Top 11 Investment Banking Interview Questions and Answers

Investment banking primarily deals with reducing financial risk and creating capital for other companies. The questions asked in an interview for investment banking will depend on the level of expertise and the position you are applying for. You can prepare for an interview better if you understand what questions the interviewer might ask. This article discusses the most common investment banking interview questions and answers.

Investment Banking Questions and Answers

Here are some questions that an interviewer might ask you if you are applying to work in investment banking.

1. What’s the difference between pricing and valuation?

The rest of the assets are valued. Assets could include a project, a debt or a company. Gold, bitcoins, and currencies are examples of assets that can be valued. Price is determined by the demand and supply of an asset and its characteristics.

2. What is usually higher, the cost of debt or equity?

The cost of debt is lower than that of equity because debt costs are tax-deductible. The cost of equity is also higher because equity investors, unlike lenders, are not guaranteed fixed payments. The interest payment on a debt is considered a cost. In a company’s capital structure, debt is given priority. In the event of bankruptcy or liquidation, debt holders are paid first.

3. What is the difference between enterprise value and equity value?

Equity value can be used to estimate the current and future values of a company.

4. Which financial statement would you use to evaluate the financial health of a business?

Cash flow statement because it shows how the company generates and uses cash. The balance sheet only shows the company as it was at one point. It does not show the company’s performance. The income statement contains several non-cash expenditures that do not necessarily affect the business’s health and can be manipulated. The key to a successful company is a significant cash flow and a healthy cash balance. Both are shown in the CF Statement.

5. How can two companies in the same sector with identical earnings have different P/E ratios?

The main reason for the difference in PE ratios and EV/EBIT multipliers between businesses in the same sector is that profitability has fundamentally improved. Investors will pay more for the same dollar earnings of a company that has a more significant rise in profits. The company’s unsystematic risks, sustainability, and possible acquisition premium are all factors that have a lesser impact on the multiples.
| Read More: Risk Management in Investment Banking

6. What is WACC?

WACC is the Weighted Average Capital Cost. This is a weighted calculation of the capital of an organization. This includes all sources of capital and takes into consideration factors such as depreciation rates, tax rates and debt.

7. What is meant by the term ‘Change in Working Capital?

The term “Change in Working Capital” refers to situations in which companies must spend money in advance to achieve growth or to increase income directly due to that growth. Change in Working Capital is the better outcome in retail business, as they have to spend more on products before generating sales.

It is advantageous for companies to offer subscription-based services that charge money upfront. Deferred revenue is the direct result. In both cases, the change in working capital affects the company’s value, either by increasing or decreasing Free Cash Flow.

8. How do you determine the value of a business?

Three main methods are used by investment banking to evaluate the total value of an organization.

1. The Multiples method multiplies earnings by the P/E ratios of the respective industries.

2. The second method is Transactions, which compares the company to similar companies recently acquired or sold.

3. The last method is the Discounted cash flow method, which relies on discounting future cash flows repeatedly until the present.

| Read More: Comparable Company Analysis

9. What is the difference between a merger and an acquisition?

The term “mergers” is used to describe the merging of two or more businesses to form a single entity that has a new ownership structure, management structure and name, which benefits from their competitive advantage and synergies. A financially strong company can buy all or part of the shares of a business that is less financially stable.

10. What are the monetary policies?

The government or Central Bank of a nation controls the money supply through monetary policy. The availability of money, the cost of money, and the interest rate are used to achieve several goals aimed at the growth and stabilization of the economy.

11. What exactly is DCF?

The term “discounted Cash Flow” (DCF) means a valuation method that determines the investment value based on its expected future cash flows. DCF analysis is used to determine the current value of an asset based on future projected earnings. It is an excellent tool for deciding whether to buy a company or securities. Business owners and managers can use discounted cash flow analysis to make capital and operational budget decisions.


This article contains a detailed description of how to prepare for an investment banking interview. Investment banking is raising funds for companies, governments and other organizations. This industry is relatively easy to get a job in. If you are determined and have a strong will, then you can crack and nail it.

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