Investment banking interview questions
333 questions asked in investment banking interviews, from accounting to mining, each linked to the lecture or module that explains it. 18 come with their model answer here. Each answered question also gives the answer as you would say it in the room, and the follow-up an interviewer is likely to ask next. Practise them with spaced repetition, timed drills and a mock interview in the interview trainer.
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Accounting
Walk me through the income statement.
It shows profitability over a period. Revenue minus cost of goods sold gives gross profit. Subtract operating expenses such as SG&A, R&D and depreciation to get operating income, or EBIT. Subtract net interest and other non-operating items to get pre-tax income, then taxes to get net income. Divide by diluted shares for EPS.
Say it out loud
The income statement shows how profitable a company was over a period, a quarter or a year. I start at the top with revenue and subtract cost of goods sold, the direct cost of what was sold, to get gross profit. Then I subtract operating expenses: selling, general and administrative costs, research and development, and depreciation and amortisation, which gives operating income, or EBIT. Below that come the non-operating items: interest expense net of interest income, and things like gains on asset sales. That gives pre-tax income. I subtract income tax to get net income, and if there is a noncontrolling interest I take its share off to reach net income attributable to the parent’s shareholders. Divided by the weighted average diluted share count, that gives diluted EPS. One point worth adding: the income statement is built on accrual accounting, so revenue is recognised when it is earned and costs when they are incurred, not when cash moves. That is why net income and cash flow can differ a lot.
Likely follow-up
Depreciation is often not a separate line on the income statement. Where would you find it?
Show the answer
It is usually embedded in cost of goods sold and in SG&A, allocated by where the assets are used: factory machinery in COGS, office equipment in SG&A. The reliable source is the cash flow statement, where D&A is added back in operating cash flow, or the notes on PP&E and intangibles. That matters for EBITDA: taking EBIT and adding back the D&A from the cash flow statement avoids missing the part hidden in COGS.
What is EBITDA and why is it used?
Earnings before interest, taxes, depreciation and amortisation. It approximates operating cash flow, is independent of capital structure and of depreciation policy, so it makes companies comparable and underlies EV/EBITDA. It ignores capex, working capital and taxes, so it overstates cash for capital-intensive businesses.
Say it out loud
EBITDA is earnings before interest, taxes, depreciation and amortisation. In practice I calculate it as EBIT plus D&A, taking D&A from the cash flow statement. It is popular for three reasons. First, it sits before interest, so it is independent of how the company is financed, and it pairs with enterprise value in EV/EBITDA. Second, it sits before depreciation, so it is not affected by different depreciation policies or by the asset write-ups that follow an acquisition. Third, it is a rough proxy for operating cash flow, which is why lenders size debt as a multiple of EBITDA. But it has real limits. It ignores capex, so it flatters capital-intensive businesses such as miners or telecoms, where depreciation is a real economic cost. It also ignores working capital and taxes. And it is not defined by IFRS or US GAAP, so companies choose what to exclude. So I always check how EBITDA is defined before comparing two companies on it, and for anything asset-heavy I also look at EBITDA minus capex.
Likely follow-up
What is adjusted EBITDA, and why should you be careful with it?
Show the answer
It is EBITDA after management removes items it calls non-recurring or non-cash: restructuring costs, litigation, impairments, stock-based compensation, and in leveraged finance sometimes expected cost savings. Some adjustments are fair, but they all push EBITDA up, and costs that recur every year are not one-offs. I check each add-back against the cash flow statement and the company’s history, treat stock-based compensation as a real cost, and compare peers on the same definition.
What is the difference between EBIT and EBITDA, and when would you prefer EBIT?
What is operating leverage?
What is the difference between basic and diluted EPS?
Walk me through the balance sheet.
What is working capital, and why does it matter?
Can a company have negative working capital? Is it bad?
How do retained earnings change over a year?
Walk me through the cash flow statement.
How are the three statements linked?
Depreciation increases by $10. Walk me through the three statements, with a 25% tax rate.
A company buys $100 of inventory with cash. Walk it through.
A company records $50 of revenue on credit, with COGS of $30 and a 25% tax rate paid in cash. What happens to cash?
A company raises $100 of debt and uses it to buy PP&E. Walk it through.
If you could use only one statement to assess a company, which would you choose?
What is free cash flow?
What is a deferred tax liability and how is it created?
What is a deferred tax asset?
Why add back stock-based compensation, and should you?
What is goodwill and how is it created?
Walk me through a $100 goodwill impairment.
How does IFRS 16 affect EBITDA and enterprise value?
What is the difference between consolidation and the equity method?
In a period of rising prices, how do FIFO and LIFO differ?
D&A does not appear on the income statement. How do you calculate EBITDA?
Explain the five-step revenue recognition model.
What adjustments go into adjusted EBITDA, and which would you challenge?
What red flags would you look for in a company’s accounts?
What does a quality of earnings report cover in a private equity deal?
A marketplace sells a $100 ticket and keeps a $15 commission. Should it report $100 or $15 of revenue?
What is the cash conversion cycle? Calculate it for receivable days of 45, inventory days of 60 and payable days of 40.
Can shareholders’ equity be negative? What does it mean?
What is reverse factoring, and why should an analyst care?
A company accrues a $40 bonus at year end and pays it in cash the next year. Walk me through both steps, with a 25% tax rate.
A company prepays $120 for a year of insurance, then one quarter passes. Walk me through the three statements, with a 25% tax rate.
A customer pays $120 upfront for a one-year subscription. Walk me through receipt and delivery, with a 25% tax rate.
A company writes down $20 of inventory. Walk me through the three statements, with a 25% tax rate.
A company sells a machine with a book value of $60 for $80 in cash. Walk me through the three statements, with a 25% tax rate.
A company buys back $100 of its own shares. Walk me through the statements and the effect on EPS.
A company declares a $50 dividend in December and pays it in January. Walk me through both dates.
A company borrows $100 at 8%, then repays it a year later with the interest. Walk me through the statements, with a 25% tax rate.
Can a profitable company run out of cash? Give an example.
A company impairs $80 of PP&E. Walk me through the three statements, with a 25% tax rate. Is the impairment really tax-deductible?
A company writes off a $20 receivable. Walk me through it with and without an allowance for doubtful accounts, at a 25% tax rate.
A company has a $200 PIK note at 12%. Walk me through year one, with a 25% tax rate.
A company borrows $100 and pays $3 of arrangement fees. How are the fees accounted for?
Where do interest and dividends go on the cash flow statement under US GAAP and IFRS, and why does it matter?
A company buys back $100 of face value of its bonds for $80 in the market. Walk me through the statements, with a 25% tax rate.
A company records $20 of stock-based compensation. Walk me through the three statements, with a 25% tax rate.
