Investment Banking Interview Questions and Answers

Free sample from the Deskcraft question bank

This is the core of what an investment banking interview tests, sampled from the Deskcraft bank: the three statements, DCF and valuation, a paper LBO, accretion/dilution and the fit questions that decide the offer. The first answers are open; the rest are part of the full bank.

1. Walk me through a trading comparables analysis.

Model answer

Select a peer set of similar public companies by industry, size, growth and margins, pull their market and financial data, and compute multiples such as EV/EBITDA, EV/revenue and P/E. Take the median and quartiles and apply them to the target's metric to imply a value, adjusting for differences in growth and profitability. It reflects current market sentiment.

2. Walk me through the three financial statements and how they connect.

Model answer

The income statement shows profitability over a period, ending in net income. The cash flow statement starts from net income, adds back non-cash items (D&A, SBC), adjusts for changes in working capital, then shows investing and financing flows to reach the change in cash. The balance sheet is a point-in-time snapshot: net income flows into retained earnings, the ending cash from the CFS becomes cash on the BS, and PP&E links via capex and depreciation. Assets = liabilities + equity must always hold.

3. What are the three financial statements and what does each show?

Model answer

The income statement shows profitability over a period (revenue down to net income). The balance sheet shows financial position at a point in time (assets = liabilities + equity). The cash flow statement shows actual cash movement over a period across operating, investing and financing, reconciling net income to the change in cash. They link: net income flows to the CFS and to retained earnings, and ending cash on the CFS is the cash line on the BS.

4. What makes an acquisition accretive or dilutive to EPS?

Model answer

Compare the cost of the acquisition financing to the earnings you buy. An all-stock deal is generally accretive when the acquirer's P/E is higher than the target's (paying with expensive stock for cheaper earnings). A cash or debt deal is accretive when the after-tax cost of cash or debt is below the target's earnings yield. Synergies and financing effects then adjust the result.