Investment Banking Technical Interview Sample Questions

Provided by Rosie & Co. Global — rosiecoglobal.com

Accounting / 3 Statements

1. What are the three financial statements?
2. How do the three financial statements link together?
3. If depreciation goes up by $10, what happens to the three statements?
4. If inventory increases by $10, what happens to the three statements?
5. If a company writes down inventory by $10, what happens to the three statements?
6. Walk me through how $10 of debt issued affects the three statements.
7. Walk me through how paying down $10 of debt affects the three statements.
8. What is working capital?
9. Is debt part of working capital?
10. Why does an increase in accounts receivable reduce cash flow?

Valuation

1. What are the main ways to value a company?
2. How do you calculate Enterprise Value?
3. How do you calculate Equity Value?
4. What is the difference between Enterprise Value and Equity Value?
5. Why do we use Enterprise Value for some multiples and Equity Value for others?
6. What are the most common trading multiples?
7. What are the most common transaction multiples?
8. Why might two similar companies trade at different multiples?
9. Which valuation methods tend to give the highest valuation?
10. Which valuation methods are most dependent on assumptions?

DCF

1. Walk me through a DCF.
2. How do you calculate free cash flow?
3. What discount rate do you use in a DCF?
4. What is WACC?
5. How do you calculate WACC?
6. How do you calculate terminal value?
7. What are the two main ways to calculate terminal value?
8. How do you choose between perpetuity growth and exit multiple?
9. Why is a DCF sensitive to assumptions?
10. How would increasing WACC affect valuation?
11. How would increasing terminal growth affect valuation?

Comparable Companies / Precedent Transactions

1. How do you select comparable companies?
2. What makes a company truly comparable?
3. What is the difference between trading comps and precedent transactions?
4. Why are precedent transactions usually higher than public comps?
5. What are the limitations of comparable company analysis?
6. What are the limitations of precedent transaction analysis?

M&A / Accretion-Dilution

1. What makes an acquisition accretive or dilutive?
2. Walk me through an accretion/dilution analysis.
3. Why can an all-cash deal be accretive?
4. Why can a stock deal be dilutive?
5. What are synergies?
6. What are the main types of synergies?
7. Why do cost synergies usually matter more than revenue synergies?
8. What determines whether a buyer is willing to pay a premium?
9. What is goodwill?
10. When is goodwill created in an acquisition?
11. What is deferred tax and why does it matter in M&A?
12. How would a merger affect the balance sheet?

LBO / Leveraged Finance Basics

1. Walk me through a basic LBO.
2. Why do private equity firms use leverage?
3. What makes a company a good LBO candidate?
4. How do you calculate IRR in an LBO?
5. What drives returns in an LBO?
6. How does increasing leverage affect IRR?
7. What are common sources and uses in an LBO?
8. Why is stable cash flow important in an LBO candidate?

WACC / Capital Structure / Cost of Capital

1. What does WACC mean?
2. Why do we use after-tax cost of debt?
3. How do you calculate cost of equity?
4. What is beta?
5. Why might beta be relevered or unlevered?
6. Why is debt cheaper than equity?
7. What happens to WACC as leverage increases?
8. What are the advantages and disadvantages of debt vs. equity financing?

Equity / Dilution Concepts

1. What is the Treasury Stock Method?
2. How do options and warrants affect diluted share count?
3. What is the difference between basic and diluted shares outstanding?
4. Why do in-the-money options matter for valuation?
5. How do convertible securities affect dilution?

Market / Deal Discussion Technicals

1. Pitch me a stock.
2. Tell me about a recent deal and why it happened.
3. How would rising interest rates affect valuation?
4. How do interest rates affect M&A activity?
5. What happens to bond prices when rates rise?
6. How would inflation affect a company's financial statements and valuation?
7. What sectors are attractive right now and why?

Must-Know Cold: The Most Common Questions

These come up in almost every IB technical interview — know them without hesitation.

1. Walk me through the three financial statements.
2. How do the three statements link together?
3. Walk me through a DCF.
4. What is WACC and how do you calculate it?
5. What is Enterprise Value vs. Equity Value?
6. What makes a deal accretive or dilutive?
7. What is the Treasury Stock Method?
8. What makes a good LBO candidate?