www.wallstreetmojo.com
Open in
urlscan Pro
2606:4700:10::ac43:15fe
Public Scan
Submitted URL: https://www.mailing.educba.com/click.html?x=a62e&lc=AoSfB&mc=L&s=5lJrqx&u=3&z=lFGJx12&
Effective URL: https://www.wallstreetmojo.com/investment-banking-interview-questions/
Submission: On November 05 via manual from IE — Scanned from DE
Effective URL: https://www.wallstreetmojo.com/investment-banking-interview-questions/
Submission: On November 05 via manual from IE — Scanned from DE
Form analysis 8 forms found in the DOM
GET https://www.wallstreetmojo.com/
<form method="get" action="https://www.wallstreetmojo.com/">
<input type="text" size="16" name="s" placeholder="Search For Tutorials / Courses" value="">
<input type="submit" value="">
</form>GET https://www.wallstreetmojo.com/
<form method="get" action="https://www.wallstreetmojo.com/">
<input type="text" size="16" name="s" placeholder="Search For Tutorials / Courses" value="">
<input type="submit" value="">
</form>GET https://www.wallstreetmojo.com/
<form method="get" action="https://www.wallstreetmojo.com/">
<input type="text" size="16" name="s" placeholder="Search For Tutorials / Courses" value="">
<input type="submit" value="">
</form>Name: fc2_exit —
<form id="fc2_exit" name="fc2_exit" class="search-form zfrm_fc" style="margin-bottom:5px;" autocomplete="off">
<input id="form_name_xtg" name="form_name_xtg" type="hidden" value="Free_Investment_Banking_Course">
<label class="search-form-label screen-reader-text" for="fc2_exit_em">Enter Email Address</label>
<input type="text" name="fc2_exit_em" id="fc2_exit_em" placeholder="Enter Email Address" style="margin-bottom:20px;padding:8px 16px;" autocomplete="off">
<input type="text" name="fc2_exit_ph" id="fc2_exit_ph" placeholder="Enter Phone no" class="khal" autocomplete="off">
<input type="text" name="fc2_exit_tkn1" id="fc2_exit_tkn1" class="khal" autocomplete="off">
<input type="submit" id="fc2_exit_sub" name="fc2_exit_sub" class="wd-button" value="Yes, Give me Free Access" style="width:100%;border:none;">
<input type="hidden" name="pum_form_popup_id" value="33762">
</form>Name: frmuser —
<form name="frmuser" id="frmuser" autocomplete="off">
<div class="form-group no-margin-bottom left-aligned">
<!-- label -->
<div id="err-msgx" style="display:none; color: #ff0000">
<span class="errmsg"></span>
</div>
<label for="shopemail" class="text-uppercase textname">Email ID <span style="color: #ff0000">*</span></label>
<!-- end label -->
<!-- input -->
<input type="text" name="shopemail" id="shopemail" value="" required="">
<input type="hidden" name="fcdp-trs-shc" id="fcdp-trs-shc" value="">
<!-- end input -->
</div>
<div style="display: inline-flex;" class="five-sixths">
<!-- button -->
<div style="margin: 0 auto;">
<input type="submit" id="paidpaypal3" class="uk-width-1-1 button success transition-3d-hover" name="paidintnl" value="Proceed">
</div>
<div class="loadr-bn one-sixth" style="display:none;"></div>
</div>
<input type="hidden" name="pum_form_popup_id" value="243895">
</form>Name: frmbtch —
<form name="frmbtch" id="frmbtch" autocomplete="off">
<div class="form-group no-margin-bottom left-aligned">
<!-- label -->
<div id="err-msgx-btch" style="display:none; color: #ff0000">
<span class="errmsg"></span>
</div>
<label for="shopemail" class="text-uppercase textname">Upcoming batch <span style="color: #ff0000">*</span></label>
<!-- end label -->
<!-- input -->
<table class="uk-table uk-table-striped">
<tbody>
<tr>
<td><label><input class="" type="radio" name="batchinfo" checked="" value="bth-sep19" style="height:auto;margin: 1em;">19th/20th September 2020</label></td>
<td>Saturday - Sunday</td>
<td>9 am IST to 5 pm IST</td>
</tr>
<tr>
<td><label><input class="" type="radio" name="batchinfo" checked="" value="bth-sep26" style="height:auto;margin: 1em;">26th/27th September 2020</label></td>
<td>Saturday - Sunday</td>
<td>9 am IST to 5 pm IST</td>
</tr>
</tbody>
</table>
<!-- end input -->
</div>
<div style="display: inline-flex;" class="five-sixths">
<!-- button -->
<div style="margin: 0 auto;">
<input type="submit" id="submitbtch" class="uk-width-1-1 button success transition-3d-hover" name="submitbtch" value="Proceed">
</div>
<div class="loadr-bn one-sixth" style="display:none;"></div>
</div>
<input type="hidden" name="pum_form_popup_id" value="243895">
</form>Name: fc1_head —
<form id="fc1_head" name="fc1_head" class="search-form zfrm_fc" style="margin-bottom:5px;" autocomplete="off">
<label class="search-form-label screen-reader-text" for="fc1_head_em">Enter Email Address</label>
