The$400$ Investment$Banking$Interview$ Questions$&$Answers$ You$Need$to$Know$ A" " " " Production " http://breakingintowallstreet.com" http://www.mergersandinquisitions.com " " " " " " " " " " Copyright"2010"Capital"Capable"Media"LLC.""All"Rights"Reserved." " Notice"of"Rights" " No"part"of"this"book"may"be"reproduced"or"transmitted"in"any"form"or"by"any" means,"electronic,"mechanical,"photocopying,"recording,"or"otherwise,"without" the"prior"written"permission"of"the"publisher. http://breakingintowallstreet.com" http://www.mergersandinquisitions.com 2 " Table"of"Contents" " Introduction".................................................................................................................."4! Fit"/"Qualitative"Questions"..........................................................................................."6! Analytical"/"Attention"to"Detail"Questions"&"Suggested"Answers"......................."7! Background"/"Personal"Questions"&"Suggested"Answers"..................................."10! “Career"Changer”"Questions"&"Suggested"Answers".........................................."14! Commitment"Questions"&"Suggested"Answers..................................................."17! Culture"Questions"&"Suggested"Answers"............................................................"20! “Future”"Questions"&"Suggested"Answers".........................................................."23! Strengths"/"Weaknesses"Questions"&"Suggested"Answers"................................."25! Team"/"Leadership"Questions"&"Suggested"Answers"........................................."29! Understanding"Banking"&"Suggested"Answers".................................................."33! “Warren"Buffett”"Questions"&"Suggested"Answers"............................................"39! “Why"Banking?”"Questions"&"Suggested"Answers"............................................"45! “Failure”"Questions"&"Suggested"Answers"........................................................."48! “Outside"the"Box”"Questions"&"Suggested"Answers".........................................."52! Discussing"Transaction"Experience..........................................................................."55! Restructuring"/"Distressed"M&A"Questions"&"Answers"........................................."62! Technical"Questions"&"Answers"..............................................................................."75! Accounting"Questions"&"Answers"–"Basic"..........................................................."76! Accounting"Questions"&"Answers"–"Advanced".................................................."89! Enterprise"/"Equity"Value"Questions"&"Answers"–"Basic"...................................."95! Enterprise"/"Equity"Value"Questions"&"Answers"–"Advanced"........................."100! Valuation"Questions"&"Answers"–"Basic"............................................................"102! Valuation"Questions"&"Answers"–"Advanced...................................................."113! Discounted"Cash"Flow"Questions"&"Answers"–"Basic"......................................."119! Discounted"Cash"Flow"Questions"&"Answers"–"Advanced".............................."128! Merger"Model"Questions"&"Answers"–"Basic"....................................................."131! Merger"Model"Questions"&"Answers"–"Advanced"............................................"139! LBO"Model"Questions"&"Answers"–"Basic"........................................................."148! LBO"Model"Questions"&"Answers"–"Advanced................................................."155! Brain"Teaser"Questions"&"Answers....................................................................."162! http://breakingintowallstreet.com" http://www.mergersandinquisitions.com 3 " Introduction" " This"guide"has"one"purpose:"to"help"you"answer"the"most"important"“fit”"and"technical" questions"in"investment"banking"interviews."We"tell"you"what’s"important"and"what"you" need"to"say"–"nothing"more"and"nothing"less." " Most"other"guides"suffer"from"several"problems:" " 1. The"information"is"not$investment$banking?specific.""Do"you"think"you’re"going" to"get"a"question"about"“Why"you’re"interested"in"this"position?”""I’ll"tell"you" why"you’re"interested"–"because"you"want"to"make"a"lot"of"money!" 