Investment Banking interviews are incredibly hard to land so congratulations if you’ve made it this far. The interview process is typically made up of three separate components which may or may not happen on the same day:
- The Technical Interview (which I will cover in this post);
- The Behavioral Interview; and
- The Case Study
Other banks may add other steps to the process, for example psychometric testing, group interviews and a screening process with HR but broadly these depend on the bank and their preferences. All banks however will have the interviews I have mentioned above.
What are the Investment Banking Technical Interviews all about?
Technical interviews, as the name suggests are all about testing your technical ability in the area you are interviewing for. Almost all jobs will have some sort of technical interview. The chances are the technical interview is the only one you have really thought about but I really recommend you spend some time thinking about the behavioral and fit interview as well.
In Investment Banking the technical interview will involve testing your knowledge of:
- Corporate Finance theory and it’s practical application in an Investment Banking context
- Basic Accounting concepts
In addition to ensuring that you have a basic level of practical knowledge these sort of interviews also serve the following purposes:
- Making sure that you’re actually interested in finance
- Making sure that you have an ability to think through a problem and come up with a solution even if one isn’t evident at first glance
How difficult with the Investment Banking Technical questions be?
Honestly this depends on your level of experience and the job you are going for.
If you are going for an internship and have never had any finance experience before then the questions are likely to be far more theoretical in nature – making sure you understand the basics of finance and accounting theory and have looked into ways it may be applied. Don’t stress about not having a huge amount of finance knowledge if you are going for this sort of interview – Investment Banks will spend a lot of effort training you and getting you up to speed. What they are really looking for is to make sure you have the basics down.
If you have finance experience or if you are trying to get into a higher level position (e.g. as an Associate) then the questions are going to be far more involved, far more technical and you’re going to have to know both the theory, when the theory works and when using some alternative may be more practical.
What questions will be asked in the Investment Banking Technical interview?
Almost all interviews will start by asking the same sorts of questions (especially for early level internships and analyst positions). Note that there isn’t even a great deal of variation across the banks. I interviewed at 7 bulge bracket banks and they ALL asked the same questions.
The most commonly asked questions are:
- What are the ways you value a company?
- Talk me through a DCF analysis
- You mentioned a discount rate – how would you calculate this?
- How would you estimate the cost of equity?
- How would you estimate the free cash flow of the business?
- When would it be appropriate to use a DCF and when would it not work?
- When would you use a comparable trading analysis? What are some of the things you would watch out for?
All of the above questions should have been taught to you in a basic corporate finance class. The interviewer is looking for the theoretical answers to the questions.
In addition to the above questions interviewers will often test your accounting knowledge so brush up on this too. Outside of corporate finance, accounting is the most useful thing for a junior investment banker to know and one that very few actually decide to study up on.
How should you answer the technical questions
‘The simple answer is that you should answer technical questions in as much detail as you can manage’
By going into more detail you are showing your depth of knowledge.
For example in the cost of equity question above you could mention that you could source beta from Bloomberg…or you could talk about the fact that there are several ways to estimate beta, each one with its own measurement problems and that it is not an exact science because it is affected by the universe of stocks it is compared to and the time over which this comparison is made. The answer is not really different but it just shows a greater level of understanding.
Don’t answer a question that isn’t being asked
It is completely ok to ask an interviewer to clarify a question. It is much better than hearing or understanding the question wrong and then going down a path (with detail) that is completely wrong and not what the interviewer was looking to hear.
NEVER wing it
This is the biggest tip I can give you. Never ever try to wing an answer. If you don’t know the answer admit that you don’t know and then follow up with an answer using other more basic knowledge that you may have.
Admitting you don’t know the answer to a question is actually a character trait that investment bankers tend to like (that being said you obviously need to have a base of knowledge to get the job)
Be clear and confident in your answers
Things like taking your time before answering so your answers don’t look too rehearsed, maintaining eye contact and your body posture while answering are all important signals you give so don’t forget these while you are concentrating on giving the right answer.
The good thing about the technical interviews for Investment Banks is that there is a right and wrong answer. You can nail this interview as long as you prepare. Don’t forget to read my tips on the Behavioral Interview and the Case Study.