Tax depreciation rises by $10 but book depreciation does not change. Walk me through the three statements, with a 25% tax rate.
Prices are rising. A company buys one unit at $10, then one at $14, and sells one for $20. Compare FIFO and LIFO across the three statements, with a 25% tax rate.
A company spends $100 on development. Compare expensing it with capitalising it and amortising it over five years, with a 25% tax rate.
A company owns 30% of an associate that earns $100 and pays $40 of dividends. Walk me through the company’s statements.
A $100m convertible bond with a 2% coupon converts into 4m shares. What happens in the statements at conversion and afterwards?
A company signs a five-year lease at $100 a year, paid at year end, with an 8% discount rate. Walk me through IFRS 16 at signing and after one year, with a 25% tax rate.
Take the same five-year, $100-a-year lease as a US GAAP operating lease. How do the statements differ from IFRS 16?
A company has $200 of NOLs, recognised as a $50 deferred tax asset, and earns $100 before tax. Walk me through the statements under US rules, with a 25% tax rate.
A company extends the useful life of its equipment from five to ten years. Walk me through the effect on a new $100 asset, with a 25% tax rate.
A company holds shares in a listed company, carried at fair value, that rise from $100 to $120. Walk me through the statements, with a 25% tax rate.
Which differences between IFRS and US GAAP matter most to a banker?
A loss-making company with a full valuation allowance records $10 more depreciation. Walk me through the three statements.
Goodwill of $100 is impaired, but this goodwill is tax-deductible because the deal was an asset purchase. How do the statements differ from the usual case, with a 25% tax rate?
A buyer pays $500 for a target whose net assets have a book value of $200, and writes PP&E up by $100 in a share deal. How much goodwill is created, with a 25% tax rate?
Enterprise and equity value
What is the difference between enterprise value and equity value?
Equity value is the value of the shareholders’ claim: diluted shares times share price. Enterprise value is the value of the operating business to all capital providers. EV equals equity value plus debt, preferred stock and noncontrolling interest, minus cash and non-operating assets.
Say it out loud
Equity value is the value of the shareholders’ claim on the company. For a listed company it is the share price times the diluted number of shares. Enterprise value is the value of the operating business itself, to all the capital providers together: shareholders, lenders, preferred holders and minority owners of subsidiaries. You move from one to the other with a bridge. Start from equity value, add debt, preferred stock and noncontrolling interest, which are other claims on the operating business, and subtract cash and non-operating assets, such as equity investments, which are not part of the operations that generate EBITDA. For example, equity value of 1,000, debt of 400, a noncontrolling interest of 50 and cash of 100 give an enterprise value of 1,350. The intuition is buying a house: the price of the house is its enterprise value, and the owner’s equity is that price less the mortgage. EV is the right numerator for metrics that belong to all capital providers, like EBITDA; equity value pairs with metrics after interest, like net income.
Likely follow-up
What else can go into the bridge besides debt, cash and noncontrolling interest?
Show the answer
Anything that is a claim on the operating cash flows, or an asset outside them. Commonly: unfunded pension obligations, often after tax; lease liabilities if EBITDA excludes lease costs; preferred stock; out-of-the-money convertibles as debt; and for miners, sometimes mine closure provisions. On the other side I subtract equity-method investments, financial investments and assets held for sale. The rule is consistency: if the metric excludes an item’s cost or income, the claim or asset belongs in the bridge.
Why do you subtract cash when calculating enterprise value?
Because cash is not needed to run the operating business and does not generate operating earnings; a buyer of the whole company effectively gets it back. It is subtracted for consistency with operating metrics like EBITDA, not because it is a liability.
Say it out loud
We subtract cash because it is not part of the operating business. Enterprise value measures the operations that produce revenue and EBITDA, and the interest earned on cash is not in EBITDA. So to keep EV consistent with the metrics we divide it by, cash has to come out. The intuitive way to see it: if I buy the whole company, I pay the equity value and take over the debt, but I also get the cash in the bank, which I could use to repay part of the debt or pay myself a dividend. So the net cost of the operating business is equity value plus debt minus cash. It is not that cash is a liability; it is a separate, non-operating asset. One nuance: in practice I subtract only the cash that is genuinely available. Some cash is needed to run the business day to day, some is restricted, for example as collateral or in a project finance reserve account, and some is trapped in countries with capital controls or would be taxed on repatriation. That cash is worth less than its face value to a buyer.
Likely follow-up
So would you subtract all of a company’s cash?
Show the answer
Not always. I would exclude restricted cash, such as collateral or debt service reserve accounts; cash that belongs to customers, as in a payments or travel company; and cash trapped by capital controls or taxed on repatriation, or at least haircut it. Some analysts also leave in a minimum operating cash balance of a few percent of revenue. Most comps use all the cash for simplicity and consistency across peers, but in an M&A valuation these adjustments can move the price, so I check the notes.
Why add noncontrolling interest to enterprise value?
How do you calculate diluted shares?
A company raises $100 of debt and keeps the cash. What happens to EV and equity value?
A company pays a $50 dividend. What happens to EV and equity value?
Which multiples use enterprise value and which use equity value?
Can enterprise value be negative? What does it mean?
Share price $25, 80 million basic shares, 8 million options at a $15 strike. What are diluted shares?
Should you use the market value or the book value of debt in the bridge?
If a buyer pays the equity value to shareholders, why is enterprise value the real price of a company?
Two companies each have an EV of $800 and EBITDA of $100. One has no debt, the other $400 of net debt. Why is price/EBITDA meaningless?
A company issues $100 of new shares for cash, then spends the cash on a new factory. What happens to equity value and enterprise value at each step?
Calculate enterprise value: 100m diluted shares at $20, debt of $900m, cash of $250m, preferred of $100m, noncontrolling interest of $150m, equity-method investments of $120m, a $100m pension deficit and $200m of IFRS 16 lease liabilities.
Share price $40, 100m basic shares, 1m RSUs, and options of 3m at a $20 strike, 2m at $35 and 1m at $50. What are the diluted shares?
A company has a $300m convertible bond with a $40 conversion price. How do you treat it in the bridge if the share price is $50, and if it is $30?
A company borrows $200m at 6% and uses it to buy back shares. What happens to enterprise value, equity value, the share price and EPS?
A company buys a target with $500m of equity value and $100m of debt. What happens to its own EV and equity value if it pays in stock, and if it pays in cash?
Why do you subtract equity investments in the bridge, and when would you not?
How do you treat preferred stock in the bridge, and does it matter if it is convertible?
How do you treat a pension deficit in enterprise value, and how do you keep EBITDA consistent?
An IFRS company reports EBITDA of 120, after IFRS 16, with lease payments of 20 a year and lease liabilities of 150. Equity value is 700 and financial net debt 100. What is the right EV/EBITDA?