2. The"information"is"out?of?date,$wrong$or$incomplete"(see:"The$Vault$Guide)."" These"days,"interviewers"assume"you"know"the"basics"–"like"how"to"value"a" company"–"and"go"beyond"that"with"advanced"questions"that"require"thinking" more"than"memorization." 3. No$answers$are$provided,"or"there’s"minimal"direction"(see:"The$Recruiting$Guide$ to$Investment$Banking).""Of"course,"you"shouldn’t"memorize"answers"wordefore word,"but"it’s"helpful"to"have"an"idea"of"how"you"might"structure"your"answers." 4. The"questions"do$not$apply$to$interviewees$from$diverse$backgrounds.""If"you" worked"at"Goldman"Sachs"this"past"summer"it’s"not"hard"to"convince"them" you’re"serious"about"finance"–"but$what$if$you$didn’t?""What"if"you’re"making"a" career"transition"or"you’re"coming"in"as"a"more"experienced"hire?""That’s"what" this"guide"is"for." 5. The$guides$were$not$written$by$bankers.""If"you"doubt"my"credentials,"just"refer" to"Mergers"&"Inquisitions,"where"I’ve"written"over"200"detailed"articles"on" networking,"resumes,"interviews,"and"recruiting"for"investment"banking"and" private"equity.""The"proof"is"in"the"pudding." " Your"time"is"limited"–"so"we"get"you"the"answers"you"need,"when"you"need"them"(right" now)." " What"follows"is"a"list"of"400"investment"banking"interview"questions"and"answers," divided"into"different"types"of"“fit”"questions"(personal,"team"/"leadership,"“why" banking,”"etc.),"technical"questions"(accounting,"valuation,"DCF,"merger"models"and" LBO"models,"and"brain"teasers),"and"other"topics"(restructuring,"distressed"M&A,"and" discussing"transactions)." " " http://breakingintowallstreet.com" http://www.mergersandinquisitions.com 4 " What’s$New$in$the$2nd$Edition?$ " A"lot:" " (cid:1) Dozens"of"more"advanced"technical"questions"in"each"section." (cid:1) 40"Restructuring"/"Distressed"M&A"questions"–"very"important"in"today’s"market." (cid:1) How"to"discuss"transactions"and"deal"experience"in"interviews,"with"sample" “good”"responses"for"each"question." (cid:1) More"fit"questions"and"answers"that"address"important"scenarios"(explaining"bad" grades,"gaps"in"your"resume,"etc.)." " Plus,"video"tutorials"on"how"to"tell"your"“story,”"sample"deal"discussions,"and"sample" investment"banking"interview"with"full"critiques"–"which"you"can"access"via"the"BIWS" membership"site"you"have"access"to"if"you’ve"signed"up"for"this"guide." " These"new"editions"make"the"guide"twice$the$length"of"the"original"version,"but"you$ don’t$have$to$read$everything."Pick"and"choose"which"sections"are"most"relevant"to"you." " I"recommend"reviewing"the"table"of"contents"first"and"then"skipping"to"the"questions"you" are"most"in"need"of"understanding.""Or"you"can"read"the"entire"guide"all"at"once"as"well"–" it’s"up"to"you." " In"either"case,"though,"the"key"is"to"apply"what"you’re"learning"and"test"yourself.""Rather" than"reading"everything"passively,"try"to"answer"each"question"–"and"then"check" whether"or"not"you"got"it"right.""Do"that,"and"you’ll"be"several"steps"closer"to"landing" investment"banking"offers." " eBrian" " Mergers"&"Inquisitions" Breaking"Into"Wall"Street" " " " " " http://breakingintowallstreet.com" http://www.mergersandinquisitions.com 5 " Fit$/$Qualitative$Questions" " Although"we’d"like"to"think"otherwise,"there"are"no"“correct”"answers"you"can"use"for" the"qualitative"questions"you’ll"get.""They"depend"on"your"background"and"your"own" experience,"and"everyone’s"different." " However,"there"are"good"ways"to"answer"and"poor"ways"to"answer.""In"this"section,"we" detail"the"best"techniques"along"with"what"you"should"say"–"and"avoid"saying." " Most"candidates"make"2"big"mistakes"when"answering"“fit”"questions:" " 1. They"fail"to"use"specific"anecdotes"to"support"their"points." 