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Finance Interview Questions & Answers
WHAT TO EXPECT IN AN INTERVIEW
Investment banking, or similar Wall Street interviews, such as for hedge fund or private equity positions may differ significantly depending on both the particular finance job being sought and the particular group in which the job candidate seeks employment but the fudamental skills needed remain the same for all. This page will refer to "investment banking careers", but it should be noted that the same advice applies equally to closely related Wall Street careers, such as working for a hedge fund or private equity firm. Furthermore, much of the interview content remains the same across the majority of finance jobs, which have a focus on financial analysis, modeling and the valuation of equities, from managing money, private wealth management, to mergers and acquisitions.
Analyst and Associate positions are the most prominent entry level investment banking jobs. Analyst jobs are normally filled by recent graduates looking to begin a career in finance, while associates are typically selected from recent recipients of the MBA, who may well have been analysts prior to embarking on the MBA. A prospective investment banking analyst will not be expected to have consummate knowledge of investment banking. However, a successful candidate will have to demonstrate an understanding of corporate finance as well as investment baking practices, and possess solid financial modeling skills. A prospective investment banking associate will need to show much more comprehensive knowledge of both how the investment bank operates and how to build detailed financial models that will serve as foundations for investment banking decisions. Associates must know how to perform an analyst's job as they will be supervising the analysts and be responsible for their work.
Some of the major investment banking groups that comprise a typical bulge bracket investment bank are: Leveraged Finance Groups, Industry Groups (such as technology, manufacturing, aerospace and telecommunications), M&A Groups (Mergers and Acquisitions Groups) and capital markets groups. It is incumbent on a potential investment banker to have a general knowledge of investment banking and, in particular, knowledge of all of the different banking activities the investment banking firm for which they are interviewing. This said, an interviewee will need to know much more about the particular investment banking group for which they are interviewing. For example, someone interviewing for a position in a Mergers and Acquisitions Group will need to show general knowledge of industry groups, but a much deeper understanding of how to construct the full M&A model.
In addition to bulge-bracket investment banks, there are also boutique investment banks and middle market investment banks. Boutique investment banks focus on one or a few particular areas of investment banking, corresponding to the areas within which individual investment banking groups work in a full-service firm. Middle market investment banks specialize in smaller transactions. In an interview for one of these smaller investment banking firms, a prospective analyst or associate should be prepared to focus on the specialty of the firm.
GENERAL INTERVIEW PREPARATION
There are several ways to prepare for an interview with an investment bank. It is a good idea to keep abreast of international finance and related news. It is also very important to know the investment banking firm, group and position for which you are interviewing—inside out. One additional bit of general preparation is easily overlooked: you must be prepared to convince the interviewers that you want a career in investment banking and that you know what an investment banking job entails. Keep In mind that investment banking is one of the most demanding careers and, because of this, much more commitment and interest are required for a successful investment banking career than the vast majority of other careers.
The bulk of preparation for any interview in investment banking is completed through the education, training and experience acquired prior to applying for the finance job. Traditionally, university education has not played a very significant role in preparing investment bankers for their careers. Academic education cannot substitute for experience. The construction of complex financial models required in real-world investment banking situations can only be mastered through extensive practice and exposure to actual pitch development and transactions. The Investment Banking Institute’s Investment Banking Bootcamp can bridge an important gap for those who do not have extensive experience working in different areas of investment banking. The Investment Banking Bootcamp is an intense month-long course, in which students are pared with an experienced investment banker who leads them in the construction of some of the most complicated financial models.
The questions asked during an interview for an investment banking position can be divided into the following categories: questions of personal fit, questions about finance and accounting, questions about financial markets and related news, and questions about the investment banking industry (practice, firm structure and about actual investment banking firms). There will also be the expectation that you will ask questions of the interviewer, and it is important to know what to and not to ask.
It is very important to keep in mind what the interviewers are after in an interview at an investment bank. It is certainly important for them to determine whether a candidate has ample relevant knowledge. But character is also a crucial factor in each question. The potential investment banker must show that she is both committed to being an investment banker—including knowing what this entails—and that she is well matched to the investment banking group and firm for whom she is interviewing.
Here are some sample questions:
Walk me through the highlights of your resume, I’m interested in the decisions you have made.
Why should we hire you?
Why investment banking?
Why our investment bank?
How do you value a company?
As an associate, what tasks would you like to spend most of your time doing? What percent of each day do you see yourself doing those tasks?
What is in a pitch book?
Why would two companies merge?
What major factors drive mergers and acquisitions?
How would you calculate a firm’s WACC? What would you use it for?
What is the Beta and where would you go to find a firm’s Beta?
How and why would you unlever a beta?
What is the CAPM?
What would have a greater impact on valuation, a 10% reduction in revenues or 1% reductions in discount rate?
Company A trades at P/E of 20. Company B trades at P/E of 10. Both are considering acquiring Company C, which trades at P/E of 15. For which would the transaction be accretive? Explain why.
What did our firm’s stock close at yesterday?
What is the DJIA at today? NASDAQ? S&P500? What is the long bond at? And the fed funds rate?
What do you personally invest in?
What industry do you follow and what numbers do you look at to determine if a firm is doing well in that industry.
What is EBITDA?
Walk me through the major line items of a Cash Flow Statement.
Say you knew a company’s net income. How would you figure out its cash flows?
What is the difference between a balance sheet and an income statement?
What is goodwill? How does it affect net income?
What are deferred taxes? How do they arise?
What is working capital?
How does your past career qualify you for position in investment banking?
Why are you not going forward with your prior career?
Who is in the bulge bracket?
Rank firms on Wall Street and where we fit.
What are our firm’s strengths and weaknesses?
Describe a typical day of an investment banking analyst/associate.
What is your greatest concern about an investment banking career?
What did you eat for lunch? How do you like New York? What do you do when you’re bored?
What is the riskiest thing you’ve ever done?
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