Investment Banking Analyst Interview Questions and Answers
Investment Banking, one of the highly prestigious professions of current times and something that attracts a lot of candidates.This section covers commonly asked and expert level Investment Banking Analyst Interview questions and answers. The types of questions covered are general, conceptual, behavioral, situational and experience based. You can also find interesting examples and sample answers with each question.
Who are these Investment Banking Analyst Interview Questions useful for?
These interview questions will be very useful to all the candidates interviewing for the role of Senior or Junior level Investment Banking Analyst, Investment Banking Associate, Investment Banking Intern etc.
Both entry level freshers and experienced candidates will be benefited by these questions and answers.
1. What is Investment Banking?
Investment Banking is a division of banking which works towards generating capital for other businesses, that may be private, public or government.
The investment banks operate by underwriting the debt and equity securities on behalf of their client, facilitating mergers and acquisitions, providing guidance on issue and placement of stock etc.
Many banks operate both in retail and investment segments. But, to be fair to the market, both the businesses are required to be absolutely dissociated.
Video : Investment Banking Analyst Interview Questions and Answers - For Freshers and Experienced Candidates
2. What do you know about the major services offered by Investment Banks?
Well, Investment Banking is a gamut of a lot of activities & this question check your awareness of them. The major services offered by Investment banks are:
i.) Mergers and Acquisition Advisory (M & A Advisory) - Investment banks possess an expert knowledge about the market conditions and the status of the business that their client wishes to take over or merge with. They provide their client an expert guidance to maximize their profit and minimize the risk so that it can meet it growth aspirations.
ii.) Managing Capital Issues - This includes IPO, FPO, Preferential issues, Debt Placement etc. The idea is to help the client meet its objectives and in turn make money.
iii.) Debt Syndication - If the client doesn't have sufficient funds to finance a big project, the investment banks helps them with term loan, working capital loan, mezzanine finance etc. thus allowing the client to take up the right project at a right time.
iv.) Buyback advisory - They also advise their clients the right time and price at which they should buy back their shares.
v.) Corporate Advisory - To the big clients, based on their needs. This includes developing a business plan, project advisory, project identification, corporate restructuring etc.
So, these are some of the major services offered by Investment banks.
3. What are the major responsibilities of an Investment Bank Analyst?
Investment Banking Analysts are just out of college, junior level people at an Investment Bank, and the bottom line of whole investment banking deal is to raise money for your client.
The purpose of asking this question is to check, if you are aware of what you are required to do in this role and more importantly, are you ready to shoulder those responsibilities.
The major responsibilities of the person taking up this role are:
i.) Research and Analysis - Of client's portfolio.
ii.) Creating financial models
iii.) Monitoring the finances and carrying out company valuations
iv.) Pitch book compilation
v.) Producing reports - to be presented to your own management and the client.
4. What are the three most important financial documents of a company?
The three most important financial documents of a company are:
i) Balance Sheet - A distribution of assets and liabilities, this document shows the financial status of a company at a given point of time.
ii) Income statement - Shows the profitability of a company from accounting perspective.
iii) Cash flow statement - Shows the cash flow for a business from various sources.
5. How would you value a company?
There are 3 primary ways to value a company:
i.) DCF Method - This is an intrinsic valuation methodology. It stands for Discounted Cash Flow and here you discount the values of future cash flows back to present.
ii.) Multiples approach - This is a relative valuation methodology. Here you multiply a company's earnings with the P/E Ratio of the industry in which it wants to compete.
iii.) Transactions approach - In this approach, you compare the company with other companies in the same domain that have been sold or acquired.
6. Which of the following is higher - Cost of debt or Cost of equity?
The cost of equity is higher. The cost attached to borrowing debt is tax deductible.
Another reason for this is that the equity investors are not guaranteed fixed payments and they are the last ones to be paid during liquidation.
7. What do you know about the CAPM Model?
CAPM stands for Capital Asset Pricing Model. It is used for calculating the Cost of Equity. As per this model, the expected return of a security is linked to the overall market basket.