Whether you’re looking to work with corporations, governments, or commercial banks, jobs in investment banking are numerous yet still highly competitive. In order to make yourself stand out from the crowd, it’s vital that you’re prepared for your interview and impress the hiring manager. One of the best ways to do this is through practice, which is why we have compiled some of the top investment banking interview questions below.
Table of Contents:
- Tell me a little about yourself.
- What can you bring to this role that you’re certain other applicants cannot?
- What hurdles or obstacles have you overcome?
- What would previous coworkers and managers say about you?
- Why do you want to work in investment banking?
- Please walk me through the three financial statements.
- How would you value a company?
- When should a company consider issuing debt instead of equity?
- What happens to earnings per share (EPS) if a company decides to issue debt to buy back shares?
- Walk me through a DCF.
With this “tell me about yourself” question, the interviewer is trying to get a feel for your general background and experience while also assessing your personality and if you would fit in well with the company’s culture. It’s important to be concise with your answer yet highly relevant with your specific skills, education, and background that makes you a good candidate.
A sample answer could be:
“I recently graduated with a degree in finance and am excited about gaining industry experience. I interned with a bank both in its branches and its corporate headquarters and was able to shadow a variety of positions, including account managers and managing directors. I have a strong background in statistics and economics, and I am confident I will bring this knowledge with me.”
This question aims to get to the point and find out exactly what makes you the best candidate for the position. It’s important that you have plenty of concrete examples and situations to ensure you properly get your message across.
You might say something like this:
“I’m the best candidate for this position as I have dual degrees in economics and statistics. I’m highly analytical and am able to apply my mathematical background to the current market. I also have a minor in sociology which further connects me to the industry and clients. I have interned with a global enterprise and have taken invaluable skills with me.”
If you’re asked this question, it’s an excellent time to showcase challenges that may have come your way and how you excelled past them. This is also a good time to explain any unusual circumstances on your resume:
“One of the biggest obstacles I have overcome was landing my dream internship at a large investment bank but then really disliking the experience. This forced me to re-evaluate my career path but eventually benefited me in the long-run. I decided to shift my focus from the fast-paced environment of global enterprise and got my next internship at a smaller local firm like this one, which I thoroughly enjoyed.”
With this question, the interviewer is trying to assess how your personality will fit in with the company’s current culture. Keep your answer short and sweet, but be honest. They will quickly be able to tell if you’re seriously organized or if you just claimed to be. A sample answer could be:
“I’m positive that my previous co-workers would say I’m dependable. One time, I was working on a project with a small team, and we were finishing up when the system crashed. Luckily, I had been backing up all our data manually, and we didn’t lose any information. We were able to complete the project on time and to our client’s satisfaction.”
This is another one of those questions that you can almost guarantee you will be asked at some point during your interview process. While it may seem simple at first, it’s actually tricky because it is so general. Demonstrate that you know what the job entails, you have the skills required, and you’re interested in doing it.
Here’s an example:
“I want to work in the world of investment banking because it’s the chance of a lifetime to gain such valuable skills and be exposed to such high-profile company transactions this early on in my career. I’m aware that the position requires long hours, but I know that I will deeply understand the nature of large corporate transactions and be able to use that experience forever.”
Financial statements offer companies a way to look at different elements of their business. Understanding these statements is crucial in the field of investment banking, and the interviewer will want to ensure you have a deep comprehension of them and can explain them at their most basic level:
“The three financial statements are the income statement, balance sheet, and statement of cash flows. The income statement covers a specific period of time and displays the profitability of the company. The balance sheet shows the company’s assets as well as its liabilities and stockholder’s equity. Lastly, the statement of cash flows illustrates the cash account on the balance sheet and accounts for the entire period.”
This is another industry-specific question that aims to assess your knowledge of investment banking along with your familiarity with different terms and situations.
A sample answer would be:
“There are a few different ways you can value a company: the multiples approach, the transactions approach, and the DCF approach. The multiples approach is where you multiply the earnings of a company by the P/E ratio of its industry. The transactions approach is where you compare the company to other competitors that have recently been acquired, and the DCF approach is where you discount the values of future cash flows back to the present.”
Although you may not focus in this specific area of investment banking, your interviewer will want to see your general knowledge as well as your overall versatility:
“A company should consider issuing debt instead of equity when the expected return on equity is higher than the expected return on debt as well as if it has taxable income that can benefit tax shields. It may also be a good choice if the firm has steady cash flows available and is able to immediately make its interest payments.”
EPS is one of the basic foundations of fundamental analysis, and it is crucial for stock investors to understand. With this, it is necessary that you should be able to explain it to clients. You could answer something like:
“The issuance of debt increases the after-tax interest expense, ultimately lowering EPS. If these shares should be repurchased, this reduces the number of shares available which then increases EPS. Whether EPS increases or decreases, it all comes down to the net impact of issuance of debt and repurchase of shares.”
In the world of investments, a discounted cash flow (DCF) analysis is the method used to value a project, company, or asset through the concept of the time value of money. A DCF is one of the most important ways to value a company, so your interviewer will want to ensure you are highly knowledgeable about it:
“The first step of a DCF model is to build a five-year forecast of the three financial statements, based on certain assumptions of how the business will perform. Next, I would calculate the terminal value through the perpetual growth rate before discounting the forecast period and the terminal value back to the present value with a discount rate. Lastly, I would arrive at the enterprise value for the business.”
No matter what position you’re interviewing for, being fully prepared will be critical to your overall success. Investment banking is a fast-paced environment that is exciting and exhilarating, but having a great interview is the first step to getting there. With our top ten investment banking interview questions, you will already be on your way.