<input type="text" name="fc1_head_em" id="fc1_head_em" placeholder="Enter Email Address" style="margin-bottom:20px;padding:8px 16px;" autocomplete="off">
<input type="text" name="fc1_head_ph" id="fc1_head_ph" placeholder="Enter Phone no" class="khal" autocomplete="off">
<input type="text" name="fc1_head_tkn1" id="fc1_head_tkn1" class="khal" autocomplete="off">
<input type="submit" id="fc1_head_sub" name="fc1_head_sub" class="wd-button" value="Yes, Gimme FREE Access" style="width:100%;border:none;">
<input type="hidden" name="pum_form_popup_id" value="32343">
</form>Name: wsm_lgxfrm —
<form class="login100-form validate-form" id="wsm_lgxfrm" name="wsm_lgxfrm" autocomplete="off">
<span>Login</span>
<div id="err_lgx"></div>
<div class="message"></div>
<div class="field-wrapper" style="margin-bottom: 25px;"><input id="lgx_email" name="lgx_email" type="text" placeholder="Email"></div>
<div class="field-wrapper" style="margin-bottom: 25px;"><input id="lgx_pass" name="lgx_pass" type="password" placeholder="Password"></div>
<div class="field-wrapper" style="margin-bottom: 25px;"><input type="hidden" name="token" value=""></div>
<input type="submit" class="login100-form-btn" id="sgn_bt" name="sgn_bt" value="Sign in">
<p class="text-right"><a href="https://www.wallstreetmojo.com/forgot-password/">Forgot Password?</a></p>
<input type="hidden" name="pum_form_popup_id" value="229063">
</form>Text Content
* Skip to primary navigation
* Skip to main content
* Skip to primary sidebar
* Skip to footer
* About
* Contact
* All Articles
* Free Video Tutorials
* Blog
* All Courses
* All in One Bundle
* About
* Contact
* All Articles
* Free Video Tutorials
* Blog
* All Courses
* All in One Bundle
Home » Investment Banking Resources » Investment Banking Career » Investment
Banking Interview Questions (with Answers)
INVESTMENT BANKING INTERVIEW QUESTIONS (WITH ANSWERS)
Article byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM
TOP INVESTMENT BANKING INTERVIEW QUESTIONS (AND ANSWERS)
The purpose of this Investment Banking Interview Questions and Answers is to
help you learn about the investment bankingAbout The Investment
BankingInvestment banking is a specialized banking stream that facilitates the
business entities, government and other organizations in generating capital
through debts and equity, reorganization, mergers and acquisition, etc.read more
interview topics. As a fresher in this field, I am sure you may have had
questions about what and how to prepare for your first step in this finance
world. There could be an unlimited number of questions that can be asked on
investment banking topics, and since it is difficult to cover all of them here,
we would be discussing a few of them which are important.
While reading through this write-up, I suggest you actively keep answering the
questions yourself before checking the correct answer. This will help you
develop the habit of brainstorming and answering these structured questions.
Please consider this as a first draft of the article. I will regularly update
this with more questions and answers based on your feedback.
The interview nowadays does not have the typical questions being asked,
including the basics of financial concepts. The interviewers want the candidates
to think and avoid theories that everyone usually knows. Also, since these
questions are technical, there would always be a correct answer, so if you don’t
know a particular answer, don’t try and fake one. It is always better to confess
that you don’t know.
You are free to use this image on your website, templates, etc, Please provide
us with an attribution linkHow to Provide Attribution?Article Link to be
Hyperlinked
For eg:
Source: Investment Banking Interview Questions (with Answers)
(wallstreetmojo.com)
Investment Banking Interview Questions have been divided into the following six
topics.
1. Accounting
2. Corporate Finance
3. Valuation
4. Merger and Acquisitions (M&A)
5. Initial Public Offering (IPO)
6. Miscellaneous
TABLE OF CONTENTS
* Top Investment Banking Interview Questions (and Answers)
* #1 – Accounting
* Question #1
* Question #2
* Question #3
* Question #4
* #2 – Corporate Finance
* Question #5
* Question #6
* Question #7
* #3 – Valuations
* Question #8
* Question #9
* Question #10
* Question #11
* Question #12
* Question #13
* Question #14
* Question #15
* Question #16
* #4 – Mergers and Acquisitions
* Question #17
* Question #18
* Briefly explain accretion and dilution analysis.
