INTERVIEW QUESTIONS BANKING
1. Why are you interested in banking?
2. Why are you interested in our firm? Are you interviewing
with other firms? Which ones?
3. Tell me a time that’s not on your resume that you had a
group conflict and how did you resolve it?
4. I actually know *your ex-boss* personally, If I pick up
the phone and called him what would he say about you?
5. Tell me about this *school organization*.
6. Tell me about your internship at *past work*
7. In what area of investment banking do you want to work?
8. Are you familiar with what an investment bank does and
the typical work of an analyst?
9. What do you think makes a good analyst?
10.
Why do you think you are qualified
for this position?
11.
How would you juggle having two
assignments by two different MD’s due at the same time? What would you do if
you can’t do both?
12.
Why should we hire you instead of
other qualified candidates?
13.
How well can you deal with long
hours and a high-stress work environment? Give me some examples.
14.
What are you learning that will help
you in your work with us?
15.
What are the most important things
to you in a job?
16.
What an interesting thing that you
have read on the Wall Street Journal recently?
17.
Do you follow the market? For how
long? Do you invest?
18.
Sell me 2 stocks.
19.
Do you follow financial news or some
particular stocks? Why?
20.
What can you tell me about a
particular industry?
21.
Tell me a joke.
Behavior
1.
Tell me about yourself.
2.
What are your strengths and weaknesses?
3.
How would your friends describe you?
4.
What are your short/long term goals?
5.
In which kind of setting do you work best?
6.
Give one example where you had to come up with a creative solution for a
problem?
7.
Give one example where you had to overcome substantial difficulties
8.
Give one example where you had to work under immense pressure and how did you
deal with it?
9.
How would you approach a particular assignment?
10.
Tell me an interesting extracurricular experience and what did you learn from
it?
11.
What kind of role do you usually play in a team setting?
12.
How would you ensure the quality of your work?
13.
Given the hectic work schedule, how well do you think you can handle it?
14.
What is one accomplishment that you feel most proud of?
15.
How would you go about meeting strict deadlines?
16.
When it seems impossible that you will be bale to complete all assigned work on
time, what would you do?
17.
What is your most exciting/valuable extracurricular activities and why?
18.
Tell me about the time you worked the hardest in your life
19.
Tell me about a time you had to develop relationships with others.
20.
Describe an instance in which you've had a significant impact on a situation,
either inside or outside your job..
21.
Are you entrepreneurial?
22.
Give me an example of a situation where you demonstrated leadership.
23.
Give an example of how you worked on a team.
24.
How creative are you (creative solution)? Give an example.
25.
Give an example that demonstrates your problem-solving/analytical skills.
26.
What do you do in your spare time?
27.
What would you like me to know most that is not in your resume?
28.
If you could go anywhere for 24 hours, with an unlimited budget where would you
go?
29.
Give me an example where you had to shoulder enormous responsibilities.
30.
Why did you choose to pursue a business degree?
31.
What motivates you?
32.
What’s your favorite class? The one you like the least? Why?
33.
Tell me about a time when you had a group conflicts and how did you resolve it?
34.
Tell me about a time when you had to make sacrifice for work
35.
Describe a project that you have worked on and enjoyed?
36.
Why did you select your college or business school?
37.
Give me an example of experience of failure.
38.
Give one example where you made a mistake and how did you respond?
Technical
1. Please walk through the basic financial statements and
discuss their relationships.
1.
Balance Sheet – economic resources
of a company, including claims on them from both creditors and equity
holders. (NI from income statement into financing section)
2.
Income Statement – Measures success
of a company’s operations (Interest expense from balance sheet)
3.
Statement of Retained Earnings –
reconcile beginning and ending balance by adjusting for net income and
dividend. (NI from income statement)
4.
Cash Flow Statement – Shows sources
and uses of funds; obtain information from all three statements – net income,
working capital and dividend. (NI form income statement, beginning cash,
non-cash items and working capitals form balance sheet)
2. What’s FCF and how do you calculate it?
1.
