50+ Investment Banking Analyst Interview Questions and Answers

Trade life cycle refers to the stages involved in the execution and settlement of a trade in the financial markets.

• Trade initiation: The process begins when a trader decides to buy or sell a financial instrument.

• Order placement: The trader places an order with a broker or through an electronic trading platform.

• Order execution: The order is matched with a counterparty and executed at the prevailing market price.

• Trade confirmation: Both parties receive a confirmation of the exe...read more

Confirmation and settlement are important parts of trade life cycle.

• Trade initiation

• Trade execution

• Confirmation

• Clearing and settlement

• Trade reporting

• Reconciliation

• Risk management

• Regulatory compliance

EV/Net Income compares enterprise value to net income, while P/E ratio compares market price to earnings per share.

• EV/Net Income considers the entire capital structure of a company, including debt and equity, while P/E ratio only considers the market price of equity.

• EV/Net Income is a more comprehensive measure of valuation as it takes into account the company's debt levels, while P/E ratio is a simpler measure based on market sentiment.

• EV/Net Income is useful for comparing c...read more

IB offers challenging work, high compensation, and opportunities for growth. WACC is higher than terminal growth rate due to risk and cost of capital.

• IB offers intellectually stimulating work and high compensation

• Opportunities for growth and advancement are abundant in IB

• WACC is higher than terminal growth rate due to risk and cost of capital

• WACC considers the cost of equity and debt, while terminal growth rate assumes a constant growth rate

• WACC reflects the risk associated w...read more

Valuation methods include DCF, comparable company analysis, precedent transactions, and LBO analysis.

• Discounted Cash Flow (DCF) analysis involves forecasting future cash flows and discounting them back to present value.

• Comparable Company Analysis involves comparing the target company to similar publicly traded companies to determine valuation multiples.

• Precedent Transactions Analysis involves looking at past M&A transactions in the same industry to determine valuation multipl...read more

Private equity funds are investment vehicles that pool capital from investors to acquire and invest in companies.

• General private equity funds are not focused on a specific industry or sector

• Fund register is a document that contains information about a private equity fund, including its investment strategy, fees, and terms

• GP (General Partner) is the manager of the private equity fund, responsible for making investment decisions and managing the fund's operations

• LP (Limited Par...read more

Cash is subtracted in Enterprise Value formula to reflect the fact that it is a non-operating asset and can be used to pay off debt or fund operations.

• Cash is considered a non-operating asset as it is not directly related to the core operations of the business.

• By subtracting Cash from Enterprise Value, we are essentially adjusting the value to reflect the fact that Cash can be used to pay off debt or fund operations.

• This adjustment provides a more accurate representation of t...read more

Industry multiples and DCF valuation are key methods for assessing a company's value based on market comparables and future cash flows.

• Industry Multiples: Compare a company's valuation metrics (like P/E, EV/EBITDA) to similar companies in the industry.

• Example: If Company A has a P/E ratio of 15 and similar companies average 20, Company A may be undervalued.

• Discounted Cash Flow (DCF): Estimate future cash flows and discount them back to present value using a discount rate.

• Step...read more

Line items in an Income Statement include revenues, expenses, gains, and losses.

• Revenue: Sales of goods or services

• Cost of Goods Sold (COGS): Direct costs related to producing goods sold

• Gross Profit: Revenue minus COGS

• Operating Expenses: Costs related to running the business (e.g. salaries, rent)

• Operating Income: Gross profit minus operating expenses

• Interest Expense: Cost of borrowing money

• Net Income: Total profit after all expenses and taxes

• Other Income/Expenses: Non-operati...read more

Depreciation reduces net income on the income statement but is added back on the cash flow statement as a non-cash expense.

• Depreciation is a non-cash expense that reduces the net income on the income statement.

• On the cash flow statement, depreciation is added back as it does not involve an actual outflow of cash.

• Depreciation affects the profitability of a company on the income statement but does not impact its cash position.

• Example: If a company reports $100,000 in depreciati...read more

My thought process on valuation methodology involves analyzing financial statements, market trends, and industry comparables to determine the value of a company.

• I start by examining the company's financial statements to understand its revenue, expenses, and profitability.

• I then research market trends and industry comparables to see how the company stacks up against its competitors.

• Next, I consider different valuation methods such as discounted cash flow analysis, comparable c...read more

Capital market is where securities are bought and sold, while investment banking involves providing financial services to corporations and governments.

• Capital market is a financial market where individuals and institutions trade financial securities, such as stocks, bonds, and commodities.

• Investment banking involves providing financial advisory services, underwriting securities, facilitating mergers and acquisitions, and managing assets for corporations, governments, and othe...read more

Share buybacks impact financial statements by reducing outstanding shares, increasing EPS, and affecting cash flow.

• Share buybacks reduce the number of outstanding shares on the balance sheet.

• This can increase earnings per share (EPS) as the same amount of earnings is distributed among fewer shares.

• On the income statement, share buybacks can lead to higher EPS and potentially higher stock prices.

• Share buybacks can also impact the cash flow statement by reducing cash reserves u...read more

Capital market is where long-term securities are bought and sold. Investment banking involves helping companies raise capital and providing financial advisory services.

