Thursday, March 15, 2007

Investment Banking Interview IV

Investment Banking Interview – Questions Frequently Asked

Let’s move on to the more technical part of the investment banking interview questions. If you study finance or related subjects, the jargons and terms won’t be new to you. However if you are from a non-finance academic background, you might want to take time to get use to some terms as well as getting to know about investment banking. and are both good resources to start with for the preparation of an investment banking interview.

Remember, your preparation work won’t limit to your banking knowledge, but also your personal views and perspectives, and how update you are on current events.

We’ll talk about how to prepare for a successful investment banking interview in a few days.

Finance Questions:

  1. Why would two companies merge? What major factors drive mergers and acquisitions?
  2. What are some common anti-takeover tactics?
  3. What is an LBO? Why lever up a firm?
  4. Why might a company choose to issue debt vs. equity?
  5. What could a company do with excess cash on the balance sheet?
  6. How would you calculate a firm's WACC? What would you use it for?
  7. What is the Beta and where would you find a firm's Beta? How and why would you unlever a Beta?
  8. What is the CAPM?
  9. What would greater impact a firms valuation, a 10% reduction in revenues or 1% reduction in discount rate?
  10. What major factors affect the yield on a corporate bond?
  11. How would you evaluate the creditworthiness of manufacturer with three factories in different locations throughout the US?
  12. Company A trades at a P/E of 20. Company B trades at a P/E of 10. Both are considering acquiring Company C, which trades at a P/E of 15. For which of the two acquiring companies would the deal be dilutive. For which would it be accretive? Explain why for each.
  13. Suppose you are buying a new fixed asset - part cash and part debt. Take through how it affects all the financial statements.

Financial Market Questions:

  1. What did our firm's stock close at yesterday?
  2. What is the DJIA at today? NASDAQ? S&P500? Long Bond? Fed funds rate?
  3. Where is the market going? Bond, equity and foreign exchange? Where do you think interest rates will be in the next 12 months?
  4. What happened in the markets in the past three months?
  5. Do you read the Wall Street Journal everyday? What's on the front page today?
  6. Do you follow an industry, a stock?
  7. What do you personally invest in?
  8. What industry do you follow and what numbers do you look at to determine if a firm is doing well in the industry.
Accounting Questions:

  1. What is EBITDA?
  2. Walk me through the major line items of a Cash Flow Statement.
  3. Say you knew a company's net income. How would you figure out its cash flows?
  4. What is the difference between the balance sheet and the income statement?
  5. What is goodwill? How does it affect net income?
  6. A firm is using LIFO, the COGS start decreasing. What are effects on I/S, BS and CFS?
  7. What is the difference between Purchase and Pooling accounting? Under what circumstances would you use one or the other?
  8. What are deferred taxes? How do they arise?
  9. What is working capital? How would you calculate it?

Tomorrow we’ll focus on investment banking questions.

Recommended reading: IB Interview Guide

Investment Banking Interview

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