* Question #19
* Question #20
* Question #21
* #5 – Initial Public Offerings (IPO)
* Question #22
* Question #23
* #1 – Miscellaneous Questions
* Question #24
* Question #25
* Question #26
* Question #27
* Question #28
* Conclusion
* Investment Banking Interview Questions and Answers Video
* Recommended Articles
#1 – ACCOUNTING
QUESTION #1
Tell me about the three most important financial statements and their
significance.
This is one of the most commonly asked investment banking interview questions.
* The three main financial statementsMain Financial StatementsFinancial
statements are written reports prepared by a company's management to present
the company's financial affairs over a given period (quarter, six monthly or
yearly). These statements, which include the Balance Sheet, Income Statement,
Cash Flows, and Shareholders Equity Statement, must be prepared in accordance
with prescribed and standardized accounting standards to ensure uniformity in
reporting at all levels.read more are the Income Statement, Balance Sheet,
and Cash Flow Statement. Speaking about their significance, the income
statement provides the revenue and expenses of a company and shows the final
net income that it has made over some time.
* The balance sheet signifies a company’s assets such as a plant, property &
equipment, cash, inventory, and other resources. Similarly, it reports the
liabilities, including the Shareholders’ equity, debt, and accounts
payableAccounts PayableAccounts payable is the amount due by a business to
its suppliers or vendors for the purchase of products or services. It is
categorized as current liabilities on the balance sheet and must be satisfied
within an accounting period.read more. The balance sheet is such that the
assets would always equal the Liabilities plus shareholders
equityShareholders EquityShareholder’s equity is the residual interest of the
shareholders in the company and is calculated as the difference between
Assets and Liabilities. The Shareholders' Equity Statement on the balance
sheet details the change in the value of shareholder's equity from the
beginning to the end of an accounting period.read more.
* Lastly, a cash flow statementCash Flow StatementA Statement of Cash Flow is
an accounting document that tracks the incoming and outgoing cash and cash
equivalents from a business.read more reports the net change in cash. It
gives the cash flow from the company’s operating, investing, and financing
activities of the companyFinancing Activities Of The CompanyThe various
transactions that involve the movement of funds between the company and its
investors, owners, or creditors in order to achieve long-term growth are
referred to as financing activities. Such activities can be analyzed in the
financial section of the company's cash flow statement.read more.
QUESTION #2
If you have the chance to evaluate the company’s financial viability, which
statement would you choose and why?
* It would be the cash flow statement. The reason is that it provides a true
picture of how much cash the business is generating in actual terms.
* Hence, the cash flows are the main thing you pay attention to while you are
analyzing the business’s overall financial health.
QUESTION #3
Let’s say that the depreciation expense goes up by $100. How would this affect
the financial statements?
* Income Statement: With the depreciation expense decreasing, Operating Income
would decline by $100, and assuming a 40% tax rate, Net Income would go down
by $60.
* Cash Flow Statement: The Net Income at the top of the cash flow statement
goes down by $60, but the $100 Depreciation Depreciation Depreciation is a
systematic allocation method used to account for the costs of any physical or
tangible asset throughout its useful life. Its value indicates how much of an
asset’s worth has been utilized. Depreciation enables companies to generate
revenue from their assets while only charging a fraction of the cost of the
asset in use each year. read more a non-cash expense that gets added back, so
overall Cash Flow from OperationsCash Flow From OperationsCash flow from
Operations is the first of the three parts of the cash flow statement that
shows the cash inflows and outflows from core operating business in an
accounting year. Operating Activities includes cash received from Sales, cash
expenses paid for direct costs as well as payment is done for funding working
capital.read more goes up by $40. With no further changes, the overall Net
Change in Cash increases by $40.
* Balance Sheet: On the asset side, because of the depreciation, the Plants,
Property & Equipment go down by $100, and cash is up by $40 from the changes
on the Cash Flow Statement.
QUESTION #4
Imagine a situation where a customer pays for a mobile phone with a credit card.
What would this look like under cash-basis vs. accrual accountingAccrual
AccountingAccrual Accounting is an accounting method that instantly records
revenues & expenditures after a transaction occurs, irrespective of when the
payment is received or made. read more?
* In the case of cash-based accounting, the revenue would not be accounted for
until the company charges the customer’s credit card, obtains authorization,
and deposits the funds in its bank account.
* After this entry would be shown as revenue in the income statement and as
cash in the balance sheetThe Balance SheetA balance sheet is one of the
financial statements of a company that presents the shareholders' equity,
liabilities, and assets of the company at a specific point in time. It is
based on the accounting equation that states that the sum of the total
liabilities and the owner's capital equals the total assets of the
company.read more.