A company has a market capitalisation of $600m, $900m of cash and $100m of debt, so its EV is negative. Would you buy the whole company?
Enterprise value is said to be independent of capital structure. Is that true in practice?
Is a deferred tax liability debt? Should it go in the enterprise value bridge?
In a cash-free, debt-free deal, which debt-like items reduce the equity price beyond financial debt?
Valuation
What are the main valuation methods?
Comparable companies, precedent transactions and discounted cash flow, often with an LBO analysis to show what a financial buyer could pay. Sector methods add others, such as P/NAV for miners.
Say it out loud
There are three main methods. Comparable companies, or trading comps, value the company on the multiples at which similar listed companies trade, such as EV/EBITDA or P/E. Precedent transactions use the multiples paid in past acquisitions of similar companies, which include a control premium. And a discounted cash flow analysis values the company on its own projected free cash flows, discounted at the cost of capital. The first two are relative methods, which tell you what the market pays; the DCF is intrinsic, and tells you what the cash flows are worth under your assumptions. Banks usually add an LBO analysis, which shows what a financial sponsor could pay while earning its target return, and that often acts as a floor in a sale. Then there are reference points that are not valuations, like the 52-week trading range and analyst price targets. Sectors add their own methods. For miners the main one is net asset value, a DCF of each mine over its life, and miners trade at a price to NAV ratio. For banks it is the dividend discount model and price to tangible book.
Likely follow-up
How do you weigh the methods against each other?
Show the answer
I don’t average them mechanically. The right weight depends on the question and the data. For a sale of control, precedents and the LBO floor matter most. With a good set of close peers, trading comps give the market’s view. The DCF is most useful for companies with forecastable cash flows or few peers, and for testing what a price implies. For a gold miner, P/NAV leads. I show each range on a football field and explain where the ranges overlap and why some methods deserve more weight.
Walk me through a comparable companies analysis.
Pick peers similar in business, size, geography and growth. Compute their equity and enterprise values and their LTM and forward metrics. Calculate multiples such as EV/EBITDA and P/E, take the median and a range, apply them to the target’s metrics, then bridge to equity value and divide by diluted shares.
Say it out loud
Comparable companies analysis values a company on the multiples at which similar listed companies trade. First, I choose the peer group: same industry and business model, then similar size, geography, growth and margins. Second, I gather each peer’s data: share price, diluted shares, debt, cash and the other bridge items, and its financials, the last twelve months and consensus forecasts for the next one or two years. I clean the numbers by removing one-off items, so the earnings are recurring. Third, I compute each peer’s equity value and enterprise value, then multiples such as EV/revenue, EV/EBITDA, EV/EBIT and P/E. Fourth, I look at the median and the quartiles rather than the mean, which outliers distort, and decide where the target should sit in the range, based on its growth and margins against peers. Finally, I apply the chosen multiples to the target’s metrics. For example, a median EV/EBITDA of 8.0x applied to EBITDA of 50 gives an EV of 400; less net debt of 100, equity value is 300; with 20 million diluted shares, that is $15 per share.
Likely follow-up
What adjustments do you make to the peers’ numbers before comparing them?
Show the answer
Calendarise them, so every company is measured over the same twelve months even with different fiscal year ends. Remove non-recurring items such as restructuring, impairments and gains on disposals. Put everyone on the same accounting basis, notably lease costs under IFRS 16 versus US GAAP, and the same treatment of stock-based compensation. Use diluted shares and a consistent bridge. Convert to one currency at the same date. And use prices from the same day, before any takeover rumour moved a peer.
Which valuation method usually gives the highest value?
Why are precedent multiples usually higher than trading multiples?
Why would a company trade at a higher multiple than its peers?
How do you choose comparable companies?
What is the difference between LTM and NTM multiples, and which is better?
Why might a cyclical company look cheap on P/E at the top of the cycle?
What is a fairness opinion?
What is the football field?
How do you calculate LTM EBITDA?
A peer’s fiscal year ends in March. How do you calendarise its EBITDA to a December year end?
Would you use the mean or the median of the comps?
One peer trades at 25.0x EBITDA while the rest are at 7.0x to 9.0x. What do you do?
A peer’s reported EBITDA of 500 includes a 30 restructuring charge and a 20 gain on an asset sale. Its EV is 4,080. What multiple do you use?
How do you measure a control premium, and how do you use a premiums paid analysis?
Can trading comps give a higher value than precedent transactions?
How do you set the ranges on a football field, and how do you read it with a board?
The target has no close listed peers. How do you value it with comps?
What are the strengths and weaknesses of comps, precedents and the DCF?
A company pays out 60% of its earnings, grows 6% a year forever and has a 10% cost of equity. What P/E should it trade at?
Why don’t you value a bank on EV/EBITDA or with an unlevered DCF? What do you use instead?
A bank earns a 12% ROE, has a 10% cost of equity and grows 4% a year. What P/BV is justified?
Walk me through a dividend discount model for a bank.
How do you value an insurance company?
How do you value a REIT, and what are FFO and AFFO?
How would you value a company with negative earnings?
A subscription start-up has ARPU of $100 a month, an 80% gross margin, 2% monthly churn and a customer acquisition cost of $1,200. Are its unit economics good?
How do you value a cyclical company?
Two oil producers have the same EBITDA and trade at the same EV/EBITDA. Why might one be worth far more, and what would you use instead?
How do you do a sum-of-the-parts valuation?
Why do conglomerates and holding companies trade at a discount to the sum of their parts, and how can it be closed?
A peer closed a large debt-funded acquisition last month. Its EV is 2,600 and its LTM EBITDA is 200. What multiple do you use?
In a precedent transaction, how do you compute the deal’s EV/EBITDA, and what if the buyer acquired only 60%?
DCF
Walk me through a DCF.
Project unlevered free cash flows for five to ten years from assumptions on revenue, margins, taxes, capex and working capital. Estimate a terminal value with a perpetuity growth rate or an exit multiple. Discount the cash flows and the terminal value at the WACC. The sum is enterprise value; subtract net debt and other claims to get equity value and divide by diluted shares.
Say it out loud
A DCF values a company as the present value of the cash flows it will generate. First, I project unlevered free cash flow, usually for five to ten years, from assumptions on revenue growth, margins, taxes, capex and working capital, based on the company’s history, management guidance and the industry outlook. Unlevered free cash flow is EBIT after tax, plus D&A, minus capex, minus the increase in net working capital. Second, I estimate a terminal value for the cash flows beyond the forecast: either the perpetuity growth method, the final year’s cash flow grown at a long-term rate and divided by WACC minus g, or an exit multiple applied to final-year EBITDA. Third, I discount the cash flows and the terminal value to today at the WACC, which reflects the cost of both debt and equity. The sum is enterprise value. Then I bridge to equity value by subtracting net debt and other claims, such as noncontrolling interest and preferred stock, and divide by diluted shares to get value per share. Finally, I show sensitivity tables, because the result depends heavily on the WACC and the terminal assumptions.