FCF = EBIT, apply taxes to EBIT,
+D&A, - CAPEX, - ∆WC
2.
In order for a company to generate
revenues, it does not just incur operating expenses, it also needs to make
investments in real estate, buildings and equipments and working capital.
Also the company must pay taxes on its earnings; the amount of
cash that is left over is FCF.
3.
Earnings can be distorted by
accounting gimmicks, but it's tougher to fake cash flow. For this reason, some
investors believe that FCF give a much clearer view of the ability to generate
cash (and thus profits). Negative cash flow is not Always bad, it could mean
that a company is making big investments, if these big investments make a high
return, in the longer run this negative CF is not all that bad.
3. What is Working capital? And how do you calculate it?
1.
Working capital is calculated by
current assets – current liabilities, excluding cash and s/t debt
2.
If a company’s current liabilities
is > than current assets then it might not be able to meet its near term
debt obligations
4. What is CapEx?
1.
Capital expenditures is a fund that
the company use to make new purchases and upgrades on buildings, properties and
equipments
5. If you were to pick one of them, which one do you think
is the most important one?
1.
Cash flow statement – “cash is king”
2.
Net income number on the income
statement may not necessary reflect the true financial performance of the
company due to accounting distortion (accrued basis).
3.
Understanding the sources and uses
of funds are essential in analyzing the business
4.
True measure of liquidity and
solvency
6. How would you explain deferred tax?
1.
The difference in tax liability
created by the difference in GAAP and IRS codes
7. What statements and how would they be affected by a
particular transaction (acquisition of asset)?
1.
Assets = Liabilities + Equities
8. What are the different methodologies to valuate a company
and what are some of the advantage and disadvantages associated with each one?
1.
DCF – Value a company based on its
expected future free cash flows. Good for stable companies with relative
more reliable CF projection and private companies that have no
comparables. Extreme uncertainties in projecting discount rate and future
cash flow. Highly dependent on assumptions on terminal years.
Provides a sanity check – what kinds of assumptions are needed to justify a
particular value? Good measure for synergy too.
2.
CSC – commons stock comps – Value a
company by applying certain average operational or trading multiples of
comparable companies. Common multiples: EV/Sales, EV/EBITDA, P/E.
Good for understanding relative valuation, as well as private companies.
However, no two companies are alike. A company could trade at abnormal
multiples due to short-term trading pressures (M&A rumor).
3.
Past transaction comps – Valuing a
company based on the price of similar transactions in the past. Good
indication of relative value and premium is factored in the valuation.
But again, no transactions are exactly similar, time and market environment
might have changed. Common multiples: EV/ Sales or EBITDA or price /
Earnings
9. How would you measure enterprise value and market value?
1.
EV = Market Cap + ST & LT Debt
(PS and Minority Interest) – Cash
10.
What are some of the possible
motives behind a merger or an acquisition?
1.
Potential revenue and cost synergies from pooling of resources operation integrations
2.
Opportunities to enter attractive
markets, expand client base and build up
abilities to offer a range of complementary products and services
3.
Simply a growth strategy – might be cheaper than developing own brand
name/market
4.
Spread risk by diversifying a company’s operation
5.
Need to stay competitive in consolidating industries
6.
Companies could be deemed mismanaged
and undervalued (LBO – financial acquirer)
11.
Walk me through a DCF.
1.
12.
Walk me through a Accretion /
Dilution model
1.
13.
What are the issues to consider for
M&A?
1.
How much does it cost?
2.
Is it affordable?
3.
Does it make strategic sense?
14.
What is 10-year US Treasury Bond and
LIBOR?
1.
Used as risk-free rate in the market
2.
London Inter-bank Offered Rate –
rate at which major international banks in London charge each other for
borrowing -- used as a basis for many US interest rates
15.
What would happen when the Fed
lowers/raises interest rate?
1.
Interest rates would impact the
values of fix-income instrument such as bonds, whose prices will move in
opposite direction with the interest rate
2.
Lower interest rates might prompt
companies/individual to refinance their debt at a lower cost by issuing new
debt
16.