* As against accrual accounting, it would be shown as revenue right away. But
it would not yet appear as cash on the Balance Sheet. Rather, it will be
shown as Accounts ReceivableAccounts ReceivableAccounts receivables is the
money owed to a business by clients for which the business has given services
or delivered a product but has not yet collected payment. They are
categorized as current assets on the balance sheet as the payments expected
within a year. read more.
* It would be reported as cash only after the amount is deposited in the
company’s bank account.
Also, look at this detailed explanation on Cash vs Accrual AccountingCash Vs
Accrual AccountingCash accounting is the practice of perceiving the income and
expenses only after the monetary receipt or payment. In contrast, Accrual
accounting recognizes the income or expenses immediately after the services are
provided or acquired, irrespective of the financial exchange.read more.
#2 – CORPORATE FINANCE
QUESTION #5
What is the formula for calculating WACC?
Do expect this investment banking interview question.
* WACCWACCThe weighted average cost of capital (WACC) is the average rate of
return a company is expected to pay to all shareholders, including debt
holders, equity shareholders, and preferred equity shareholders. WACC Formula
= [Cost of Equity * % of Equity] + [Cost of Debt * % of Debt * (1-Tax
Rate)]read more = Cost of Equity * Proportion of Equity + Cost of debt *
Proportion of debt (1-tax rate). The cost of equityThe Cost Of EquityCost of
equity is the percentage of returns payable by the company to its equity
shareholders on their holdings. It is a parameter for the investors to decide
whether an investment is rewarding or not; else, they may shift to other
opportunities with higher returns.read more is calculated using the Capital
Asset Pricing Model (CAPM).
* The formula is Cost of Equity = Risk-free rate + Beta* Equity risk
premiumEquity Risk PremiumEquity Risk Premium is the expectation of an
investor other than the risk-free rate of return. This additional return is
over and above the risk free return.read more
* Cost of Debt = The risk-free rateRisk-free RateA risk-free rate is the
minimum rate of return expected on investment with zero risks by the
investor. It is the government bonds of well-developed countries, either US
treasury bonds or German government bonds. Although, it does not exist
because every investment has a certain amount of risk.read more yields a
10-year or 20-year U.S. Treasury.
* Beta is calculated based on how risky are the comparable companies and
equity.
* Risk Premium is the percent by which stocks are expected to out-perform
“riskless” assets.
* The proportion is the percentage of how much of the company’s capital
structure is taken up by each component.
QUESTION #6
There are two companies, P and Q, which are the same, but one P has debt,
whereas Q doesn’t have any. In this case, which of the two companies would have
a higher WACC?
* In this scenario, company Q would have a higher WACC because debt is less
expensive than equity.
QUESTION #7
At this juncture, the interviewer might ask you why debt is considered less
expensive?
* The answer is as follows; Interest on debt is tax-deductible (hence the (1 –
Tax Rate) multiplication in the WACC formula)WACC Formula)The weighted
average cost of capital (WACC) is the average rate of return a company is
expected to pay to all shareholders, including debt holders, equity
shareholders, and preferred equity shareholders. WACC Formula = [Cost of
Equity * % of Equity] + [Cost of Debt * % of Debt * (1-Tax Rate)]read more.
* Debt holders would be paid first in a liquidationLiquidationLiquidation is
the process of winding up a business or a segment of the business by selling
off its assets. The amount realized by this is used to pay off the creditors
and all other liabilities of the business in a specific order.read more or
bankruptcy.
* Instinctively, interest rates on debt are usually lower than the Cost of
Equity numbers you see.
* As a result, the Cost of Debt portion of WACC will contribute less to the
total figure than the Cost of Equity portion.
#3 – VALUATIONS
QUESTION #8
Describe how a company is valued
This is another very common investment banking interview question.
Precedent transaction analysis
* This is also called Transaction Multiple ValuationTransaction Multiple
ValuationTransaction multiples or Acquisition Multiple is a method where we
look at the past Merger & Acquisition transactions and value a comparable
company using precedents. The method assumes that a company's value can be
estimated by analyzing the price paid by the acquirer company's incomparable
acquisitions.read more
* This is when you look at how much others have paid for similar companies to
determine how much the company is worth.
* To use this method effectively, you need to be extremely familiar with the
industry of the company you are valuing and the normal premiums paid for such
a company.
Comparable Company Analysis
* Comparable company analysis is similar to Precedent Transactions Analysis,
except you are using the whole company as an assessment unit, not the
purchase of a company.
* So to use this method, you would also look for similar companies to the one
you are valuing and look at their price to earnings, EBITDA, stock price,
and any other variables you think would be a pointer to the health of a
company.
Discounted Cash Flow AnalysisDiscounted Cash Flow AnalysisDiscounted cash flow
analysis is a method of analyzing the present value of a company, investment, or
cash flow by adjusting future cash flows to the time value of money. This
analysis assesses the present fair value of assets, projects, or companies by
taking into account many factors such as inflation, risk, and cost of capital,
as well as analyzing the company's future performance.read more
* This is when you use future cash flow, or what the company will make in the
upcoming years, to determine what the company is worth now.
