Top 30 Investment Banking Interview Questions and Answers in 2023

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An investment bank organizes large, complex financial transactions, such as mergers or IPOs.  In addition to underwriting new securities for corporations, municipalities, and other institutions, these banks can raise money for companies in various ways. Corporations may hire them to manage their initial public offerings (IPOs). The firm will provide merger, acquisition, and reorganization advice. An investment banker knows the current investment climate like the back of their hand. High finance can be a complex world. They help their clients navigate it.

Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America Merrill Lynch, and Deutsche Bank are five of the largest investment banking systems affiliated with or subsidiaries of larger banking institutions. It is a huge area covering many sub-areas. We will mention the top 30 interview questions and answers to help you understand this area’s basic concepts. Moreover, if you appear in a personal interview for the same, these questions and answers might help you.

1. Tell Us About The Three Most Important Financial Statements And Their Significance.

Income Statements, Cash   Flows, and Balance Sheets are the three main financial statements. Income statements provide a company’s revenue, expenses, and final net income over time.

Among the assets listed on a balance sheet are a company’s plant, property and equipment, cash, inventory, and other resources. As well as reporting the assets, it also reports the liabilities, such as the shareholders’ equity, the debt, and the accounts payable. Liabilities plus shareholders’ equity always equal assets on a balance sheet.

Lastly, a cash flow statement shows how cash has changed over time. A company’s cash flow is determined by its operating, investing, and financing activities.

2. If You Eveeerrry Get A Chance To Evaluate The Company’s Financial Viability, Which Statement Would You Choose And Why?

A cash flow statement would be appropriate. As a result, it provides an accurate picture of the business’s cash flow.

As a result, when you analyze a business’s overall financial health, you pay close attention to the cash flows.

3. Let’s Say If Depreciation Expense Goes Up By $100. How Would This Affect The Financial Statements?

Income Statement: In the case of a 40% tax rate, Net Income would decrease by $60 with the depreciation expense decreasing by $100.

Cash Flow Statements: In the cash flow statement, the Net Income decreases by $60, but the $100 Depreciation expense gets added back, increasing Cash Flow from Operations by $40—a $40 increase in Net Change in Cash results from no further changes.

Balance Sheet: Due to depreciation, Plants, Property & Equipment decreased by $100, and Cash Flow Statement increased by $40 because of depreciation.

4. Imagine Situations Where A Customer Pays For A Mobile Phone Using His Credit Card. How Would This Look Like Under Cash-Basis Vs.? Accrual Accounting?

The revenue would not be recorded until the company charged the customer’s credit card, obtained authorization, and deposited the funds into its bank account.

The income statement and balance sheet would show this entry as revenue and cash, respectively.

The revenue would be recorded right away, as opposed to accrual accounting. On the Balance Sheet, however, it would not appear as cash. Accounts Receivable will be used instead. If the money is transferred and deposited in the company’s bank account, it will be reported as cash.

5. What Is The Formula For Calculating WACC?

WACC = Cost of Equity * Proportion of Equity + Cost of debt * Proportion of debt (1-tax rate). Equity costs can be calculated by CAPM (Capital Asset Pricing Model).

  • The formula for the same is as follows:
  • Equity Cost = Risk-free rate + Beta* Equity risk premium
  • Cost of Debt = The risk-free rate yields a 10-year or 20-year U.S. Treasury.
  • Equities and companies are compared based on their beta to determine their risks.
  • Stocks are expected to outperform “riskless” assets by a specific percentage.
  • A proportion tells how much of a company’s capital structure each component occupies.

6. If There Are Two Companies, P And Q, Both Of Them Are The Same, But One P Company Has Debt, But The Company Has No Debts. Which Of Them Would Have A Higher WACC?

Because debt is less expensive than equity, company Q would have a higher WACC.

7. Why Is Debt Considered Less Expensive?

In the WACC formula, interest on debt is tax-deductible (hence the (1 – Tax Rate) multiplication).

In a liquidation or bankruptcy, debt holders would be paid first.

Generally, interest rates on debt are lower than the Cost of Equity numbers you see.

Therefore, the Cost of Debt portion of WACC will contribute less to the total figure than the Cost of Equity portion.

8. Describe How A Company Is Valued?

  • Precedent Transaction Analysis

Transaction Multiple Valuation is also known as TMV.

The value of a company is determined by looking at what others have paid for similar companies.

You must have a proper understanding and knowledge of the industry of the company you are valuing in addition to the normal premiums paid for it to

  • Comparable Company Analysis

The Comparable Company Analysis is similar to the Precedent Transaction Analysis, except that the whole company is assessed, not the purchase of a company.

