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Top 10 Investment Banking Interview Questions

By Financial Edge Team |

Reviewed By Tom Turner |

April 16, 2024

Behavioral Questions

Behavioral questions in investment banking interviews aim to assess a candidate’s soft skills, personality traits, and ability to handle specific situations that are common in the industry.

1) Could you please introduce yourself by telling me more about yourself.

Start with a concise introduction including a summary of degree background, previous work and leadership experience, and a brief explanation of your interest in the role. This is the standard structure to this question which can be adapted accordingly.

Example Answer

My name is Tom Turner, I studied Economics & Finance at the University of York and I have previous job experience within investment banking. My interest in the industry stemmed from my finance society at university, where I was introduced to various internships available. My first job experience was a summer placement in a bank’s Equity & Derivatives team, where I was tasked to build a model of fund flows in and out of various global stock markets. Following this, I successfully converted a ten-week summer internship at another bank into a full-time role, where I worked as an Analyst in Corporate Finance. I gained significant deal exposure and realized that M&A is a particular area of interest to me, which is why I would like to continue pursuing this within investment banking.

2) Why do you want to work in investment banking?

You will thrive in investment banking if you enjoy a steep learning curve, exposure to high-profile transactions, expertise in financial valuation.

Example Answer

I want to work in investment banking because of the steep learning curve and exposure to high-profile transactions. I enjoy financial modeling and valuation, especially when there are complex deal structures that requires critical thinking. Working with other like-minded and talented individuals appeals to me, as I am a team player and I want to be pushed to perform to the best of my ability. Furthermore, I thrive off the level of responsibility offered at such an early career stage, knowing that the work I am doing is meaningfully contributing to the business. 

3) Tell me about your weaknesses.

Start by drawing on or two weaknesses and then explain how you are addressing these. This shows that you are aware of your weaknesses and actively addressing these.

Example Answer

I have noticed that my attention to detail has room for improvement. Although this has drastically improved since my first year in investment banking, I am aiming to avoid entirely any formatting or wording mistakes in pitchbooks or presentations. I am working on this by printing presentations and going through these with a pen and highlighter. Furthermore, I feel like there is room to build on my financial modeling and valuation skills. I have just enrolled in Financial Edge’s the Investment Banker Course, which should help me to get my M&A and LBO modelling skills up to speed. 

4) Tell me about a time when you led a team successfully.

Explain a relevant work situation, the task at hand, actions taken and the outcome. This follows the common STAR structure: Situation, Task, Action, Result.

Example Answer

During one of my internships, the interns were tasked with putting together a mock credit paper for lending to a client as part of a potential acquisition. I led the financial workstream for the team, putting together pro-forma financials for the companies and assessing the debt ratios to see whether the acquisition would work from a debt coverage perspective. I suggested all the workstreams meet ahead of the credit committee, so that we were all on the same page and prepared for any questions. The result was that the mock credit committee granted us credit approval for the recommended acquisition financing facility.

5) Tell me about a time when you faced a challenge.

Explain how you approached the challenge, discuss the outcome, and key takeaways. Follows standard STAR structure and shows that you can learn from challenges. 

Example Answer

As part of the Bank of England Target Two Point Zero challenge, our team made it to the regional finals stage. Our goal was to advise a mock Monetary Policy Committee on the interest rate decision in 2015. The difficulty was balancing hawkish and dovish factors influencing our interest rate policy decision. We structured the proposal such that it focused somewhat on deflationary factors such as falling oil prices and a weak economic outlook, and mostly on inflationary factors, such as a low output gap and limited spare capacity, rising wages and falling unemployment rate. This was because the latter underpinned our argument to raise interest rates by 25bps.

6) Tell me about your biggest achievement.

Explain a relevant situation, the task at hand, and how you achieved the desired outcome. Follows the standard STAR structure.