* To calculate DCF, you need to work out the probable or future cash flow for a
company for the next ten years.
* Then work out how much that would be in today’s terms by “discounting” it at
the rate that would return on investment.
* Then you add in the terminal value of the companyTerminal Value Of The
CompanyTerminal Value is the value of a project at a stage beyond which it's
present value cannot be calculated. This value is the permanent value from
there onwards. read more will tell you how much the company is worth.
QUESTION #9
Which are the situations in which we do not use a DCF in the valuation?
* We would not use a DCF in the valuation if the company has unstable or
unpredictable cash flow or when debt and working capital serve a
fundamentally different role.
* For example, financial institutions like banks do not re-invest debt, and
working capitalWorking CapitalWorking capital is the amount available to a
company for day-to-day expenses. It's a measure of a company's liquidity,
efficiency, and financial health, and it's calculated using a simple formula:
"current assets (accounts receivables, cash, inventories of unfinished goods
and raw materials) MINUS current liabilities (accounts payable, debt due in
one year)"read more forms a major part of their balance sheets, so we do not
use a DCF for such companies.
QUESTION #10
List the most common multiples used in a valuation
Valuation questionsValuation QuestionsThe most crucial valued interview
questions are: what is free cash flow to the firm?, what is free cash flow to
equity?, dividend discount model? and the difference between Enterprise value
and equity value?read more are very common in investment banking interviews.
These are relative valuation techniques given below-
* EV/RevenueEV/RevenueEV to Sales Ratio is the valuation metric which is used
to understand company’s total valuation compared to its sales. It is
calculated by dividing enterprise value by annual sales of the company i.e.
(Current Market Cap + Debt + Minority Interest + preferred shares –
cash)/Revenueread more
* EV/EBITDAEV/EBITDAEV to EBITDA is the ratio between enterprise value and
earnings before interest, taxes, depreciation, and amortization that helps
the investor in the valuation of the company at a very subtle level by
allowing the investor to compare a specific company to the peer company in
the industry as a whole, or other comparative industries.read more
* EV/EBITEV/EBITThe EV to EBIT ratio is an important valuation metric that
determines whether a company's stock is expensive or cheap in comparison to
the broader market or a competitor.read more
* P/EP/EThe price to earnings (PE) ratio measures the relative value of the
corporate stocks, i.e., whether it is undervalued or overvalued. It is
calculated as the proportion of the current price per share to the earnings
per share. read more
* P/BVP/BVPrice to Book Value Ratio or P/B Ratio helps to identify stock
opportunities in Financial companies, especially banks, and is used with
other valuation tools like PE Ratio, PCF, EV/EBITDA. Price to Book Value
Ratio = Price Per Share / Book Value Per Share read more
QUESTION #11
Briefly explain leveraged buyout?
One of the technical questions.
* A leveraged buyout (LBO) is when a company or investor buys another company
using mostly borrowed money, loans, or even bonds to make the purchase.
* The company’s acquired assets are usually used as collateral for those loans.
* Sometimes, an LBO’s ratio of debt to equityRatio Of Debt To EquityThe debt to
equity ratio is a representation of the company's capital structure that
determines the proportion of external liabilities to the shareholders'
equity. It helps the investors determine the organization's leverage position
and risk level. read more can be 90-10.
* Any debt percentage higher than that can lead to bankruptcy.
QUESTION #12
Explain the PEG ratio?
* This stands for Price/earnings to growth ratio, takes the P/E ratio, and then
accounts for how fast the EPS for the company will grow.
* A stock that is growing rapidly will have a higher PEG ratioPEG RatioThe PEG
ratio compares the P/E ratio of a company to its expected rate of growth. A
PEG ratio of 1.0 or lower, on average, indicates that a stock is undervalued.
A PEG ratio greater than 1.0 indicates that a stock is overvalued.read more.
A finely priced stock will have the same P/E ratio and PEG ratio.
* So if a company’s P/E ratio is 20 and its PEG ratio is also 20, some might
argue that the stock is too expensive if another company with the same EPS
has a lower P/E ratio, but that also means that it’s growing faster because
the PEG rate is 20.
QUESTION #13
What is the formula for Enterprise Value?
* The formula for enterprise value is the market value of equity (MVE) + debt +
preferred stock + minority interest – cash.
QUESTION #14
Why do you think the cash is subtracted in the formula for enterprise
valueFormula For Enterprise ValueThe Enterprise Value Formula is an economic
measure that reflects the entire value of the organization, including secured
and unsecured creditors, equity and preference shareholders, and is more
commonly employed in acquiring other businesses or merging two or more
businesses to achieve synergy. Enterprise value Formula = Market Capitalization
+ Preferred stock + Outstanding Debt + Minority Interest – Cash & Cash
Equivalentsread more?
