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Investment Banking Interview Questions: The Most Common Technical Questions (With Answers)
What Are the Most Common Investment Banking Interview Questions? (With Answers)
If you’re recruiting for an investment banking summer analyst internship, technical questions will decide more of your interviews than anything else. A strong story gets you in the room. Stumbling through a $10 depreciation change can get you out of it.
The good news: banks ask the same core questions every year. Below are four of the most common, with the answers interviewers expect.
What technical questions are asked in investment banking interviews?
Most investment banking technical questions fall into five groups. Accounting and DCF questions come up in almost every summer analyst interview.
Accounting
DCF and valuation
Enterprise value
LBOs
M&A accretion and dilution
How does $10 of depreciation flow through the three financial statements?
Assume a 40% tax rate. Depreciation expense rises by $10, creating a $4 tax benefit. Net income falls by $6.
Income statement: depreciation increases by $10, taxes decrease by $4, and net income falls by $6.
Cash flow statement: start with net income down $6, then add back the non-cash depreciation expense of $10. Cash from operations rises by $4.
Balance sheet: cash rises by $4, net PP&E falls by $10, and retained earnings fall by $6.
Assets fall by $6 and retained earnings fall by $6, so the balance sheet balances. Practice this answer out loud until you can explain it clearly in under 30 seconds.
How do you walk through a DCF?
Project unlevered free cash flow, usually over five to ten years.
Calculate terminal value using the perpetuity growth method or exit multiple method.
Discount the projected cash flows and terminal value back to today using WACC.
Add the present values together to calculate enterprise value.
Which valuation method usually gives the highest value?
Precedent transactions often give the highest value because acquirers pay a control premium and price in expected synergies. A DCF often comes next, followed by trading comps. An LBO typically comes in lowest because the buyer needs to hit a target return.
Is an all-stock deal accretive or dilutive if the buyer has a lower P/E?
It is dilutive before synergies. If the buyer trades at 10x P/E and the target trades at 12x P/E, the buyer is paying more for each dollar of new earnings than its own stock is worth per dollar of earnings. Earnings per share fall.
What Else Is in the Free Investment Banking Interview Guide?
The free guide answers 51 accounting and valuation questions, including three-statement walkthroughs, deferred taxes, WACC, terminal value, LBOs, IRR, enterprise value, minority interest, and accretion/dilution.
10 accounting walkthroughs
DCF and valuation technical questions
LBO and IRR interview questions
Two fully worked accretion and dilution problems
Where Can You Download a Free Investment Banking Interview Guide PDF?
Create a free StreetSmart account, open Free Resources in your dashboard, and download the Introductory Accounting and Valuation Guide. Once you know the answers, practice saying them out loud with StreetSmart’s AI Mock Interview.
What Are the Most Common Investment Banking Interview Questions? (With Answers)
If you’re recruiting for an investment banking summer analyst internship, technical questions will decide more of your interviews than anything else. A strong story gets you in the room. Stumbling through a $10 depreciation change can get you out of it.
The good news: banks ask the same core questions every year. Below are four of the most common, with the answers interviewers expect.
What technical questions are asked in investment banking interviews?
Most investment banking technical questions fall into five groups. Accounting and DCF questions come up in almost every summer analyst interview.
Accounting
DCF and valuation
Enterprise value
LBOs
M&A accretion and dilution
How does $10 of depreciation flow through the three financial statements?
Assume a 40% tax rate. Depreciation expense rises by $10, creating a $4 tax benefit. Net income falls by $6.
Income statement: depreciation increases by $10, taxes decrease by $4, and net income falls by $6.
Cash flow statement: start with net income down $6, then add back the non-cash depreciation expense of $10. Cash from operations rises by $4.
Balance sheet: cash rises by $4, net PP&E falls by $10, and retained earnings fall by $6.
Assets fall by $6 and retained earnings fall by $6, so the balance sheet balances. Practice this answer out loud until you can explain it clearly in under 30 seconds.
How do you walk through a DCF?
Project unlevered free cash flow, usually over five to ten years.
Calculate terminal value using the perpetuity growth method or exit multiple method.
Discount the projected cash flows and terminal value back to today using WACC.
Add the present values together to calculate enterprise value.
Which valuation method usually gives the highest value?
Precedent transactions often give the highest value because acquirers pay a control premium and price in expected synergies. A DCF often comes next, followed by trading comps. An LBO typically comes in lowest because the buyer needs to hit a target return.
Is an all-stock deal accretive or dilutive if the buyer has a lower P/E?
It is dilutive before synergies. If the buyer trades at 10x P/E and the target trades at 12x P/E, the buyer is paying more for each dollar of new earnings than its own stock is worth per dollar of earnings. Earnings per share fall.
What Else Is in the Free Investment Banking Interview Guide?
The free guide answers 51 accounting and valuation questions, including three-statement walkthroughs, deferred taxes, WACC, terminal value, LBOs, IRR, enterprise value, minority interest, and accretion/dilution.
10 accounting walkthroughs
DCF and valuation technical questions
LBO and IRR interview questions
Two fully worked accretion and dilution problems
Where Can You Download a Free Investment Banking Interview Guide PDF?
Create a free StreetSmart account, open Free Resources in your dashboard, and download the Introductory Accounting and Valuation Guide. Once you know the answers, practice saying them out loud with StreetSmart’s AI Mock Interview.