• Capital market is a financial market where long-term securities like stocks and bonds are bought and sold

• Types of capital markets include primary market (new securities are issued) and secondary market (existing securities are traded)

• Investment banking involves helping companies raise capital through issuing st...read more

A three-statement financial model integrates the income statement, balance sheet, and cash flow statement for comprehensive analysis.

• 1. Start with the Income Statement: Project revenues, expenses, and net income over a forecast period.

• 2. Build the Cash Flow Statement: Use net income from the income statement, adjust for non-cash items, and account for changes in working capital.

• 3. Construct the Balance Sheet: Ensure assets equal liabilities plus equity, incorporating retained...read more

The three financial statements—income statement, balance sheet, and cash flow statement—interconnect to provide a complete financial picture.

• The net income from the income statement flows into the equity section of the balance sheet as retained earnings.

• Cash flow from operations on the cash flow statement is derived from net income, adjusted for non-cash items and changes in working capital.

• Investing and financing activities on the cash flow statement affect the balance sheet...read more

Tata Motors and Mahindra are two major players in the Indian automotive industry, with Tata Motors being larger in terms of revenue and market share.

• Tata Motors is a larger company in terms of revenue and market share compared to Mahindra.

• Tata Motors has a more diverse product portfolio including passenger vehicles, commercial vehicles, and electric vehicles, while Mahindra is known for its SUVs and tractors.

• Both companies have a global presence, with Tata Motors owning Jagua...read more

Investment banking focuses on capital markets and corporate finance, while retail banking serves individual consumers with banking services.

• Investment banking deals with large corporations and institutions, while retail banking serves individual customers.

• Investment banks assist in mergers and acquisitions (e.g., advising on a company buyout), whereas retail banks offer savings accounts and personal loans.

• Investment banking involves underwriting and issuing securities, while ...read more

Investment banking is a financial service that helps companies and governments raise capital by underwriting and issuing securities.

• Investment banks act as intermediaries between issuers and investors.

• They provide advisory services on mergers and acquisitions, restructuring, and other financial transactions.

• Investment banks also engage in trading and market-making activities.

• Examples of investment banks include Goldman Sachs, JPMorgan Chase, and Morgan Stanley.

Inventory affects cash flow statement by impacting operating cash flow through changes in inventory levels.

• Inventory purchases reduce cash flow from operations as cash is used to acquire inventory.

• Inventory sales increase cash flow from operations as cash is received from selling inventory.

• Changes in inventory levels impact working capital and cash flow from operations.

• Inventory write-downs or write-offs can also affect cash flow statement by reducing net income.

• Inventory obs...read more

Bonus share issue impacts financial statements by increasing equity on balance sheet, reducing retained earnings, and affecting earnings per share.

• Increase in equity on balance sheet due to additional shares issued at no cost

• Reduction in retained earnings as company's profits are distributed among more shareholders

• Impact on earnings per share as number of shares outstanding increases

The 3 financial statements are Income Statement, Balance Sheet, and Cash Flow Statement. Key ratios include ROE, ROA, and Current Ratio.

• Income Statement shows a company's revenues and expenses over a period of time.

• Balance Sheet provides a snapshot of a company's financial position at a specific point in time.

• Cash Flow Statement tracks the flow of cash in and out of a company.

• Key ratios like Return on Equity (ROE), Return on Assets (ROA), and Current Ratio are used to analyze...read more

Basics of accounting include understanding financial statements, recording transactions, and analyzing financial data.

• Understanding financial statements such as balance sheets, income statements, and cash flow statements

• Recording transactions accurately using double-entry accounting

• Analyzing financial data to assess the financial health and performance of a company

• Basic knowledge of accounting principles like GAAP (Generally Accepted Accounting Principles)

• Familiarity with acc...read more

Money laundering is the illegal process of making large amounts of money generated by a criminal activity, such as drug trafficking or terrorist funding, appear to have come from a legitimate source.

• Money laundering involves disguising the origins of illegally obtained money by passing it through a complex sequence of banking transfers or commercial transactions.

• Anti money laundering (AML) refers to a set of laws, regulations, and procedures designed to prevent criminals from...read more

A software company can be valued using various methods such as discounted cash flow, comparable company analysis, and precedent transactions.

• Discounted Cash Flow (DCF) method: Forecast the company's future cash flows and discount them back to present value.

• Comparable Company Analysis: Compare the company's financial metrics to similar publicly traded companies.

• Precedent Transactions: Look at the valuation multiples of past M&A deals in the software industry.

• Consider factors s...read more

A derivative is a financial contract whose value is derived from the performance of an underlying asset, index, or interest rate.

• Types of derivatives include options, futures, forwards, and swaps.

• Options give the holder the right, but not the obligation, to buy or sell an asset at a specified price before or on a specified date.

• Futures are contracts to buy or sell an asset at a future date for a price agreed upon today.

• Forwards are similar to futures but are customized contra...read more

Balancing study with a job is challenging but achievable with effective time management and prioritization.

• Create a structured schedule that allocates specific time blocks for studying and working.

• Utilize weekends or evenings for intensive study sessions, ensuring you have uninterrupted time.

• Communicate with your employer about your study commitments; they may offer flexible hours.

• Consider online courses that allow for self-paced learning, making it easier to fit into your wo...read more