2. They"do"not"structure"their"answers"properly." " Whenever"you’re"asked"a"generic"question"about"“how"you"work"in"teams”"or" something"of"that"nature,"you"need"to"have"anecdotes"ready"to"back"up"what"you"say.""" " You"should"go"through"this"list"and"your"resume"and"make"sure"you"have"stories" prepared"for"the"most"common"questions"–"you"can"then"use"those"and"then"adapt"them" as"necessary"for"any"new"questions"you"get." " Regardless"of"the"question,"you"also"need"to"structure"it"properly.""Don’t"jump"around" from"point"to"point"–"start"with"the"main"idea"you"want"to"get"across"and"then"support"it" with"examples.""Don’t"start"going"off"on"tangents"about"your"former"life"in"the"circus"or" how"you"climbed"Mt."Everest." " With"the"exception"of"the"“Walk"me"through"your"resume”"question,"most"“fit”" questions"should"take"no"more"than"1"minute"for"you"to"answer." " Be"succinct"and"conversational"in"your"tone,"and"you"should"do"fine." " Also"make"sure"you"review"everything"on"the"BIWS"site,"including"the"video"tutorials"on" how"to"tell"your"“story”"and"the"sample"interviews"and"critiques"right"here:" " http://breakingintowallstreet.com/biws/category/01etelleyourestory/" http://breakingintowallstreet.com/biws/category/03esampleeinvestmentebankinge interviews/" " http://breakingintowallstreet.com" http://www.mergersandinquisitions.com 6 " Analytical)/)Attention)to)Detail)Questions)&)Suggested)Answers) " Analytical"and"quantitative"questions"are"more"common"if"you’re"a"Liberal"Arts"major"or" if"you"haven’t"had"finance,"engineering"or"math"experience." " Interviewers"are"trying"to"assess"whether"“you"can"count”"–"you"don’t"need"to"be"a"math" whiz"to"be"a"banker,"but"you"do"need"to"be"comfortable"with"numbers"and"calculations"in" Excel." " So"if"you"haven’t"majored"in"something"quantitative"or"your"work"experience"is"all" journalismerelated,"you’ll"want"to"prepare"a"few"examples"of"your"analytical"abilities." " Even"if"you"have"had"finance"or"analytical"experience,"you’re"still"likely"to"be"asked"about" your"analytical"skills"–"they"want"to"test"your"communication"abilities"and"make"sure" you"can"express"abstract"concepts"clearly." " These"questions"are"also"a"good"chance"to"bring"up"any"independent"study"of"finance" you’ve"done,"which"will"help"your"case"once"again." " 1.$I$see$you’ve$done$mostly$journalism$and$research$internships$before.$$Can$you$ discuss$your$quantitative$skills?$ " You"should"respond"by"discussing"specific"times"when"you"had"to"analyze"numbers" and/or"use"logic.""Good"examples"might"include:"your"personal"portfolio,"any" math/science"classes"you’ve"taken,"any"type"of"budgeting"process"you’ve"been"through," any"type"of"research"you’ve"done"that"involved"numbers." " 2.$In$your$last$internship,$you$analyzed$portfolios$and$recommended$investments$to$ clients.$$Can$you$walk$me$through$your$thought$process$for$analyzing$the$returns$of$a$ client$portfolio?$ " The"key"is"to"break"everything"down"into"steps"and"be"very"specific"about"what"you"did."" So"you"might"say"that"“Step"1”"was"getting"a"list"of"when"they"bought"each"investment" and"how"much"they"invested"/"how"many"shares"they"acquired;"“Step"2”"was"finding"a" list"of"when"they"sold"each"investment,"and"what"they"sold"them"for;"and"“Step"3”"was" aggregating"this"data"over"the"years"inebetween"for"each"investment"to"calculate"the" compound"return." " http://breakingintowallstreet.com" http://www.mergersandinquisitions.com 7 " 3.$Can$you$tell$me$about$the$process$you$used$to$analyze$space$requirements$for$the$ building$designs$you$worked$on$this$past$summer?$ " Similar"to"the"reasoning"above,"break"it"into"steps"and"start"by"discussing"how"you"made" the"initial"estimates,"then"how"you"refined"them"and"made"them"more"exact"over"time" while"staying"within"budget"and"collaborating"with"your"team." " 4.$You’ve$been$working$as$a$lawyer$for$the$past$3$years$–$what$initiative$have$you$ taken$on$your$own$to$learn$more$about$finance?$ " You"should"either"present"a"list"of"selfestudy"courses"or"certifications"such"as"the"CFA" that"you’ve"obtained,"or"speak"about"your"own"work"studying"independently"from" textbooks,"selfestudy"courses"and"other"sources.""Be"conservative"with"how"much"you" claim"to"know"–"reeiterate"that"you’re"“not"an"expert”"but"that"you"have"taken"the" initiative"to"learn"something"on"your"own." " 5.$You$were$an$English$major$–$how$do$you$know$you$can$handle$the$quantitative$ rigor$required$in$investment$banking?$ " Combine"the"answers"to"questions"#1"and"#4"for"this"one"–"the"key"is"to"use"specific" examples"rather"than"just"saying,"“I"got"a"high"math"SAT"score!”""Personal"financial" experience,"classes,"selfestudy"courses"and"independent"study"work"well." " 6.