Preparing for an investment banking interview? This post might be of some help. Investment banking is one of the most demanded career options in the finance world. More and more CFAs and CAs are adopting investment banking as a career owing to salary benefits and career growth. Clearing an interview has never been easy. Some questions might freeze you at the interview and what next, you lose the opportunity. The best way to crack an interview is by preparing sharp for the interview. You might still miss out some questions but covering most of the questions will help you build the confidence. In this article, we will talk about few investment banking facts that will serve you beneficial to clear interview on investment banking.
Basics of Finance
Mastery over every topic is grounded on the knowledge of basics and finance is no exception. Even though you are aware of all the basic concepts of finance, there’s no harm in revising them again. In fact that refreshes your memory. You should have basic knowledge on balance sheet, income statement, and cash flow statement and so on. It is important to understand these concepts. Memorizing just the formulas won’t help you. Interviewer might ask you a question based on real-life scenario. Only if you understand the concepts, you can provide a justified answer.
This is one of the most common questions that are asked in interviews. How do you value a company; what are the ways? Typically, there are three basic ways to value a company – discounted cash flows, multiple approach and comparable transactions. Discounted cash flows is all about foreseeing cash flows in the near future and discounting it against cost of capital. In this case, learning about weighted average cost of capital too is important. This can be calculated by taking the percentage of debt, equity and preferred shares of total firm value and then multiplying the individual components with the rate of return. Besides discounted cash flow, there are other ways of calculating corporate valuation and multiple approaches is one of them. In order to refer to multiple approaches, one should be able to find out average multiples for a specific industry.
Debt and Equity Concepts
Investment banking has a lot to do with debt and equity. As an investment banker, you might need to help companies in choosing from debt and equity. Therefore, questions related to debt and equity too is a common one in interviews. You should be able to tally between the benefits coming from the both the ways and suggest the best for a company. Increasing the debt in organizations might provide you benefits on tax and revenues. However, this is not the only criteria to decide upon debt or equities.
These are some of the most important topics covered in financial interviews for investment banker. Besides gaining understanding on these concepts, attaining certification too helps. Certification showcases one’s dedication towards a profession and establishes one’s ability to handle financial areas and critical issues easily. CFA certification is one of the demanded certification among investment bankers. This certification is globally acknowledged and is a good move ahead towards re-skilling and career growth. To know more, explore our CFA courses.