Investment banking technical interviews aren't designed to test whether you've memorized answers—they're designed to expose whether you actually understand finance well enough to explain it under pressure.
How Technical Questions Are Actually Distributed
Based on analysis of real interview questions: 23% are "Walk me through a DCF". Another 20% ask about valuation methodologies, and 10% test financial statement linkages. These top three types account for 53% of everything you'll be asked.
Category 1: Accounting and Financial Statements
Q1: Walk me through the three financial statements and how they're linked.
The income statement shows profitability. The cash flow statement shows cash movements, starting with net income. The balance sheet shows assets, liabilities, and equity at a point in time. Net income flows to retained earnings on the balance sheet and is the starting point for the cash flow statement.
Q2: How does a $10 increase in depreciation flow through?
Income statement: Pre-tax income down $10, net income down $7.50 (at 25% tax). Cash flow: Start with NI (down $7.50), add back depreciation ($10). Net: cash up $2.50. Balance sheet: Cash up $2.50, PP&E down $10, retained earnings down $7.50.
Q3: Why do we add back depreciation on the cash flow statement?
Depreciation reduced net income but didn't use cash. We add it back to reflect the company still has that cash.
Category 2: Enterprise Value vs. Equity Value
Q9: What's the difference between enterprise value and equity value?
Equity value = value to common shareholders = share price × diluted shares. Enterprise value = value of entire business = equity value + net debt + preferred + minority interest - non-operating assets.
Q10: If a company issues $100M debt to buy back stock, what happens to EV and equity value?
Equity value decreases by $100M. Enterprise value stays the same—it's just a capital structure change.
Category 3: Valuation Methodologies
Q14: What are the three main ways to value a company?
- Comparable Company Analysis (trading comps)
- Precedent Transaction Analysis (deal comps)
- Discounted Cash Flow (DCF)
Q15: When would you use each?
DCF for intrinsic fundamental value. Trading comps for market reality check. Precedent transactions when valuing for M&A (includes control premium).
Category 4: DCF Analysis (Most Tested)
Q18: Walk me through a DCF.
Step 1: Project unlevered free cash flows for 5-10 years. FCFF = EBIT × (1-Tax) + D&A - CapEx - ΔNWC. Step 2: Calculate WACC. Step 3: Calculate terminal value using perpetuity growth or exit multiple. Step 4: Discount all cash flows to present value. Step 5: Sum to get enterprise value, subtract net debt for equity value.
Q19: What discount rate do you use?
WACC for unlevered FCF. Cost of equity for levered FCF.
Q20: How do you calculate WACC?
WACC = (E/V × Cost of Equity) + (D/V × Cost of Debt × (1-Tax)). Cost of equity via CAPM: Risk-Free Rate + Beta × Market Risk Premium.
Category 5: M&A Analysis
Q26: Walk me through a merger model.
Calculate standalone financials for both companies. Determine purchase price and consideration (cash/stock). Model sources and uses. Calculate pro forma adjustments (new interest, new shares, synergies). Calculate pro forma EPS. Compare to standalone—if higher, accretive; if lower, dilutive.
Q27: Is a deal accretive if acquirer P/E is 20x and pays 15x for target?
Likely accretive. Acquirer is buying "cheaper" earnings relative to its own valuation.
Category 6: LBO Models
Q31: Walk me through an LBO.
Calculate entry EV using entry multiple. Structure sources (debt, equity) and uses (purchase price, fees). Project 5-7 year financials. Model debt paydown. Calculate exit EV, subtract remaining debt for exit equity. Calculate IRR and MOIC.
Q32: What's an ideal LBO candidate?
Strong, stable cash flows. Low capex. Strong market position. Operational improvement opportunity. Non-cyclical industry.
Q35: How do you calculate IRR quickly?
Rule of 72: Equity doubles, IRR ≈ 72/years. Rule of 114: Equity triples, IRR ≈ 114/years. Rule of 144: Equity quadruples, IRR ≈ 144/years.
How to Actually Learn These
Build Models From Scratch: Don't just review—build a DCF and LBO from a blank Excel sheet.
Verbalize Your Logic: Practice explaining out loud. Record yourself.
Focus on Concept Clusters: Everything connects. Learn in order so each concept builds on the last.
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