Example Answer

My biggest achievement was securing a full-time offer for an investment banking graduate program following a successful ten-week internship. The internship involved five desk rotations each lasting one week, ranging from Credit Sales, Risk Solutions Group, Syndicated Loans, Corporate Coverage and Global Transactional Banking. This provided useful insights as to how banks work and how they are interconnected. 

Technical Questions

Technical proficiency is a crucial aspect of investment banking interviews. This section delves into the intricate financial concepts and valuation methodologies that candidates must grasp to demonstrate their analytical capabilities.

7) Walk me through the three financial statements and how they are linked.

Income statement, balance sheet, cash flow statement, net income linked to BS and CFS. These are the three financial statements.

Example Answer

The three financial statements are the income statement, balance sheet, cash flow statement. The income statement is linked to the cash flow statement through the net income line item, which is the final line item in the income statement and the starting line item in the cash flow statement, under cash flow from operating activities. The income statement is also linked to the balance sheet, as net income flows into shareholders’ equity via retained earnings.

8) What are the different ways to value a company?

Intrinsic and comparable valuation methods. These are the different valuation methods.

Example Answer

There are two different types of valuation methods. The first is intrinsic valuation, which determines the value of a company based on financial projections using several assumptions, discounting the company’s free cash flow to arrive at a net present value. This method is also referred to as a discounted cash flow valuation. The second type is comparable valuation, which uses similar companies or transactions to derive the value of the company in question. This involves the use of enterprise value multiples, such as EV/EBITDA, or equity multiples, such as the P/E ratio.

9) Walk me through an unlevered DCF.

Project FCFF, calculate terminal value, discount using WACC to arrive at Enterprise Value. These are the steps involved in building an unlevered DCF model.

Example Answer

First, you would build out the forecasts of the three financial statements for the company in question. Next, you would calculate the unlevered free cash flow by taking earnings before interest and tax (EBIT) and then multiply this by 1 minus the long run tax rate, to give net operating profit after tax. You then add back depreciation and amortization and deduct capital expenditures, and increases in net working capital. Calculate the terminal value of the company using either the growth perpetuity formula or a terminal EV multiple. Discount the unlevered free cash flow and the terminal value using the weighted average cost of capital to arrive at the Enterprise Value. You could then subtract net debt and non-controlling interest to arrive at the Equity Value of the company.

10) What is the rationale to companies for mergers and acquisitions?

Strategic rationale, cost and revenue synergies, vertical or horizontal integration, geographic expansion, product & service diversification, cash or dry powder to deploy. These are all valid reasons for M&A that can add value to companies. 

Example Answer

There are many different reasons for companies undertaking M&A. If they manufacture and sell a product, they may decide to acquire a distributor as part of a vertical integration strategy, which could reduce their selling, general, and administrative expenses. If they are looking to diversify their product range, they opt to acquire a suitable target for horizontal integration purposes, as strategic growth is quicker than organic growth. The company in question may want to expand its international footprint, which is often the reason for cross-border M&A deals. Companies with high cash reserves may opt to deploy this cash through M&A, as these investments can generate a higher return than a standard savings rate, subject to due diligence and effective integration.

Tips for the interview process

Investment banks want to hire people who can work well within a team and who are enthusiastic about their job – rather than someone who is ruthlessly competitive or attracted to a high salary. The more that you can evidence your team skills and enthusiasm in the interview, the better!
Keep your answers concise – it’s very tempting to go into lots of detail during responses to behavioural and competency-based questions as you are talking about a topic that you are probably comfortable with – yourself!
One of the key skills of being an analyst is the ability to filter information. Demonstrate this skill in your answers – if necessary, take a pause before you respond to think about the 2 or 3 pieces of information that are most relevant or interesting in your answer.
Technical questions can be daunting – particularly if you don’t have a finance degree. If you don’t know an answer in full, aim to focus on ‘what you know’ rather than saying that you can’t answer. For example, if you can’t walk someone through all the steps of an unlevered DCF but can provide a basic explanation of what a DCF valuation is, then say so. It demonstrates that you have an interest in finance, even if you don’t have all the technical skills yet.