Investment banking interview technicals: what actually gets asked

Investment banking technical questions are not infinite. Across first-round interviews and superdays, the same small set recurs — accounting, valuation, DCF, M&A and LBO — because they are the things an analyst actually does in the first year.

This is what gets asked, with the answers interviewers are listening for.

Accounting

How do the three statements link?

The most asked question in banking, and the one that gates everything else. Net income from the income statement is the top line of the cash flow statement and flows into retained earnings on the balance sheet. The cash flow statement's closing cash becomes the cash line on the balance sheet. Changes in balance sheet items drive the working capital and investing sections.

Walk me through a $10 increase in depreciation.

The canonical version. Assume a 25% tax rate and answer statement by statement:

• Income statement: pre-tax income falls $10, taxes fall $2.50, net income falls $7.50.
• Cash flow statement: start at net income –$7.50, add back the $10 non-cash depreciation, so cash rises $2.50.
• Balance sheet: cash up $2.50, PP&E down $10, so assets fall $7.50. Retained earnings fall $7.50. It balances.

The insight to state explicitly: the company is better off in cash by exactly the tax saved. Depreciation is a tax shield.

If you could only have one statement, which?

The cash flow statement — it shows actual cash generated, and with a beginning and ending balance sheet you could reconstruct most of the rest. Say the reasoning, not just the pick.

Valuation

What are the three main valuation methodologies?

• Comparable company analysis — trading multiples of similar public companies.
• Precedent transactions — multiples paid in actual past acquisitions.
• DCF — intrinsic value from projected cash flows.

Be ready to rank them: precedents usually give the highest values because they include a control premium; DCF is the most theoretically sound and the most assumption-sensitive.

Enterprise value vs equity value?

Equity value is what shareholders own. Enterprise value is the whole operating business, independent of financing. Cash is subtracted because an acquirer effectively gets it back.

The paired trap: which multiples use which? EV pairs with EBITDA, EBIT and revenue. Equity value pairs with net income (that is P/E). Mixing them is the single most common technical error.

M&A

Is this deal accretive or dilutive?

Compare the acquirer's P/E to the target's. In an all-stock deal, if the acquirer's P/E is higher than the target's, it is accretive. The quick intuition: you are issuing expensive currency to buy cheap earnings.

For cash deals, compare the after-tax cost of cash (forgone interest) to the target's earnings yield — the inverse of its P/E.

Why might a company overpay?

Synergies — cost synergies from removing duplicate functions, revenue synergies from cross-selling. Be appropriately sceptical of revenue synergies out loud; they are far less reliably delivered, and interviewers notice candidates who repeat management's number without comment.

LBO

What makes a good LBO candidate?

• Stable, predictable cash flows — debt service is not optional.
• Low existing leverage and low capex requirements.
• Strong market position and a defensible margin.
• Identifiable cost savings and a credible exit in three to five years.

What drives returns in an LBO?

Three levers, and you should name all three:

• Debt paydown — cash flow retires debt, so equity grows as a share of value.
• EBITDA growth — organic growth or margin improvement.
• Multiple expansion — exiting at a higher multiple than entry. The least controllable, and the one to flag as such.