Likely follow-up
How long should the forecast period be?
Show the answer
Long enough for the company to reach a steady state, where growth, margins and reinvestment are stable, because the terminal value formula assumes exactly that. For a mature company, five years is usually enough. For a fast-growing company, seven to ten years, so growth can fade towards the long-term rate before the terminal value starts. For a mine, the forecast runs over the full life of mine with no terminal value, because the reserves are finite.
How do you get from EBITDA to unlevered free cash flow?
Subtract taxes calculated on EBIT, then subtract capital expenditure and the increase in net working capital. Equivalently, start with EBIT times one minus the tax rate, add back D&A, and subtract capex and the change in working capital.
Say it out loud
I start from EBITDA and make three deductions. First, taxes, calculated on EBIT rather than on pre-tax income, because unlevered free cash flow must be independent of how the company is financed. Second, capital expenditure, the cash spent on fixed assets. Third, the increase in net working capital, the cash tied up in receivables and inventory as the business grows. For example, take EBITDA of 100, D&A of 20, a 25% tax rate, capex of 25 and an increase in working capital of 5. EBIT is 80, so unlevered taxes are 20, and unlevered free cash flow is 100 minus 20 minus 25 minus 5, which is 50. The other route gives the same answer: start with EBIT of 80, multiply by one minus the tax rate to get NOPAT of 60, add back D&A of 20, and subtract capex of 25 and the working capital increase of 5, giving 50. I would also deduct cash items that EBITDA ignores, such as payments on restructuring or mine closure provisions, and decide consistently how to treat stock-based compensation and, under IFRS 16, lease payments.
Likely follow-up
Would you use the book tax rate or the cash tax rate?
Show the answer
Cash taxes, since a DCF values cash. In the early years I use the tax the company will actually pay, which can be lower than the book rate because of accelerated depreciation, tax losses or incentives, and I check the cash taxes paid line in the cash flow statement. In the terminal year I move to the long-term marginal rate, since losses run out and timing differences reverse. Tax losses can also be valued separately rather than through the rate.
Why use unlevered rather than levered free cash flow?
Why don’t you subtract interest in unlevered free cash flow?
How do you treat stock-based compensation in a DCF?
What is the mid-year convention?
How do you calculate WACC?
How do you calculate the cost of equity?
How would you find beta for a private company?
Why is the cost of equity higher than the cost of debt?
What are the two ways to calculate terminal value?
Why should the perpetuity growth rate be low?
What happens to WACC if a company adds a lot of debt?
Your DCF’s terminal value is 85% of enterprise value. Is that a problem?
When would you not use a DCF?
How do you calculate levered free cash flow, and when would you use a levered DCF?
Your valuation date is 30 June and the company’s year ends in December. How do you handle the stub period?
You switch the DCF to the mid-year convention. What happens to the value, and what about the terminal value?
Capex rises by 100 in year 1 and nothing else changes. What happens to the DCF value?
Receivable days rise from 45 to 60 on revenue of 730. What happens to the DCF value?
The tax rate rises from 25% to 30%. What happens to the DCF value?
D&A rises by 10 and capex is unchanged. What happens to the DCF value?
The company must pay a one-off 50 litigation settlement in year 1. How does the DCF change?
Your cash flows are in real terms. What discount rate and growth rate do you use?
How would you build a DCF for a loss-making, high-growth company?
A buyer acquires a US target with 400 of tax losses, an equity value of 500 and 100 a year of taxable income. What are the losses worth to the buyer?
Your DCF uses IFRS 16 cash flows, before lease payments, and subtracts today’s lease liability in the bridge. Why can it still overstate value?
What cost of debt do you put into the WACC?
What is the equity risk premium and how do you estimate it?
A peer has a levered beta of 1.4, a debt-to-equity ratio of 50% and a 20% tax rate. Your target’s D/E is 25%. What is its cost of equity, with a 4% risk-free rate and a 5% equity risk premium?
Why might you not use a company’s own regression beta?
When would you add a country risk premium or a size premium to the cost of equity?
Should the WACC use the current or the target capital structure?
A business has an unlevered cost of capital of 10% and can borrow at 6%. It moves from no debt to a debt-to-equity ratio of 1. What happens to its cost of equity and WACC, with no taxes and with a 25% tax rate?
You are valuing a Brazilian company. Do you value it in reais or in dollars, and which risk-free rate do you use?
How does valuing a private company differ from valuing a listed one?
A company with an 8% WACC is buying a target in a riskier sector. Which discount rate do you use to value the target?
Final-year UFCF is 120, WACC is 8% and terminal growth is 2%. What is the terminal value, and what is it worth today if the final year is year 5?
WACC rises by 1 percentage point. What happens to the DCF value?
You raise the terminal growth rate from 2% to 4%. Does the value necessarily rise?
Which terminal value method do you prefer: perpetuity growth or exit multiple?
Final-year UFCF is 105, EBITDA 170, WACC 9% and terminal growth 2%. What exit multiple does your terminal value imply?
Final-year EBITDA is 200, UFCF 100, WACC 8%, and you use an 8.5x exit multiple. What perpetual growth rate does that imply?
Can the terminal value be more than 100% of enterprise value?
Your DCF gives an EV of 2,400. Debt is 600, cash 150, noncontrolling interest 50 and equity investments 100. There are 95 million basic shares and 5 million options with a $10 strike. What is the value per share?
What would you put on the axes of a DCF sensitivity table?
Your DCF says $45 a share but the stock trades at $30. How would you find out what the market is assuming?
M&A
Why do companies acquire other companies?
To grow faster than they could organically, to capture cost or revenue synergies, to gain scale and market position, or to acquire capabilities, technology or reserves. The test is whether the business is worth more under their ownership than the price.
Say it out loud
Companies acquire for growth and for value. The main reasons are: to grow faster than they could organically, by buying revenue, customers or reserves rather than building them; to capture synergies, cost savings from removing duplicated functions and combining purchasing, or revenue gains from cross-selling and pricing; to gain scale and market position, which can mean better bargaining power with suppliers and customers; to acquire capabilities, technology or talent that would take years to develop; and to reshape a portfolio. In mining, a large driver is reserve replacement: mines deplete, so producers must replace the ounces or tonnes they mine each year, and buying a developer is often faster and less risky than exploring. There are also less flattering motives, such as empire-building, or using an overvalued share price as a currency. The test of a good acquisition is whether the target is worth more under the buyer’s ownership than the price paid: whether its standalone value plus synergies, net of integration costs, exceeds the purchase price. If not, the buyer’s shareholders transfer value to the seller’s, however strategic the logic sounds.
