Surviving the Technical Round
Investment banking interviews are notorious for their technical rigor. Unlike other industries where "tell me about yourself" dominates, finance interviews will grill you on accounting, valuation, and transaction modeling. If you cannot answer these core technicals efficiently, you won't get the job.
Here are the top 5 questions you must nail to land that offer, along with the nuance that separates a "good" answer from a "hired" answer.
1. Walk me through a DCF.
The Answer: A DCF values a company based on the Present Value of its Cash Flows and the Present Value of its Terminal Value.
The Process:
Project Free Cash Flow (FCF) for 5-10 years. Formula: EBIT * (1-Tax Rate) + D&A - Capex - Change in Working Capital.
Calculate Terminal Value using either the Gordon Growth Method or the Multiples Method.
Discount both the projection period FCF and the Terminal Value back to Net Present Value using the WACC (Weighted Average Cost of Capital).
Sum them up to get Enterprise Value.
2. How does $10 of depreciation affect the three financial statements?
This tests your accounting fundamentals. Assume a 40% tax rate.
Income Statement: Depreciation is an expense, so Operating Income drops by $10. Net Income drops by $6 (due to the tax shield).
Cash Flow Statement: Net Income is down $6, but Depreciation is a non-cash expense, so we add back the full $10. Cash Flow from Operations is up by $4.
Balance Sheet: Cash is up $4. PP&E is down $10 (due to depreciation). Assets are down net $6. On the other side, Retained Earnings is down $6 (from Net Income). The sheet balances.
3. Why would a company issue equity instead of debt?
Debt is cheaper than equity due to tax-deductible interest and lower risk for investors, so why issue stock?
Over-leverage: The company already has too much debt and lenders won't give them more or covenants restrict it.
Stock Price: Management believes their stock price is inflated (selling high).
Cash Preservation: They want to avoid mandatory interest payments to preserve cash for growth or R&D.
4. What is Accretion/Dilution analysis?
It measures the impact of an acquisition on the acquirer's Earnings Per Share (EPS). If the Pro-Forma EPS is higher than the standalone EPS, the deal is accretive. If lower, it is dilutive. Generally, if the acquirer's P/E ratio is higher than the target's P/E ratio, and it's an all-stock deal, the deal will be accretive.
5. Which valuation method yields the highest value?
There is no single rule, but typically:
Precedent Transactions: Usually highest because it includes a "control premium"—the extra amount a buyer pays to own the company.
DCF: Variable. Depends heavily on assumptions (WACC, Growth Rate), but often higher than public comps.
LBO: Usually the lowest (the "floor"). Private equity firms are disciplined price-setters because they need to hit specific IRR hurdles (20%+).
Conclusion
Memorizing these answers isn't enough; you need to understand the why behind them. Interviewers will drill down until you break. For more career tips, check out our guide on Moving from Analyst to Associate.