Tell me about the cases that you
have done.
17.
How would companies usually finance
a merger of acquisition (cash Vs stock) and what affects the selection of
either method?
1.
Stock financing could potentially
lead to ownership/earning dilution
2.
Relative price strength (exchange
ratio) determines how expensive it is to finance. However, stock deals are
subjected to market volatility too.
3.
Leverage position of a company
determines its ability for cash financing
4.
Cash acquisition is fully taxable
for shareholders of the target (39.6%) where as stock swap is only subject to
capital gain tax when stocks are sold (20%).
5.
Potential pro forma upside/downside
of stock-swap for target shareholders
18.
What are the main considerations
when choosing between equity and debt financing?
1.
Risk of financial distress
2.
Tax purposes
3.
Agency cost as a result of ownership
dilution
4.
Management control with debt (lean
diet for the company)
19.
Tell me some of the specific duties
you performed as an intern.
1.
Valuation; pitchbook; due diligence
(document drafting); creating and maintaining database, building models, ect
20.
Tell me more about the live deals
that you worked on.
21.
What does “pro forma” mean and why
is it important?
1.
“As if” assumption (i.e. consolidate
reporting, company’s real operations – taking our one-time charges and other
non-recurring items
2.
Helps to assess the true operational
performance of a company
3.
Allows to analyze the potential
strategy and M&A transactions
22.
How would you go about doing an
accretion/dilution analysis?
1.
Consider the pro forma earnings and
shares outstanding
2.
If Acquirer’s P/E > Target P/E =
Accretive and vice versa
23.
What is beta and how is it computed?
1.
Relative volatility of an investment
with respect to the market.
2.
βA = βE * (E/E+D) + βD * (1-t) *
(D/E+D)
24.
What is the CAPM Model and how do
you apply it?
1.
A model used to calculate the
expected return on investment (equity)
2.
RE = Rf + β(Rm – Rf)
25.
How do you compute free cash flow?
1.
FCF = EBIT * (1-t) + D&A +/- ∆
Working Capital – CapEx + Other CFs form equity firm (sales of assets, tax
credit etc.)
26.
How to calculate WACC?
1.
WACC = REL * (E/E+D) + RD * (1-t) *
(D/E+D)
2.
REL = Rf + βL * (Rm – Rf)
3.
βL = βU * (1+ (1-t) * (D/E))
27.
What is terminal value and how do
you compute it?
1.
Terminal Year FCF = FCF10 * (1+g) /
(rd - g)
28.
Where do you see the Investment
Banking/ Financial services industry going?
29.
What’s the Long Bond trading at?
30.
Where go you see the economy going
over the next year?
31.
How do you calculate the fully
diluted number of shares outstanding
1.
Treasury Method
32.
Tell me about a recent M&A deal
that you have heard about.
33.
Can you think of a possible merger
that will make sense?
Selected Technicals from Past
Interviews
1. A company purchases an building for $100MM and it is
straight-line depreciated over a 5 year period at a tax rate of 40%. Walk me
through the impacts on the financial statements for this 5 year period.
2. If you could pick one financial statement to look at for
5 years, which would you choose to value a company? Discuss the advantages and
disadvantages of ALL 3.
3. How would you go about valuing a company with 0 revenues
and no track record?
4. What combinations of ev, ni, rev, and earnings would make
good multiples and why?
5. How is beta used to calculate the return of a security,
and what does it actually mean (in words; risk compared to the market is not an
acceptable answer. What does risk mean? What exactly is beta quantifying)
6. What is the 10yr bond currently trading at? S&P?
7. Do you follow stocks at all? Tell me about one and what
you think about its future prospects.
8. What is minority interest?
9. What happens to working capital when A/R increases or
decreases?
10.
What is the difference between book
market and market value (in the general sense)? How would the book value of
debt of a company change 1 month before it goes bankrupt?
11.
Why don't we use FCF instead of
EBITDA in multiples analysis if EBITDA is a proxy for cash flows?
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