Likely follow-up
Many acquisitions destroy value for the buyer. Why?
Show the answer
Mainly overpayment. In a competitive auction the winner is often the bidder with the most optimistic view, the winner’s curse. Synergies are overestimated, arrive late or cost more to achieve, and integration fails on culture, systems or people. Deals also cluster at the top of the cycle, when prices and confidence are highest: miners bought heavily between 2006 and 2012 and wrote much of it down when commodity prices fell. Management incentives tied to size rather than returns make it worse.
Walk me through an accretion and dilution analysis.
Add the target’s net income to the buyer’s, plus after-tax synergies. Subtract, after tax, the cost of funding (interest on new debt, interest lost on cash used), the extra D&A from asset write-ups and new intangibles in the purchase price allocation, and the amortisation of financing fees. Divide by the buyer’s shares plus any new shares issued, and compare with the buyer’s standalone EPS.
Say it out loud
An accretion and dilution analysis asks whether the buyer’s earnings per share go up or down because of the deal. I start with the buyer’s and the target’s forecast net income for the same year, usually the first full year after closing. Then I make the deal adjustments, each after tax. I add the synergies expected in that year. I subtract the cost of funding: interest on any new debt, and the interest income the buyer gives up on the cash it uses. I subtract the extra depreciation and amortisation from the purchase price allocation, since the target’s assets are written up to fair value and new intangibles are recognised, and the amortisation of financing fees. That gives pro forma net income. The denominator is the buyer’s diluted shares plus any new shares issued to the target’s shareholders. Pro forma EPS divided by standalone EPS, minus one, is the accretion or dilution. I would show it over the first two or three years, since synergies phase in, along with the synergies needed to break even. And I would stress that accretion is not value creation: it mostly reflects how cheap the funding is against the target’s earnings.
Likely follow-up
The buyer has net income of $100m and 100 million shares. It buys a target earning $20m for $300m in cash, borrowed at 6%, with a 25% tax rate. Accretive or dilutive?
Show the answer
Accretive. Interest is $300m × 6% = $18m, or $13.5m after tax. Pro forma net income is 100 + 20 − 13.5 = $106.5m on the same 100 million shares, so EPS rises from $1.00 to $1.065, 6.5% accretion, before synergies and new D&A. The shortcut agrees: the target’s earnings yield at the price paid is 20 / 300 = 6.7%, above the 4.5% after-tax cost of debt.
A buyer with a 20x P/E acquires a target at 12x in an all-stock deal. Accretive or dilutive?
What is the shortcut to tell if a deal is accretive?
Can an accretive deal destroy value?
What are synergies, and which kind is more credible?
When would a buyer pay in stock rather than cash?
Walk me through a sell-side M&A process.
What is purchase price allocation and how does it affect EPS?
What is the maximum price a buyer should pay?
What is a control premium and why is it paid?
What is the difference between a fixed exchange ratio and a fixed value in a stock deal?
A buyer offers $50 a share for a target with 100m basic shares, 5m options at a $30 strike, net debt of $900m and EBITDA of $600m. What are the purchase equity value, enterprise value and multiple?
Rank cash, debt and stock from cheapest to most expensive for an acquirer, on an EPS basis.
A buyer has net income of $400m and 200m shares at $30. It buys a target with net income of $60m for $900m: $300m from cash earning 2%, $300m of new debt at 6% and $300m of new shares. Tax is 25%. What is pro forma EPS?
A buyer earning $250m, with 100m shares at $40, buys a target earning $40m for $880m, all in stock. Tax is 25%. Is the deal accretive, and what synergies make it break even?
A buyer at 25.0x earnings buys a target at 12.5x, paying a 40% premium in stock. EPS rises 11%. Has the buyer created value?
Two companies merge in stock. A has EBITDA of $600m and net debt of $1.8bn; B has EBITDA of $400m and net debt of $200m. A contributes 60% of EBITDA. Should A’s shareholders get 60% of the combined company?
Target shareholders are offered $50 a share in buyer stock, with a collar between buyer prices of $36 and $44. The buyer trades at $40 at signing. What does each target share receive if the buyer falls to $32, or rises to $48?
A buyer expects $100m a year of run-rate cost synergies, half of it achieved in year 1, with $120m of one-off costs to achieve in year 1. How do you value the synergies?
A buyer expects net synergies worth $2bn from acquiring a listed target. How much of that should it pay away in the premium?
Beyond goodwill, what does a purchase price allocation recognise, and how does each item affect the buyer’s earnings after closing?
What are the trade-offs between an asset deal and a share deal, for the buyer and for the seller?
What is a 338(h)(10) election, and why would a buyer pay more for one?
What is the difference between an IOI and an LOI?
In a sell-side auction, which documents go to buyers, and at what stage?
What does due diligence cover, and how can its findings change the deal?
What does a bank do on a buy-side mandate compared with a sell-side mandate?
Why is there often a gap of months between signing and closing, and what can go wrong in between?
What is a material adverse change clause, and can a buyer actually use it to walk away?
What are break fees and reverse break fees, and how large are they?
A listed company’s board receives an offer. What must it do before recommending a sale, and where does a fairness opinion fit?
What is a hostile bid, and how can a target defend itself?
What is a merger of equals, and why are they hard to get right?
What is an earn-out, and when does it help close a deal?
How can you tell whether an acquirer overpaid?
LBO
Walk me through an LBO.
A sponsor buys a company with debt and equity, set out in sources and uses. You project cash flows over the holding period, using free cash flow to pay interest and repay debt. At exit, apply a multiple to final EBITDA, subtract remaining net debt to get equity value, and compare it with the equity invested to compute MOIC and IRR.
Say it out loud
In a leveraged buyout, a financial sponsor buys a company with a large amount of debt, often around half of the price or more, and its own equity for the rest. First, the sources and uses. Uses are the purchase of the equity, the refinancing of existing debt, and transaction and financing fees. Sources are the new debt tranches, any surplus cash in the target, and the sponsor’s equity, which is the plug. Second, I project the operating model over the holding period, usually five years: revenue, EBITDA, capex, working capital and taxes, down to free cash flow after interest. Third, I build the debt schedule: interest on each tranche, mandatory amortisation, and optional repayment from excess cash through a cash sweep, starting with the most senior debt. Fourth, the exit: I apply an exit multiple, often equal to the entry multiple to be conservative, to final-year EBITDA, subtract the remaining net debt and get the equity value at exit. Finally, I compare that with the equity invested to get the money multiple, MOIC, and the IRR, which accounts for timing and any interim dividends. Sponsors typically target an IRR of around 20% and 2x to 3x their money.
Likely follow-up
How do you work out the maximum price a sponsor can pay?
