The investment banking industry has become one of the most sought-after but challenging industries to work in. The individuals looking forward to making a successful career in investment banking must hone their skills, gain industry-specific knowledge, prepare an impressive resume, and prepare well for the interview.
Here, we list some of the top interview questions you can expect in your investment banking interview with the answers.
Top investment banking Interview Questions and Answers
If you are considering breaking into the investment banking industry, then be prepared for an exhaustive interview round. The questions with answers mentioned below will help you know how to get into investment banking!
What do you know about Leveraged Buyout?
This question allows you to demonstrate your expertise in a leveraged buyout deal. You can impress the interviewer with this answer. Whether you engage in a theoretical discussion or provide a summary of one of the actual deals you have worked on, you should establish your skills in this one.
Talk about the steps involved in an LBO, the skills needed, the importance of numbers and ratios, etc. You must share how to calculate the numbers for an investment and determine the returns on the deal over a hold period. Mention how to calculate the projected deal exit value and compare the same to the entry investment value. The entry and exit investment value can be determined by assuming a valuation multiple and financial metrics like EBITDA. The financial model, made of a balance sheet, cash flow statement, debt, interest expense, etc. can estimate the financial metric. It also estimates the cash and debt values.
What are the most important considerations for potential investment?
You can discuss industry trends and market position in this technical investment banking interview question. Before LBO, it is vital to consider the potential investment’s market position and competitive edge. The same should include the features like high entry barriers, good networking and customer relationship, customer behaviour, technology, etc.
You must also mention the use of stable and recurring cash flows. Investment banking firms focus only on investments that guarantee a continuous cash flow.
Another thing that is essential for potential investment is key drivers for superior growth. It is critical to focus on many drivers for diversified growth. Good management and great execution offer strategic guidance to the companies and help them create a better future.
Which credit ratios are important for assessing a borrower’s financial stability?
The interviewer may ask you this question to know how you will manage financial investments. You should describe financial metrics and the decision-making process. The leverage and interest coverage ratios are critical for evaluation. The leverage ratios are critical as they unravel the company’s debt compared to the cash flow. It is also important to assess the interest coverage ratio. It determines whether a company has sufficient cash flow and can manage financial obligations.
Which credit metrics are most used in assessing the LBO feasibility?
The companies use many credit metrics that the lenders look at. They include interest rates, the lender’s risks, market strength, etc. The metrics that evaluate LBO feasibility are total debt, senior debt, net debt, interest expense EBITDA, etc.
Which capabilities will you bring to our organization?
One of the main investment banking interview questions includes how are you a good fit for the role. To answer like a pro, you should know the necessary capabilities the investment banking firm wants in you. Read the job description well. Choose a few skills related to the job and talk about how these skills can help you succeed.
Which skills are helpful for this role?
Here, you can talk about the ability to work in a team, pay attention to detail, and critical thinking. You can also mention your technical skills like data modelling, etc. Explain that you can collaborate with the top management and team to make revenue predictions. Building accurate data models can fetch high-quality data and produce insightful suggestions.
How do you monitor investment banking trends?
The interviewers may ask you this question to determine whether you are updating your knowledge continually and learning about the new investment banking trends. Tell them how you stay updated on the latest market trends and scenarios. List a few sources that keep you in touch with the industry developments. For example, you can answer that you regularly listen to investment banking podcasts, have subscribed to industry newsletters, etc. Talk about the industry event you attended in recent years and how it helped you network with other business people. Narrate how attending webinars, seminars, and workshops organized by various firms has helped you.
Wrapping Up
Preparing well for the interview will help you stay confident and improve your success chances. The interviewers ask technical and personality questions to determine whether you possess the required skills and qualifications for the investment banking role. Be prepared to answer questions about your work history and educational background, too!