* The reason cash is subtracted is that it is regarded as a non-operating asset
and because Equity Value indirectly accounts for it.
QUESTION #15
Why do we consider both enterprise value and equity value?
* Enterprise value signifies the company’s value that is attributable to all
investors, whereas equity value Equity Value Equity Value, also known as
market capitalization, is the sum-total of the values the shareholders have
made available for the business and can be calculated by multiplying the
market value per share by the total number of shares outstanding.read more
the portion available to equity shareholders.
* We consider both because equity value is the number the public sees, while
enterprise value represents its true value.
QUESTION #16
What does it signify if a company has a negative enterprise value?
* The company could have negative enterprise value when the company has
extremely large cash balances, an extremely low market capitalizationLow
Market CapitalizationMarket capitalization is the market value of a company’s
outstanding shares. It is computed as the product of the total number of
outstanding shares and the price of each share.read more or both.
* This could occur in companies on the brink of bankruptcy or Financial
institutions such as banks with large cash balances.
#4 – MERGERS AND ACQUISITIONS
QUESTION #17
Briefly explain the process of a buy-side M&A deal.
* Lots of time is spent completing research on the potential acquisition
targets, and with the company you are representing, go through multiple
cycles of selection and filtering.
* Based on their feedback, narrow down the list and decide which ones are to be
further approached.
* Meetings are conducted to gauge the receptivity of potential sellers.
* Serious discussions with the seller occur, which calls for in-depth due
diligence and figuring out the offer priceOffer PriceOffering Price is the
price that is decided by an investment banking underwriter when a company
plans to go public list shares in the stock exchange for raising capital.
This price is based on the future earning potential of the company, however,
the price shouldn’t be too high then the shares might not be sold in full and
if it is too low then the potential to raise more capital is lost.read more.
* Negotiate the price and other key terms of the purchase agreement.
* Announce the M&A deal/transaction.
QUESTION #18
BRIEFLY EXPLAIN ACCRETION AND DILUTION ANALYSIS.
This one is another technical question.
* AccretionAccretionAccretion primarily means gradual or incremental growth.
However, with respect to finance, it has the following technical meaning: 1)
Bond Markets 2) Merger and Acquisitionsread more and dilution analyses are
undertaken to gauge the acquisition’s impact on the acquirer’s earnings per
shareEarnings Per ShareEarnings Per Share (EPS) is a key financial metric
that investors use to assess a company's performance and profitability before
investing. It is calculated by dividing total earnings or total net income by
the total number of outstanding shares. The higher the earnings per share
(EPS), the more profitable the company is.read more (EPS) and compare it with
the company’s EPS if the acquisition has not been executed.
* In simple words, we could say that in the scenario of the new EPS being
higher, the transaction will be called “accretive,” while the opposite would
be called “dilutive.”
QUESTION #19
Given a situation where a company with a low P/E acquires a company with a high
P/E in an all-stock deal, will the deal likely be accretive or dilutive?
* Other things being equal, in a situation where a company with a low P/E
acquires a company with a high P/E, the transaction would be dilutive to the
acquirer’s Earnings per Share (EPS).
* This is because the acquirer will have to shell out more for each rupee of
earnings than the market values its earnings.
* Therefore, the acquirer would have to issue proportionally more shares in the
transaction in such a situation.
QUESTION #20
What are the synergies and their types?
* Synergies are where the buyer gets more value out of an acquisition than what
the financials would predict. There are two types of synergies –
* Revenue synergy: The combined company can cross-sell products to new
customers or up-sell new products to existing customers. Because of the deal,
it could expand in new geographies.
* Cost synergies: The combined company could amalgamate buildings and
administrative staff and lay off redundant employees. It could also be able
to close down redundant stores or locations.
QUESTION #21
How does GoodwillGoodwillIn accounting, goodwill is an intangible asset that is
generated when one company purchases another company for a price that is greater
than the sum of the company's net identifiable assets at the time of
acquisition. It is determined by subtracting the fair value of the company's net
identifiable assets from the total purchase price.read more get created in an
acquisition?
* Goodwill is an intangible assetAn Intangible AssetIntangible Assets are the
identifiable assets which do not have a physical existence, i.e., you can't
touch them, like goodwill, patents, copyrights, & franchise etc. They are
considered as long-term or long-living assets as the Company utilizes them
for over a year. read more that mostly stays the same over the years and is
not amortized like other intangibles. It only changes when there is an
acquisition.