Show the answer
Solve backwards from the target return. Take the exit equity value and discount it at the target IRR to get the maximum equity cheque, then add the debt that can be raised. If exit equity is $900m in five years and the sponsor needs 20%, the equity it can invest is 900 / 1.2^5 = $362m. With $600m of debt, the maximum enterprise value is about $962m, or 9.6x EBITDA of $100m, before fees. In a model, I solve for the entry multiple with goal seek or a data table.
What makes a good LBO candidate?
Stable, predictable cash flows to service the debt, low capex and working capital needs, a strong market position, room to cut costs or improve margins, assets that can support borrowing, little existing debt, a capable management team, and a credible exit through a sale or IPO within about five years.
Say it out loud
The ideal LBO candidate can carry a lot of debt safely and offers ways to grow equity value. First and most important, stable and predictable cash flows, because the company must pay interest and repay debt every year whatever happens: recurring revenue, long contracts, low cyclicality, a diversified customer base. Second, low capex and working capital needs, so that a large share of EBITDA turns into free cash flow for paying down debt. Third, a strong and defensible market position, which protects margins during the holding period. Fourth, room for operational improvement: costs to cut, prices to raise, or a fragmented market for add-on acquisitions. Fifth, assets that can serve as collateral, which make lenders more comfortable. Sixth, little existing debt and a reasonable entry price, since overpaying is the surest way to ruin returns. Seventh, a credible exit within about five years, through a sale to a strategic buyer or another sponsor, or an IPO. A strong management team willing to invest alongside the sponsor matters too. Classic examples are business services, software with recurring revenue and consumer brands; highly cyclical businesses, such as commodity producers, are poor candidates.
Likely follow-up
Would a producing gold mine be a good LBO candidate?
Show the answer
Usually not. Its cash flows swing with the gold price, its sustaining capex is heavy, and its reserves deplete, so the asset shrinks while the debt is being repaid and there may be little left to sell at exit. Lenders are wary of commodity price risk in a highly levered structure. Private capital in mining tends to use project finance, sized to the mine’s reserves and life, or streaming and royalty deals, rather than classic LBO leverage.
How does leverage increase returns?
What are the three sources of returns in an LBO?
You buy at 10x EBITDA of 100 with 6x debt. EBITDA grows to 130 in five years, debt falls to 400, exit at 10x. What are the returns?
What IRR does 2x in five years imply? And 3x?
Why can a strategic buyer usually pay more than a private equity firm?
What are the typical layers of LBO debt?
What is a dividend recap?
Would you rather have higher leverage or a higher exit multiple in an LBO?
Paper LBO: buy a company with EBITDA of $100m at 7.0x, using 4.0x debt. In three years EBITDA is $120m, debt is down to $240m, and you exit at 7.0x. What are the MOIC and IRR?
Without a calculator, what is the IRR of 2.5x over four years? How do you estimate IRRs in your head?
Build sources and uses: EBITDA is $80m, the purchase price is 9.0x, the target has $120m of debt to refinance and no cash, fees are $20m, and lenders provide 5.0x. How much equity does the sponsor write?
Paper LBO: EBITDA of $50m, bought at 8.0x with 4.0x debt at 10%. EBITDA grows by $5m a year for five years. D&A equals capex at $5m a year, working capital does not change, tax is 25%, and all free cash flow repays debt. Exit at 8.0x. What are the returns?
A sponsor buys at 9.0x EBITDA of $100m with $500m of debt. In five years EBITDA is $130m and debt is $300m. What exit multiple does it need for a 20% IRR?
Entry: EBITDA of $100m at 8.0x with $500m of debt. Exit after five years: EBITDA of $150m at 9.0x with $200m of debt. Split the equity gain into its sources.
A sponsor targets a 25% IRR over five years. EBITDA is $100m today and will be $140m at exit, valued at 8.0x. Lenders provide 5.0x debt, and free cash flow will repay $250m of it. What is the maximum entry price?
A sponsor invests $400m and expects $1,000m at exit in year 5. In year 2 the company borrows $200m more at 8% to pay the sponsor a dividend. Tax is 25%. What happens to MOIC and IRR?
Would you rather have 2.0x in two years or 3.0x in five years?
Which is the better LBO candidate: a software company growing 25% with negative free cash flow, or a distributor growing 4% that converts 90% of EBITDA into cash?
When does leverage destroy value, rather than just shift risk to the equity holders?
How are management teams incentivised in an LBO?
Walk me through a typical LBO debt stack, with rough pricing and terms.
What is a unitranche loan, and why have private credit funds won so much LBO financing from banks?
What is PIK interest? How much does a $100m PIK note at 12% owe after five years?
What does covenant-lite mean, and why does it matter to lenders and sponsors?
How much debt can a business with $100m of EBITDA carry if lenders require interest cover of at least 2.0x? Compare interest rates of 6% and 9%.
How does a private equity firm exit an investment?
Markets and debt
If interest rates rise by 1%, what happens to a bond’s price?
It falls, because its fixed coupons are now less attractive than those of new bonds. The fall is roughly the bond’s modified duration times 1%: for a 10-year bond with a 4% coupon priced at par, duration is about 8.1, so the price falls by about 8%. Convexity makes the actual fall slightly smaller, 7.7%.
Say it out loud
The price falls. A bond pays fixed coupons, so when market yields rise, new bonds offer more, and the existing bond’s price must fall until its yield matches the market. Mathematically, the price is the present value of the coupons and principal discounted at the yield, so a higher yield means a lower price. How much it falls depends on duration. Modified duration measures the percentage change in price for a one percentage point change in yield. For a 10-year bond with a 4% annual coupon trading at par, modified duration is about 8.1, so a 1% rise in yields cuts the price by roughly 8%. The exact answer is a fall from 100 to about 92.3, or 7.7%, slightly less than duration predicts. The difference is convexity: the price-yield curve is convex, so prices fall less when yields rise and rise more when yields fall; the same bond would rise to about 108.5 if yields fell 1%. Longer maturities and lower coupons mean higher duration, so a 30-year bond would fall much more. That is how banks such as Silicon Valley Bank lost so much on bond portfolios in 2022 and 2023.
Likely follow-up
What is duration, and which bonds have the highest?
Show the answer
Macaulay duration is the weighted average time until the bond’s cash flows are received, weighted by their present values. Modified duration, Macaulay duration divided by one plus the yield per period, gives the price sensitivity to yields. Duration is higher for longer maturities, lower coupons and lower yields, because more of the value comes from distant payments. A zero-coupon bond’s duration equals its maturity, so a 30-year zero is among the most rate-sensitive bonds there are.
What happens to valuations when interest rates rise?
All else equal they fall: higher risk-free rates raise discount rates, so future cash flows are worth less. Long-duration assets such as growth stocks are hit hardest, and borrowers face higher interest costs.
