table position, or geographic presence. You can incorporate this information into your response to showcase your knowledge of the bank and its strengths.

If you are applying for a specific program, such as a rotational graduate program, it is worth highlighting the benefits of the program, such as the exposure to various roles in the bank. This demonstrates that you have done your research and are interested in the specific opportunities that the bank has to offer.

What are your strengths and weaknesses.

When asked about your strengths and weaknesses, it's important to be honest and authentic. Some examples of strengths might include strong analytical skills, excellent attention to detail, or the ability to work well under pressure. When discussing weaknesses, it's important to show self-awareness and a willingness to improve. One key part of the answer is highlighting the steps you've taken to address any weaknesses. For example, you might mention that you sometimes struggle with technical skills but have enrolled in various online courses to improve. Ensure to frame your weakness in a positive light and as an opportunity to learn and grow.

Walk me through a DCF.

When asked to walk through a DCF (discounted cash flow) in an investment banking interview, it is important to demonstrate your understanding of the process. Begin by explaining that a DCF is an intrinsic valuation method used to estimate the value of an investment based on its future cash flows. The process involves projecting the company's future cash flows and discounting them back to their present value using a discount rate. Next, walk through the steps involved in creating a DCF model. This will typically include:

1. Developing assumptions for revenue growth, operating margins, capital expenditure and working capital.

2. Forecasting free cash flow for a period of several years.

3. Determining the terminal value of the investment at the end of the projection period.

4. Discounting the projected free cash flows and terminal value back to their present value using a discount rate typically the weighted average cost of capital (WACC).

Be sure to highlight any key assumptions you make when creating the model, such as the discount rate, which can have a significant impact on the valuation.

How do you value a company?

Valuing a company can be done using a variety of methods, broadly classified into intrinsic and comparable valuation. Intrinsic valuation involves estimating the intrinsic value of a company based on its expected future cash flows, growth prospects, and risks.

Discounted cash flow analysis is an example of an intrinsic valuation method, where you project the company's future cash flows and discount them back to their present value using a discount rate.

In a comparable company analysis, you compare the company's key financial metrics (such as P/E ratio) to those of similar companies in the industry. In a precedent transaction analysis, you look at the valuations of similar companies that have recently been acquired.

When valuing a company, it is important to consider both quantitative and qualitative factors. This might include the company's market position, competitive landscape, and potential for growth.

What are the three financial statements and how are they linked?

The three main financial statements are the income statement, balance sheet, and cash flow statement. The income statement shows a company's revenue, expenses, and net income over a period of time. The balance sheet shows a company's assets, liabilities, and equity at a specific point in time. The cash flow statement shows the sources and uses of cash over a period of time.

These three statements are linked in that the net income from the income statement flows into the balance sheet as retained earnings, which is a component of equity. Changes in the balance sheet, such as increases in accounts receivable or inventory, will impact the cash flow statement. For example, an increase in accounts receivable will decrease cash flow from operations, while an increase in inventory will increase cash flow from operations.

Conclusion

Preparing for an investment banking interview can be a challenging task, but with the right preparation and mindset, you can increase your chances of success. By understanding the common investment banking interview questions and knowing how to effectively answer them, you can demonstrate your knowledge, skills, and fit with the company culture. Whether you are a seasoned professional or just starting out in your career, taking the time to prepare for an interview can make all the difference. Remember to stay confident, professional, and always be prepared to showcase your skills and experience.

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