* Goodwill is the valuable assets that are not shown like financial assets on
the balance sheetFinancial Assets On The Balance SheetFinancial assets are
investment assets whose value derives from a contractual claim on what they
represent. These are liquid assets because the economic resources or
ownership can be converted into a valuable asset such as cash.read more. For
example, brand name, customer relationship, intellectual property rights,
etc.
* Goodwill is the subtraction of a company’s book value from its equity
purchase price. It signifies the value over the “fair market value” of the
seller that the buyer has paid.
#5 – INITIAL PUBLIC OFFERINGS (IPO)
QUESTION #22
Briefly describe what you would do if you were working on an IPO for a client?
* First of all, we would meet the client, gather all the necessary information
such as their financial details, customers, and learn about the sector they
belong to.
* After this, you would meet other bankers and lawyers with the registration
statement, which would describe the company’s business and market to its
investors.
* Next, you would receive comments from the SEC and keep revising the document
until it is acceptable.
* Now you would spend the coming weeks organizing roadshows to present the
company to the institutional clients and convince them to invest in them.
* After raising capital for the clients, the company would start trading on the
exchange.
QUESTION #23
What are the benefits of a company getting listed on an exchange?
* It is an important step for a company to achieve liquidity.
* Certain investors would want to invest only in exchange-listed issuers.
* It helps the company establish a recognized value for its stock, which could
also help it use the stock for acquisitions rather than cash.
#1 – MISCELLANEOUS QUESTIONS
QUESTION #24
What is in a pitch bookPitch BookPitch Book is an information layout or
presentation used by investment banks, business brokers, corporate firms, and
others to provide potential investors with the firm's main attributes and
valuation analysis, which helps them decide whether or not to invest in the
client's business. A pitch book is also known as Confidential Information
Memorandum, which is used by the firm's sales department to help them sell
products and services to a client.read more?
Pitchbook depends on the kind of deal the company is pitching for, but the
common structure would include:
* Bank credentials to prove their expertise in completing similar deals before.
* Summary of company’s options
* Appropriate financial models and valuation
* Investment Banking ChartsInvestment Banking ChartsThe top 4 investment
banking charts an investment banking firm must be aware of while creating
excellent financial and valuation models and its analysis include PE chart,
PE band chart, football field graph and scenario graph. read more
* Potential acquisition targets or potential buyers
* Summary and key recommendations
QUESTION #25
Tell me a company you admire/follow and pitch me a stock
It would help if you structured your answer for such investment banking
interview questions keeping in mind the following;
* Give the name of the stock you have been following and the reason for the
same.
* Quickly summarize the company’s business.
* Provide a quick overview of the financials to indicate its size and its
profitability. Also if you can provide specific details on Revenue, EBITDA
multiples, or its P/E multiple
* Provide reasons for how the stock or their business is more attractive than
its rivals.
* It would be best if you spoke about the stock trend at least in the past 3-5
years.
* You could also talk about the future outlook for the company.
QUESTION #26
When buying a company why do private equity firmsPrivate Equity FirmsPrivate
equity firms are investment managers who invest in many corporations' private
equities using various strategies such as leveraged buyouts, growth capital, and
venture capital. The top private equity firms include Apollo Global Management
LLC, Blackstone Group LP, Carlyle Group, and KKR & Company LP.read more use
leverage?
* The private equity firm reduces the amount of equity to the deal by using
significant amounts of leverage (debt) to help finance the purchase price.
* Doing this will increase the private equity firm’s rate of return
substantially when exiting the investment.
QUESTION #27
What is convexity?
* Convexity is a more accurate measure of the relationship between yield and
bond price changes in interest rates.
* Duration calculates this as a straight line, when in actuality, it is a
convex curve, hence the name.
* This is used as a risk calculation to tell how a bond yield will respond to
interest rate changes.
QUESTION #28
Define the risk-adjusted rate of returnsRisk-adjusted Rate Of
ReturnsRisk-adjusted return is a strategy for measuring and analyzing investment
returns in which financial, market, credit, and operational risks are evaluated
and adjusted so that an individual may decide whether the investment is
worthwhile given all of the risks to the capital invested.read more
* When looking at an investment, you cannot simply look at the projected
return. If the profit from investment A is greater than the profit from
investment B, you may immediately want to go with investment A.
* But investment A might have a greater chance of a total loss than investment
B. Hence, even though the profit may be larger, it is a lot riskier and not
necessarily a better investment.
* The adjusted rate of return is when you not only look at the return that an
investment may give you, but you also measure the risk of that investment.
* The adjusted rate of return is usually denoted as a number or rating.
* If you are technically minded, you may also want to mention how risk is
measured: beta, alpha, and the Sharpe ratioSharpe RatioSharpe Ratio, also
known as Sharpe Measure, is a financial metric used to describe the
investors’ excess return for the additional volatility experienced to hold a
risky asset. You can calculate it by, Sharpe Ratio = {(Average Investment
Rate of Return – Risk-Free Rate)/Standard Deviation of Investment Return}
read more, r-squaredR-squaredR-squared ( R2 or Coefficient of Determination)
is a statistical measure that indicates the extent of variation in a
dependent variable due to an independent variable.read more, and standard
deviation.