Say it out loud
All else equal, valuations fall. The value of any asset is the present value of its future cash flows, and the discount rate starts from the risk-free rate. When government bond yields rise, the cost of equity and the cost of debt rise, the WACC goes up, and future cash flows are worth less today. Multiples compress as a result: the same earnings deserve a lower P/E. The effect is largest for long-duration assets, whose cash flows lie far in the future: growth stocks, early-stage technology companies, or a mining developer whose first production is years away. A company that earns most of its value in the terminal value loses the most, which is what happened to many growth stocks in 2022. There are direct effects too: companies with floating-rate debt pay more interest, refinancing costs more, and leveraged buyouts become harder to finance, so sponsors can pay less. Higher rates also make bonds more attractive against equities. The offset is that rates often rise because growth and inflation are strong, which can lift nominal cash flows, so the net effect on a company depends on why rates moved.
Likely follow-up
Use the perpetuity growth formula to show why high-growth companies are hit hardest.
Show the answer
Value is next year’s cash flow divided by the discount rate minus growth. With a cash flow of 100, an 8% discount rate and 3% growth, value is 100 / 5% = 2,000; at 9% it falls to 100 / 6% = 1,667, down 17%. With 5% growth, value goes from 100 / 3% = 3,333 to 100 / 4% = 2,500, down 25%. The higher the growth, the smaller the denominator, and the more a one-point rise in rates hurts.
What is a credit spread?
What does an inverted yield curve mean?
How would a company decide between raising debt and equity?
What is a covenant?
What happens to creditors and shareholders in a restructuring?
What is a convertible bond, and why issue one?
What shapes can the yield curve take, and what drives its shape?
A bond has a modified duration of 8 and convexity of 80. What happens to its price if yields rise by 1%, and if they fall by 1%?
How do credit ratings relate to spreads, and what moves spreads?
How do higher interest rates affect M&A activity?
Where is the 10-year Treasury yield today, and why does it matter for a banker?
What market levels should you know before an interview, and how do you use them?
The Federal Reserve unexpectedly cuts rates by 50 basis points when 25 were expected. What happens in markets?
Why can long-term yields rise while the central bank is cutting rates?
What are the differences between an IPO, a direct listing and a SPAC merger?
A company with a share price of $40 issues a $1bn convertible bond with a 2% coupon and a 30% conversion premium. What is the conversion price, how many shares could it create, and when will holders convert?
A company with EBITDA of $1bn and net debt of $1.5bn wants to buy a target with EBITDA of $200m for $2bn. How should it fund the deal?
What is the difference between a primary and a secondary share offering, and how are follow-on offerings usually executed?
A company’s shares trade at $10. It launches a 1-for-4 rights issue at $8. What is the theoretical ex-rights price, and what is a right worth?
Pitch me a stock.
What is happening in the M&A market right now?
Which sector do you expect to see the most M&A activity over the next year, and why?
What determines whether the IPO window is open?
Mining finance
Walk me through the life cycle of a mine. Where is value created?
Exploration and drilling, a resource estimate, then scoping, pre-feasibility and feasibility studies, permits and funding, two to four years of construction, production, and finally closure and rehabilitation. The Lassonde curve shows value jumping on discovery, sagging in the orphan period before construction, then rising again into production as risk falls and cash flow comes closer.
Say it out loud
A mine goes through about seven stages, and each has its own funders and valuation method. It starts with exploration: geology, geophysics, then drilling. If the holes are good and close enough together, a competent person publishes a resource. Then come the studies: a scoping study, a pre-feasibility study, where reserves can be declared for the first time, and a feasibility study, which is what banks lend on. After that, permits, community agreements, financial close and two to four years of construction, then ramp-up and production, and finally closure and rehabilitation. The way I think about value is the Lassonde curve. The share price jumps on discovery as speculators price the find. It then sags during the orphan period: the company has spent its cash, the discovery is old news and first production is still years away, even though geological risk has fallen. Value climbs again through construction and into production as the project de-risks and approaches its NPV. That dip is why majors tend to buy between pre-feasibility and the construction decision: the asset is de-risked but still priced at a discount.
Likely follow-up
Why does the share price fall in the orphan period when the project is less risky than at discovery?
Show the answer
Because the speculative premium fades and the remaining risks are expensive. The discovery is priced in, the next catalysts are slow studies and permits, and the company needs capex several times its market value, so investors expect heavy dilution at low prices. Generalist money leaves before cash flow arrives. Buyers with cash and engineering teams exploit this gap, which is why it is also called the acquisition window.
What is the difference between a scoping study, a pre-feasibility study and a feasibility study?
They are successive economic studies of rising accuracy and cost. A scoping study (a PEA in Canada) is accurate to about ±30 to 50% and may use Inferred resources. A pre-feasibility study, about ±20 to 25%, chooses the mining method and process route and can support the first reserves. A feasibility study, about ±10 to 15%, has detailed engineering and is what banks lend on.
Say it out loud
They are three steps of the same exercise, each more accurate and more expensive than the last. A scoping study, called a preliminary economic assessment in Canada, is a first look at whether a deposit could make money, accurate to roughly 30 to 50% either way. It can include Inferred resources, so it carries a cautionary statement and gives orders of magnitude, not bankable numbers. A pre-feasibility study narrows that to about 20 to 25%. The company chooses the mining method and the process route, applies the modifying factors and, for the first time, can convert resources into reserves. A feasibility study, sometimes called a definitive feasibility study, has detailed engineering, quotes for major equipment and an accuracy of about 10 to 15%. That is the document lenders require before they commit project debt, and usually what a board uses for the construction decision. For a banker the stage matters because it drives the discount: a scoping-study NPV deserves a much lower P/NAV than a feasibility-study NPV on the same deposit, and capex estimates tend to rise as the engineering firms up.
Likely follow-up
Can a company declare reserves on the back of a scoping study?
Show the answer
No. Reserves need at least a pre-feasibility study that applies the modifying factors: mining, processing, economic, legal, environmental and social. A scoping study is too imprecise and may rely on Inferred resources, which can never become reserves. Under S-K 1300 the SEC calls a scoping-level study an initial assessment, and it cannot support reserve disclosure either.
What is the difference between a resource and a reserve?
What are JORC, NI 43-101 and S-K 1300?
Why are Inferred resources kept out of economic studies?
What are grade, recovery and strip ratio, and how do you get from tonnes to ounces?
What is a cut-off grade, and what happens to reserves when the gold price rises?
You are handed a 400-page NI 43-101 technical report. What do you look at first?
What drives the gold price, and how is that different from copper?
Do you value a mine on spot prices or consensus prices?
How do you value a mining company?
What discount rate do you use for a mine, and should the model be real or nominal?
What is P/NAV, and why do producers trade at higher multiples than developers?
