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investment banking technical interview questions and answers

Investment Banking Technical Interview Questions and Answers

Investment banking interviews involve a lot of technical questions. They are a great way for interviewers to see how well you can think on your feet and analyze difficult financial problems.

The majority of investment banking technical questions are based on valuation and accounting, so you need to be prepared. In this article, we will go over the most common investment banking technical interview questions and their answers.


Valuation is a process in which you assign a value to something. Whether you’re trying to determine the worth of an asset or company, valuation is important for many reasons. It helps people buy or sell things, and it provides a reference point for investors.

There are a variety of ways to value assets or companies, but there are a few common valuation techniques. They include discount cash flow analysis, precedent transactions, and comparable companies analysis (commonly known as trading comps).

The goal of a valuation is to provide an estimate of the current worth of a business or other asset. This is different from pricing, which focuses on demand. The valuation process is like a math problem that uses a number of different methods to arrive at an answer.

In investment banking, valuation is used to make decisions about mergers and acquisitions and other strategic deals. This includes determining how much to pay for a company, how much to bring on investors, and how to price a company for an exit.

There are several types of valuations, each with its own unique set of assumptions and limitations. In general, however, the most common valuation techniques are DCF, precedent transactions, and trading comps.

When interviewing for an entry-level job in investment banking, you can expect to be asked about valuation during the technical interview. This is because your ability to understand and discuss basic concepts and definitions around company valuations can be a deciding factor in your success as an analyst.

It’s a good idea to review these key topics and define them in your own words before your interview. That way, you’ll have a clear understanding of what is being asked and will be able to confidently talk about it in your interview.

A valuation is a useful tool for making investment decisions, and it can be used to evaluate the financial value of any company or asset. It can also be used as a starting point for negotiations and other transactions.

A valuation is a valuable tool for making decisions about mergers and acquisitions and other investment deals. It can be used to determine how much to pay for a company, if it’s a good candidate for an LBO, and whether to bring on investors.

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Accounting is the process of recording and analyzing information about a business’s financial status. This data is used by a company’s management, investors, creditors and regulators. It also enables companies to calculate their profits and losses.

It involves keeping track of cash flow, calculating the amount of money that a company has in its accounts and determining how much it owes to customers and suppliers. It is essential for financial decision-makers to understand the basics of accounting.

Another major factor in financial decisions is the use of capital, which can be raised through a variety of ways. Investment banks can help businesses raise funds by advising them on public offerings (IPOs) and arranging mergers and acquisitions.

The most common way that an investor can buy shares in a company is through an IPO. This allows them to own a share in the company and take advantage of its stock price.

Investing in a company’s stocks is one of the most lucrative methods of making money. However, it can also be risky. Therefore, investors need to be very careful when deciding whether to purchase a company’s shares or not.

Investment banking interviews often ask candidates to answer questions about accounting and finance. Fortunately, this isn’t always hard to do.

As a result, it’s important to have a solid understanding of these concepts in order to prepare for an investment banking interview. This study guide aims to help you gain an overview of the most common technical questions and answers that will likely be asked during your interview.

Accountants keep records of all income and expenses that occur within a business. They do this by categorizing assets and liabilities in different categories. Assets include tangible items such as machines, cars and production facilities, intangible items such as patents and trademarks and financial assets including shares of a company or loans to other companies.

Liabilities are those items that a company owes to others, such as mortgages or staff wages. These are usually recorded in the balance sheet and remain there for an entire year.

Accounting is a complex and important part of corporate finance, and it’s important for students to have a strong understanding of this subject before they go into their investment banking interview. A good grasp of the principles will give them a significant advantage over other applicants.

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Mergers & Acquisitions (M&A)

Mergers and acquisitions (M&A) are a common strategy for companies to expand their operations or enter new markets. These activities allow businesses to expand their reach and increase their profitability, while also lowering the risk of being susceptible to market fluctuations in specific industries.

Whether you are a business owner or a professional involved in a merger, you will likely seek the help of a team to assist you. This may be an M&A advisor, investment banker or business broker. Choosing the right team can make a difference, so it is important to understand how these services work and what each one offers.

In most cases, these firms provide a wide range of services that cover the entire deal process, from due diligence to transaction structuring. This includes a comprehensive analysis of the accretion and dilution impacts. Additionally, investment banks can help prepare fairness opinions – documents that attest to the fairness of a proposed transaction.

M&A transactions are typically expensive, requiring either cash or debt to be raised. Consequently, companies engaged in mergers want to ensure they are making the most cost-effective decision possible.

A large number of investment banks have M&A departments, with specialized professionals who are experienced in this type of high finance activity. These include full-service investment banks and specialist M&A advice investment banks, which are called boutiques.

As a result of their expertise in these transactions, most investment banks have a substantial M&A practice and are involved in many of the biggest deals in their respective industry sectors. This makes M&A a big moneymaker for most investment banks, especially the bulge bracket ones.

The key to M&A success lies in planning the transaction in advance and avoiding any issues that could jeopardize its success. Often, M&A involves a significant amount of due diligence, including an analysis of the company’s contingent liabilities, problematic contracts, litigation risks and intellectual property issues.

Moreover, the M&A process requires extensive buyer-seller negotiations. These negotiations can be challenging and intimidating, but they are important to the overall success of the deal.

M&A transactions typically take a lot of time, so they require careful planning and preparation. It is often difficult to find a suitable team that can handle these responsibilities successfully and quickly. The key is to establish a rapport with the lead negotiators on the other side of the table, and always be courteous and professional during these discussions.


The LBO (leveraged buyout) is a type of M&A (mergers & acquisitions) where the buyer of a company uses debt to fund the purchase price. This can be in the form of bank loans, second lien or high yield bonds, mezzanine debt or a combination of all three.

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The acquiring firm or private equity (PE) fund aims to make a high return on their investment in a company by using debt in the LBO. The acquiring firm determines whether a deal is worth pursuing by calculating the expected internal rate of return (IRR), which is typically 30% and above.

A leveraged buyout is a complex transaction that requires a team of experienced professionals, such as lawyers, accountants and financial analysts. The team will work together to ensure a smooth and successful closing of the transaction.

In most cases, leveraged buyouts are funded with loans from a variety of sources. These include banks, equity investors and bond investors.

Debt can be secured by a company’s assets or cash flow. It is important to note that debt in an LBO can be a source of risk if the acquiring company has a history of defaulting on their obligations.

Before a company can raise debt, it must have a clear plan and a strong business model for the future. This includes revenue growth, EBITDA margins and the ability to cover interest expenses.

As part of the due diligence process, a lender will compare the proposed transaction to other recent LBOs and try to get a feel for how current investor sentiment is for leveraged transactions. They will also consider the total debt-to-EBITDA ratio and the potential for a downside stress case.

A common technical interview question is “what are the leverage and coverage ratios for comparable LBO transactions?” This is a very detailed and analytical question that will help you determine the debt your company can take on. To find this information, you should look at “debt comps” that list the types, terms and tranches of debt that similarly sized companies in your industry have used in recent LBOs.

Jeffrey Augers
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By Jeffrey Augers

Jeffrey Augers is a highly skilled and experienced financial analyst with over 12 years of experience in the finance industry. He has a proven track record of delivering exceptional financial insights and recommendations to clients, empowering them to make informed decisions and achieve their financial goals. Jeffrey holds a Bachelor's degree in Finance from the University of Michigan, and an MBA from the Wharton School of Business.