CONCLUSION
The key to successfully answering these technical questions is to apply the
concepts you’re learning and test yourself. Hope this has helped you learn some
important questions and answers on investment banking topics and brings you
steps closer to cracking the high-profile interviews. All the best :-)
P.S. Kindly note we have only touched upon the technical questions and their
types; apart from these, you would also have to prepare for the personal
questions, why investment banking Interview questions, and brain teasers which
are usually part of testing the candidates.
INVESTMENT BANKING INTERVIEW QUESTIONS AND ANSWERS VIDEO
RECOMMENDED ARTICLES
This guide lists the top 28 most commonly asked investment banking interview
questions and answers that you must know. Here we discuss the tips to answer the
questions on accounting, valuations, modeling, Pitchbook, M&A, IPO, Leveraged
buyouts, and others. You may also have a look at these Q&A to learn more –
* Top 10 Excel Interview Questions
* Equity Research Interview Questions
* Corporate Finance Interview Questions (with Answers)
* Financial Modeling Interview Questions (With Answers)
Reader Interactions
COMMENTS
1. Diwakar Ajjarapu says
Awesome…you made IB look easy and crystal clear. Thanks a lot.
* Dheeraj Vaidya says
Thanks for your kind words!
2. mamta says
It’s brilliant.. Thanks for sharing this!
* Dheeraj Vaidya says
Thanks for your kind words!
3. vikash dhaka says
Very helpful.
4. Kiran Patil says
simply amazing
* Dheeraj Vaidya says
thanks Kiran!
5. Jaspal gidwani says
Awesome knowledge you have shared.Thanks sir.
* Dheeraj says
My pleasure Jaspal!
6. Zaie says
Hey..thanks for this question bank..It is going to prove quite helpful for
my interview preparations. Also if you could prepare a similar guide for the
personal questions that could be asked in the HR round of interviews it
would be great:)
* Dheeraj says
Thanks Zaie!
Primary Sidebar
FREE INVESTMENT BANKING COURSELearn the foundation of Investment banking,
financial modeling, valuations and more.
JOIN WALLSTREETMOJO YOUTUBE
68.5K subscribers
FREE EXCEL COURSELearn MS Excel right from scratch. Master excel formulas,
graphs, shortcuts with 3+hrs of Video.
JOIN WALLSTREETMOJO INSTAGRAM
FREE FINANCE MODELING COURSELearn Financial Modeling in Excel with this Step by
Step Guide (Colgate Case Study)
JOIN WALLSTREETMOJO LINKEDIN
FINANCE DICTIONARYLearn & Master Finance & Accounting with 5400+ Step by Step
Guides & Resources
FEATURED GUIDES
What is Investment Banking? Investment Banking Interview Questions Top Finance
Certifications Financial Modeling in Excel How to Get Into Investment Banking
Footer
COMPANY
* About
* Reviews
* Contact
* Privacy Policy
* Terms of Service
* Cookie Policy
* Advertise with us
RESOURCES
* Blog
* Investment Banking Resources
* Financial Modeling Guides
* Excel Resources
* Accounting Resources
* Financial Statement Analysis
FOLLOW US
* YouTube
* Facebook
* LinkedIn
* Twitter
* Instagram
Copyright © 2022 . CFA Institute Does Not Endorse, Promote, Or Warrant The
Accuracy Or Quality Of WallStreetMojo. CFA® And Chartered Financial Analyst® Are
Registered Trademarks Owned By CFA Institute.
Free Investment Banking Course
Introduction to Investment Banking, Ratio Analysis, Financial Modeling,
Valuations and others
Enter Email Address
* Please provide your correct email id. Login details for this free course will
be emailed to you.
x
x
Let’s Get Started
Email ID *
Please select the batch
Upcoming batch *
19th/20th September 2020 Saturday - Sunday 9 am IST to 5 pm IST 26th/27th
September 2020 Saturday - Sunday 9 am IST to 5 pm IST
x
Free Investment Banking Course
Corporate valuation, Investment Banking, Accounting, CFA Calculation and others
(Course Provider - EDUCBA)
Enter Email Address
* Please provide your correct email id. Login details for this Free course will
be emailed to you
x
Login
Forgot Password?
x
Cookies help us provide, protect and improve our products and services. By using
our website, you agree to our use of cookies (Cookie Policy)
GET FREE ACCESS TO 500+ INVESTMENT BANKING & FINANCE VIDEOS
SUBSCRIBE TO WALLSTREETMOJO YOUTUBE CHANNEL
82.5K subscribers
x