What are C1, AISC and AIC? Why is AISC the gold industry’s metric?
A gold mine sells 250,000 oz. Site operating costs are $250m, royalties $25m, sustaining capex $60m, corporate G&A $15m and growth capex $100m. What are AISC and AIC?
How do by-product credits work? A copper mine produces 100,000 t of payable copper with $500m of costs and $150m of gold revenue. What is its C1?
Gold is at $2,500/oz. Miner A has an AISC of $1,500/oz, Miner B $2,000/oz. Gold rises 10%. Which shares should move more?
A company owns two mines with NPVs of $1.8bn and $0.9bn, a project worth $450m and royalties worth $150m. It has $300m of cash, $600m of debt and corporate G&A with a PV of $350m. There are 100m shares. What is NAV per share, and what price does a 0.8x peer P/NAV imply?
Walk me through how you would build a model for a single gold mine.
Which inputs is a mine’s NPV most sensitive to?
A gold mine needs $400m of capex today, then produces 100,000 oz a year for 10 years at an AISC of $1,500/oz. Gold is $2,500/oz, tax is 30% and the real discount rate is 5%; the 10-year annuity factor is 7.72. What is the NPV?
What is the difference between a royalty and a stream, and why do miners sign them?
A streamer pays $100m upfront for 6% of the gold from a mine producing 120,000 oz a year for 10 years, then pays 20% of spot. Gold is $2,500/oz. What is the stream worth to the streamer, and what does it cost the miner?
How do banks size a project finance loan for a mine?
What are a completion test, an offtake and a cost overrun facility in mine finance?
A junior with 100m shares at $0.50 raises $10m in units at $0.40, each with half a warrant at $0.60. What is the dilution?
What are the main red flags in mining due diligence?
A mine’s head grade has been 10% below reserve grade for three years. What does it tell you, and what do you do with the model?
Why do major miners buy rather than build?
Why are so many large mining deals all-share, often mergers of equals with low premiums?
What synergies do mining mergers generate, and how do you value them?
A buyer at 1.2x P/NAV, with NAV of $20bn and 1bn shares, buys a target with NAV of $5bn and a market cap of $4bn at a 30% premium, all in shares. Is it accretive to NAV per share?
How do you reflect jurisdiction risk in a mining valuation?
How are closure and rehabilitation provisions accounted for, and how do you treat them in a valuation?
How do ESG issues affect the value of a mining company?
Tell me about a mining deal you have followed. Take Newmont and Newcrest.
What made Glencore’s takeover of Xstrata unusual?
Tell me about Barrick, Randgold and Nevada Gold Mines.
Why did BHP’s approach for Anglo American fail in 2024?
What is the logic and structure of the Anglo American–Teck merger?
Fit and motivation
Walk me through your CV.
In under two minutes and in chronological order: where you started, two or three experiences with what each taught you, how your interest in finance began and what you did about it, and why this role now. End with a natural handover and stop.
Say it out loud
Example to adapt. I studied mathematics and economics at university because I liked problems with a right answer, and I wanted to apply them to real decisions. In my second year I joined the student investment society and led a team pitching a mid-cap mining company; building that valuation taught me that a model is only as good as the questions you ask of it. The following summer I interned in the finance team of an industrial company during the sale of one of its divisions. I prepared data for the data room and helped reconcile the numbers the buyers asked about, and watching the advisers run that process made me want to be on their side of the table. In my final year I took corporate finance and M&A electives and spent a month on a valuation project for a small exploration company with one of my professors. So I am here because I want to do that analysis full time on live deals, and your team’s work in natural resources is exactly where I want to start. In the real interview: under two minutes, in chronological order, and end on why this role.
Likely follow-up
Pick one experience on your CV. What exactly did you do, and what came of it?
Show the answer
Interviewers drill into one line to test whether the CV is accurate and whether you understood your own work. Choose the experience most relevant to banking and be specific: the task, the tools, the numbers, your part as distinct from the team’s, and the outcome. For example: I built the receivables reconciliation for the buyers’ questions, about 40 customer accounts, and found a $200,000 mismatch that the CFO corrected before it reached the buyers. Never claim more than you did; the follow-up questions will find it.
Why investment banking?
Combine the work (helping companies make major decisions through rigorous analysis), the learning (fast, under pressure, in teams) and something specific to you, such as a deal or project you analysed. Avoid leading with money or exit opportunities.
Say it out loud
Example to adapt. I want to do investment banking for three reasons. The first is the work itself. In M&A you help a company with one of the biggest decisions it will take, buying, selling or merging, and the advice rests on rigorous analysis: the valuation, the deal structure, how investors will react. I found out that I enjoy exactly that during my internship in the finance team of an industrial company that was selling a division. I prepared data for the buyers, and I was struck by how the bankers turned it into a valuation range and a negotiating position. The second is the learning curve. As an analyst I would learn in two years what would take much longer elsewhere: modelling, accounting in practice, how boards and investors think, and how to work fast and accurately in a team under pressure. The third is the sector. I have followed mining since a student project on a copper developer, and the industry is consolidating, driven by copper demand and the energy transition, which is where your team is active. So for me, investment banking is where the analysis, the learning and the deals I care about come together.
Likely follow-up
Why our bank rather than another?
Show the answer
Give reasons that apply to this bank only. Cite two or three of its recent deals in your sector and what you found interesting about them, what you learned from people you have spoken to there, naming them if appropriate, and a feature of the team such as its sector focus, its size or how analysts are staffed. Avoid league tables and prestige, which every bank claims. The interviewer is testing whether you did real research and whether you would accept an offer.
Tell me about a time you failed.
Tell me about a deal you have followed.
Why M&A rather than sales and trading?
What questions do you have for me?
Why this bank?
Why M&A rather than ECM, DCM or leveraged finance?
Why mining and natural resources?
Why banking and not consulting?
Why not go straight into private equity or corporate development?
Pick one experience on your CV and tell me exactly what you did.
What are your main strengths?
What is your greatest weakness?
Tell me about a time you led a team.
Tell me about a time you worked under pressure to a tight deadline.
Tell me about a conflict in a team you were part of.
Tell me about a time you received critical feedback.
Tell me about a mistake you made with numbers. How did you catch it?
Tell me about a time you persuaded someone to change their mind.
Tell me about a time you had to work with unclear instructions.
Tell me about an ethical dilemma you have faced.
What does an analyst do day to day?
The hours in M&A are long. How will you cope?
Where do you see yourself in five years?
Which other firms are you applying to?
How do you follow the markets, and what has caught your attention recently?
If you were advising a mining company, which acquisition would you pitch?
Teach me something in two minutes.
How many haul trucks does an open-pit mine processing 100,000 tonnes of ore a day need?
How many petrol stations are there in France?
Why should we hire you?
How good is your Excel, out of 10?