To apply this method, you would also look for similar companies to those you value and examine their price to earnings, EBITDA, stock price, and any other variables that indicate a company’s health.

  • Discounted Cash Flow Analysis

The value of a company is determined by its future cash flow or what it will generate in the upcoming years.

DCF is calculated by determining a company’s probable or future cash flow.

Calculate how much that would cost today by “discounting” it at the return on investment rate.

After adding in the company’s terminal value, you will know how much the company is worth.

9. When Don’t We Use A DCF In The Valuation?

If the company’s cash flow is unstable or unpredictable, or if debt and working capital serve fundamentally different purposes, you would not use a DCF.

Banks, for instance, do not reinvest debt, and working capital dominates their balance sheets, so a DCF is not used for them.

10. List Common Multiples Used In A Valuation

Valuation questions are very common in investment banking interviews.

These are relative valuation techniques given below-

11. Briefly Explain Leveraged Buyout?

An LBO or leveraged buyout is when companies or investors buy other companies using mostly loans, borrowed money, or even bonds to make their purchases.

  • The company’s acquired assets are mostly used as collateral for those loans.
  • LBO’s debt ratio to equity can be 90-10 approximately.
  • Any percentage of debts higher than that can lead to bankruptcy.

12. Explain PEG Ratio(S).

The same stands for the Price/earnings to growth ratio, which takes the P/E ratio and then accounts for how rapidly the company’s EPS will grow.

  • A stock having a high PEG ratio is growing rapidly. A finely priced stock’s P/E and PEG ratios will be the same.
  • A company with a 20 P/E ratio and a 20 PEG ratio might be expensive if another company having the same EPS has a lower P/E ratio. Still, the PEG rate also means it’s growing faster.

13. What Is The Formula Used For Enterprise Values?

The enterprise value formula is the market value of equity (MVE) + debt + preferred stock + minority interest – cash.

14. Why Do You Think The Cash Subtracts In The Formula For Enterprise Values?

As a non-operating asset, cash is subtracted, and Equity Value indirectly accounts for it.

15. Why Would You Consider Both Enterprise Value And Equity Value?

The value attributable to all investors is known as enterprise value, whereas the value attributable to equity shareholders is known as equity value.

In addition to equity value, enterprise value represents the company’s true value, compared to equity value, which is what the public sees.

16. What Does It Indicate If A Company Has A Negative Enterprise Value?

Companies with extremely large cash balances, low market capitalizations, or both can have negative enterprise value.

Banks and companies with large cash balances may experience this, or companies on the verge of bankruptcy.

17. Briefly Explain The Process Of A Buy-Side M&A Deal.

  • Researching potential acquisition targets take a great deal of time, and the company you represent goes through multiple selections and filtering cycles.
  • Consider their feedback when narrowing down the list and choosing which ones to reach out to.
  • Potential sellers are surveyed to gauge their receptivity.
  • During serious discussions with the seller, an in-depth due diligence process and determining the offer price occur.
  • Purchase agreement terms and prices should be negotiated.
  • Announcing the M&A deal/transaction.

18. Briefly Explain Accretion And Dilution Analysis.

In a dilution and accretion analysis, the acquirer’s earnings per share (EPS) are compared with the company’s EPS without the acquisition.

A transaction that produces a higher EPS is said to be “accretive,” while one that produces a lower EPS is said to be “dilutive.”

19. Given A Situation Where A Company Having Low P/E Acquires A Company Having A High P/E In An All-Stock Deal, Will This Likely Be Accretive Or Dilutive?

It is expected that other things being equal, the transaction would dilute the EPS of the acquirer if it acquired a company with a high P/E.

For every rupee of earnings, the acquirer must pay more than the market value.

Consequently, the acquirer would have to issue proportionately more shares in such a scenario.

20. What Are The Synergies And Their Types?

Synergy occurs when the buyer gains more value from an acquisition than the financials predict. Synergies can be classified into two types:

  • Revenue synergy: In addition to cross-selling products to new customers, the combined companies can also upsell new products to existing customers. As a result of the deal, it could expand internationally.
  • Cost synergies: The combined company, in this case, could amalgamate administrative staff and buildings and might lay off redundant employees. The same could also be able to close down redundant stores or locations.

21. How Does Goodwill Get Created In An Acquisition?

The value of goodwill generally remains the same over time and is not amortized like other intangible assets. Acquisitions are the only time it changes.

Goodwill refers to valuable assets not reflected in the balance sheet, like financial assets. Among them are brand name, customer relationship, and intellectual property rights.

