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Investment Banking Interview Preparation

January 22, 2011 | Adam Fish

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Related Finance Topics | Capital Markets | Corporate Finance

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For undergrads and MBA students, the news that they have been selected for an interview at an investment bank comes with both excitement and dread. A position as an analyst or associate in corporate finance can be the first step towards a highly successful and highly lucrative career. Investment banking interviews, however, can be some of the most intimidating interviews out there, so let’s take a look at how to get prepared.

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Related Terms:
Comparable Companies Analysis
Leveraged Buyout (LBO)
Discounted Cash Flow (DCF)
Weighted Average Cost of Capital (WACC)
Investment Banking Services
Capital Asset Pricing Model (CAPM)

Related Documents:
Discounted Cash Flow Analysis (DCF)
This Excel model is a discounted cash flow analysis of a hypothetical discount retail store. It includes WACC and unlevered Beta calculations.
Comparable Companies Analysis Model
This is a sample model for a comparable companies analysis of a hypothetical home improvement company.

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Before we jump into interview practice mode, we should take a step back and think about how we want to come across in the interview. In short, investment banking candidates should come off as bright, confident and likeable.

In the final cut of selecting a hire, investment banks have already determined which candidates are smart and capable, so the decision comes down to who they like the best. So in addition to knowing a thing or two, candidates must remember to come across as a fun person to work with as well.

Know Your Story

Like any interview, candidates should have stories prepared about their lives that discuss their past, present and future. These are great answers for the standard questions:

“Tell me about yourself.” Or “Walk me through your résumé.”
“Why are you interested in investment banking or this firm?”
“Where do you see yourself in five to ten years?”

Candidates are highly likely to receive these or similar questions in any interview, and having succinct, practiced answers to them will give the impression of a polished candidate.

Your past story should highlight events that have qualified you for or gotten you interested in investment banking. Your present story should demonstrate why you want the particular position, how it is a logical step from where you are coming from and perhaps touch on where you hope the position will lead.

Your future story should discuss how investment banking will lead to where you want to go. Good future ambitions might be a managing director position in investment banking, a principle at a private equity firm, a CFO or perhaps and entrepreneur. In any case, you should communicate that those are long-term ambitions and you look forward to the experiences you’ll have in the position you’re interviewing for.

Know the Industry and Firm

Where investment banking interviews begin to get trickier is that firms will expect you to know what you’re getting into. If you confuse an equity analyst position with an analyst position in corporate finance, for example, you will not make it any further in the process.

You should understand the major divisions within an investment bank — sales & trading, corporate finance, research, etc. You should understand the hierarchy of positions within corporate finance — analyst, associate, vice president, managing director — and what each position does.

At the macro level, you need to understand the major differences between bulge bracket investment banks, middle market and boutique investment banks. You should also have a good answer for why you would prefer one type over another (and be sure that you prefer the type you’re interviewing with).

You should also understand the particular expertise that your firm has — transaction types or business sectors where it is active. Find some recent transactions that the firm has completed and be able ask smart questions about some of them.

You may be asked if there are any other firms or companies that you are interviewing with. If you are interviewing with other investment banks, you can be honest and say that you’re taking the opportunity to get to know the investment banking landscape. You want to communicate that you’re most interested in the firm you are speaking with and be able to give good reasons why.

Most banks will see it as a plus that you are interviewing elsewhere and may be more inclined to try to hire you. If you don’t have other interviews with banks, be sure to network and talk to people at other banks. If you can respond that you’ve at least been doing some networking in the industry, you’ll come across as a stronger candidate.

Know Your Financial Models

Candidates should also know what they’ll be working on when they come to investment banking. Having a basic understanding of pitches, deal execution and the ebb and flow of the corporate finance office is important.

To that point, you should also be familiar with some of the financial models you will likely be using — discounted cash flow, comparable companies analysis, precedent transactions analysis (sometimes called M&A comps) and LBO analysis.

Understanding how these models work and the theory behind them will help you to answer a lot of the technical questions that might get thrown at you in an interview. Know the capital asset pricing model (CAPM) and how to calculate the weighted average cost of capital (WACC). Know how to un-lever a beta.

Know the Marketplace

Be sure to get up to speed on financial markets. If you can read financial news regularly and follow the reports of an economist or two, you’ll be prepared to answer questions that might get thrown at you about the markets:

“Where do you see interest rates headed over the next six months and why?”
“Where did the Dow close yesterday?”
“Do you have any stocks that you follow? Tell me about them.”

Brain Teasers

Another type of question you may encounter in an investment banking interview is a brain teaser. These questions are meant to catch you off guard and see how your mind works.

“How many golf balls will fit inside Yankee Stadium?”

You should be able walk through your thought process and come to a logical answer, even if it’s not the right one. You could say:

A golf ball is a little over two inches in diameter, so you could fit about five across in one foot of space or 125 in a cubic foot. It’s about 400 feet from home plate to center field, so Yankee Stadium is about one thousand feet long.

It’s shape is like a half sphere, so you could use the formula for the volume of a sphere — four thirds pie r cubed — divided by two to calculate the volume in feet. Then you multiply by 125 to figure out how many golf balls would fit.

That would be an adequate answer to a brain teaser. If any of your assumptions are wrong, it doesn’t matter as much as your logic. Get out a piece of paper during the interview and write out your assumptions if you need to. Get a hold of a list of brain teaser questions and have someone practice with you.

Ask Good Questions

Before the interview is over, you should always ask some good questions. There has been a lot of change in the investment banking landscape, so there are lots of great questions to ask:

“How has the merger with such-and-such firm gone?”
“How has the role of private equity changed since the financial crisis?”
“Do you foresee a surge in M&A activity in any of the industries you work with?”

There are many more questions out there. You will usually be given an opportunity to ask questions, and this is your chance to take control and show that you’re prepared. Write some smart questions out before the interview and take them with you. No matter what questions get thrown at you, you can at least demonstrate that you can ask smart questions — a valuable skill in investment banking.

Final Touches

When you finish the interview, be sure to smile and thank the firm for talking with you. Try to get a hold of business cards and send thank you emails when you get home.

For on-site interviews, be sure to treat everyone you encounter with respect including administrative assistants, analysts and associates. Even analysts may have the opportunity to comment in the hiring process of associates, so it’s important to make a good impression on everyone.

Be patient with the hiring process. Ask about the firm’s hiring timeline and respect it. Don’t follow up until after their deadline has past.

Investment banking interviews can be some of the toughest you will come across in your career, so be sure to take preparation seriously. Focus on coming across as a bright, confident and likeable candidate, and you will put yourself in the best position to get hired.

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