$Can$you$tell$me$about$a$time$when$you$submitted$a$report$or$project$with$ misspellings$or$grammatical$mistakes?$ " It’s"unrealistic"to"claim"that"you’re"perfect"and"have"never"done"this.""Instead,"briefly" mention"a"time"when"you"made"a"careless"mistake"and"then"spend"the"majority"of"time"in" your"answer"discussing"what$you$learned$and$how$you$improved,"citing"another"specific" example"of"how"you"improved"the"second"time"around." " 7.$What’s$the$most$number$of$classes$you$ever$took$at$once$and$how$well$did$you$do$ in$each$of$them?$ " Once"again,"it’s"best"to"point"to"something"specific"–"“During"my"junior"year,"I"was" taking"5"classes"at"once"as"well"as"working"partetime"and"running"my"business"fraternity" –"and"I"still"got"A’s"in"all"of"them.”" " http://breakingintowallstreet.com" http://www.mergersandinquisitions.com 8 " Not"everyone"has"a"perfect"answer,"but"try"to"think"about"the"most"stressful"time"in"your" academic"life"and"use"that"as"a"reference"for"your"answer." " State"the"“challenge”"first,"then"how"you"responded,"and"then"how"well"you"did." " 8.$How$well$can$you$multi?task?$ " In"keeping"with"our"theme"of"specificity,"give"a"concrete"example"of"a"time"when"you" were"working"on"multiple"projects"at"the"same"time"–"work,"school,"or"activities"work" equally"well"for"this"one.""Also"emphasize"that"despite"the"considerable"demands,"you" pulled"off"everything"successfully.""Anything"involving"teamwork"or"collaboration"is" also"good"to"use"in"this"response." " 9.$Have$you$ever$worked$on$a$project$or$report$that$was$shown$to$a$large$number$of$ people?$ " A"journal,"student"publication"or"anything"similar"could"be"good"to"mention"here,"as" could"anything"shown"to"a"client"or"multiple"clients"in"your"work"experience"or"in"an" internship." " If"you"don’t"have"something"like"this,"the"best"approach"is"to"come"as"close"possible"by" saying,"for"example,"“I"haven’t"worked"on"a"widely"circulated"publication,"but"I"did" work"on"sucheandesuch…,"which"required"that"all"the"details"were"perfect"and"that"there" were"no"mistakes…”" " You"could"even"cite"lab"or"medical"work"–"even"if"it"wasn’t"widely"circulated,"anything" requiring"strong"attention"to"detail"suffices." ) ) ) ) ) http://breakingintowallstreet.com" http://www.mergersandinquisitions.com 9 " Background)/)Personal)Questions)&)Suggested)Answers) " Typical"background"questions"include"inquiries"about"where"you"went"to"school" (undergraduate"and/or"business"school),"what"you"majored"in,"and"why/where"you" studied"abroad"if"you’ve"done"that." " These"questions"are"not"too"difficult"to"answer"as"long"as"you’re"thoughtful"and"have"a" decent"rationale"for"what"you"say." " The"key"points:"come"across"as"an"interesting"person"(which"you"should"have"no"trouble" doing)"and"also"talk"about"how"your"experience"better"prepared"you"for"investment" banking." " Even"if"you"did"something"seemingly"unrelated,"such"as"a"Math"Major,"that"can"be" turned"into"a"good"response"to"lead"into"the"inevitable"“Why"banking?”"question"you’ll" get." " 1.$Walk$me$through$your$resume.$ " You"should"really"go"through"all"the"lessons"on"telling"your"“story”"right"here"first:" " http://breakingintowallstreet.com/biws/category/01etelleyourestory/" " Start"at"“the"beginning”"–"if"you’re"in"college,"that"might"be"where"you"grew"up"or"where" you"went"to"high"school.""For"anyone"in"business"school"or"beyond,"it"might"be"where" you"went"to"undergraduate,"your"first"job,"or"even"where"you"went"to"business"school." " Then,"go"through"how"you"first"became"interested"in"finance/business,"how"your"interest" developed"over"the"years"via"the"specific"internships"/"jobs"/"other"experiences"you"had" and"conclude"with"a"strong"statement"about"why"you’re"interviewing"today." " Aim"for"2e3"minutes"–"if"you"go"on"longer"than"this,"the"interviewer"may"get"bored"or" impatient.""Also,$do$not$look$at$your$resume$when$going$through$your$“story.”" " The"4"most"important"points:" " 1. Be"chronological." 2. Show"how"each"experience"along"the"way"led"you"in"the"direction"of"finance." http://breakingintowallstreet.com" http://www.mergersandinquisitions.com 10 "