Goodwill is calculated by subtracting a company’s equity purchase price from its book value. A buyer pays more than the seller’s “fair market value” to acquire the property.

22. Briefly Tell Us About What You Would Do If You Were Working On An Ipo For A Client?

The first step is to meet with the client and obtain all the necessary information, such as their financial details, customers, and sector.

A registration statement will describe the company’s business and market to investors after you meet with other bankers and lawyers.

Upon receiving comments from the SEC, you would revise the document until it was acceptable.

In the coming weeks, you will organize roadshows to present the company to institutional investors and convince them to invest.

The company would begin trading on the exchange after raising capital for its clients.

23. What Do You Think Are The Benefits Of A Company Getting Listed On An Exchange?

  • It is one of the core steps for some companies to achieve liquidity.
  • Some of the investors would want to invest only in exchange-listed issuers.
  • It might help the company to establish a recognized value for its stocks, which may assist it in using the stocks for acquisitions rather than cash.

24. What Is In A Pitch Book?

Pitchbook is all dependent on the kind of deal the companies are pitching for, but the common structure includes:

  • Bank credentials, which can prove their expertise in completing similar deals before.
  • Summaries of the company’s options
  • Appropriate financial valuations and models
  • Investment Banking Chart(s)
  • Potential acquisition targets or potential buyers
  • Summary and key recommendations

25. When Purchasing A Company, Why Do Private Equity Firms Use Leverage?

Private equity firms reduce the equity amounts to the deal by using significant amounts of leverage (debts). This helps to finance the purchase prices.

Doing this can also substantially increase the private equity firm’s rate of return when exiting the investment.

26. Define Convexity.

Bond price changes and yield changes are more accurately measured by convexity.

This is a convex curve, but Duration calculates it as a straight line.

Bond yields are calculated using this method as a risk calculation.

27. Define The Risk-Adjusted Rate Of Returns

The projected return is not the only factor to consider when analyzing an investment. Investment A may be better if it yields a greater profit than investment B.

There is, however, a greater risk of total loss with investment A compared to investment B. Although the profit may be higher, it is riskier and not necessarily a better investment.

An investment’s adjusted rate of return measures both the return and the risk of an investment.

A number or rating indicates the adjusted rate of return.

Additionally, you may want to mention how risk is measured: beta, alpha, Sharpe ratio, r-squared, and standard deviation if you are technically inclined.

28. Why Should We Hire You?

I am delighted to be interviewed by such a renowned company.

Having the opportunity to establish my skills and knowledge in the corporate world will be a valuable experience for me at your organization.

I will do my best, regardless of my freshness, to contribute as much as I can to the growth and welfare of this great company.

As far as my skills and experience are concerned, I have them all. My confidence in my ability to perform this job role is pretty high.

I will be qualified for this position not only because of my experience in the past but also because of my people skills.

As a self-motivated individual, I strive to exceed my superiors’ expectations by producing high-quality work. Having a fast learning ability, I quickly acquire business knowledge.

I am also a good team player and individual contributor.

Combined, these skills make me an ideal candidate for this job.

29. Mention Your Strengths/Weaknesses.

Writing is my greatest strength. I never miss deadlines, and I work well under pressure. My most memorable and joyful experience was when I was asked to complete a project that a colleague had forgotten about. It wasn’t until two hours before the deadline that my editor realized this. The article was important, so I worked feverishly to complete it. In addition to being finished on time, it was well received by readers.

In terms of weaknesses, I tend to take on complete projects without any outside help. As a result, I experienced unnecessary pressure and stress in the past. The annual event I planned last year was a specific example. I did everything myself, from deciding the venue to arranging the table settings. Due to my stress leading up to the event, I barely managed to pull it off. As a result, I learned to step back and analyze when I needed help. To keep my sanity, I’m learning how to ask for help after that experience. Teamwork is also more effective than one harrowed individual.

30. Do You Have Any Questions?

Yes, please.

  • Can you show some examples of projects I’d be working on?
  • What are some skills and experiences you’re looking for in an ideal candidate?
  • What attributes should someone need to have to be successful in this position?
  • What can be the biggest challenges that someone in this position could face?
  • What budget allocation would I be working with?
  • Is this a fresh role, or will I be taking over for an employee leaving?
  • How can this position contribute to the company overall?
  • Do you expect the main responsibilities for this position to change in the next six months to a year?


Applying the concepts, you are learning and testing yourself are the keys to answering these technical questions. Hopefully, you’ve learned some important investment banking questions and answers and are closer to acing those high-profile interviews.