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The Top 50 IB Interview Questions

The 50 questions investment-banking interviewers actually ask — with fully worked, interview-grade model answers for the ten asked most often. Every answer is human-reviewed.

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How to use this guide: answer each question out loud before reading on — like you would in the room. If you hesitated, that question goes on your review list. Interviewers don't grade what you recognize; they grade what you can say cold.

Part 1

The ten they ask most — with model answers

01

Accounting

What are the three financial statements and what does each show?

Income statement: profitability over a period (revenue down to net income). Balance sheet: a snapshot of assets, liabilities and equity at a point in time. Cash flow statement: actual cash moving in/out over a period, split into operating, investing and financing.

02

Accounting

Walk me through how a $10 increase in depreciation flows through the three statements (40% tax).

Income statement: pretax income falls $10, so net income falls $6. Cash flow statement: start with net income -$6, add back the $10 non-cash depreciation, so cash rises $4. Balance sheet: cash up $4, PP&E down $10 (net assets -$6); on the other side retained earnings down $6. It balances. Net effect: you saved $4 in cash via the tax shield.

03

Accounting

How are the three statements linked?

Net income from the income statement flows to the top of the cash flow statement and into retained earnings (equity) on the balance sheet. The cash flow statement's ending cash becomes the cash line on the balance sheet. Non-cash items and working-capital changes on the CFS reconcile accrual net income to actual cash.

04

Enterprise & Equity Value

What's the difference between enterprise value and equity value?

Equity value (market cap) is the value attributable to shareholders. Enterprise value is the value of the core operating business to all capital providers - debt and equity. Bridge: EV = equity value + total debt + preferred + minority interest - cash & equivalents.

05

Valuation

What are the main valuation methodologies?

Three core approaches

  • comparable companies (trading comps) - current multiples of similar public firms
  • precedent transactions - multiples paid in past M&A deals
  • discounted cash flow (DCF) - intrinsic value of projected cash flows. Others include LBO analysis (a floor for a financial buyer) and sum-of-the-parts.
06

DCF & WACC

Walk me through a DCF.

Project unlevered free cash flow for ~5-10 years. Discount each year back at WACC. Estimate a terminal value at the end (Gordon growth or exit-multiple method) and discount it too. Sum the discounted cash flows plus discounted terminal value to get enterprise value. Subtract net debt to get equity value, then divide by diluted shares for value per share.

07

DCF & WACC

What is WACC and how do you calculate it?

Weighted average cost of capital - the blended required return of all capital providers, used as the DCF discount rate. WACC = E/V x cost of equity + D/V x cost of debt x (1 - tax rate), where E and D are market values of equity and debt and V = E + D. Cost of equity usually comes from CAPM: risk-free rate + beta x equity risk premium.

08

M&A

What makes an acquisition accretive or dilutive to EPS?

Compare the buyer's P/E to the effective cost of the acquisition. A rough all-stock rule: if the acquirer's P/E is higher than the target's P/E, the deal is accretive; if lower, dilutive. More generally, if the after-tax yield on what you're acquiring exceeds the after-tax cost of financing (cash, debt or stock), EPS rises.

09

LBO

What is a leveraged buyout?

A financial sponsor (PE firm) acquires a company using a large portion of borrowed money, with the target's own assets and cash flows supporting the debt. The goal is to generate equity returns through debt paydown, operational improvement (EBITDA growth) and multiple expansion, then exit in ~3-7 years.

10

LBO

What makes a company a good LBO candidate?

Strong, stable and predictable cash flows to service debt; low existing leverage and capex; a defensible market position; opportunities for margin/EBITDA improvement; saleable non-core assets; a reasonable entry valuation; and a clear exit path. Cash-flow stability is the single most important trait.

Part 2

The other forty — your checklist

Work through these the same way: say the answer out loud, then check yourself. The fully worked model answer for every one of them (and 1,500+ more) is inside WACC Buddy.

Accounting

  1. 11What is working capital and what does an increase in it do to cash?
  2. 12What is a deferred tax liability (DTL), and what's the classic cause?
  3. 13Why does goodwill get created in an acquisition, and how do you calculate it?
  4. 14Walk me through how $100 of stock-based compensation affects the three statements.
  5. 15When do you capitalize a cost versus expense it, and why does it matter?
  6. 16LIFO vs. FIFO in an inflationary environment: which produces higher net income? Higher taxes?
  7. 17A company buys $100 of inventory on credit. Walk through the three statements.

Enterprise & Equity Value

  1. 18How do you calculate fully diluted shares (treasury stock method)?
  2. 19Write out the bridge from equity value to enterprise value.
  3. 20A company issues $100 of new debt and holds the cash. What happens to EV and equity value?
  4. 21Can enterprise value ever be negative? What would that imply?
  5. 22Why do we subtract cash in the EV bridge — and is ALL cash really non-operating?
  6. 23Why is minority (noncontrolling) interest ADDED in the EV bridge?

Valuation

  1. 24Why is EV/EBITDA often preferred over P/E for comparing companies?
  2. 25Walk me through how you perform a comparable companies analysis.
  3. 26Walk me through a precedent transactions analysis.
  4. 27Which valuation methodologies tend to produce the highest and lowest values, and why?
  5. 28Why do precedent transaction multiples usually exceed trading comps for the same company?
  6. 29Why does an LBO analysis typically set a 'floor' valuation?

DCF & WACC

  1. 30What's the difference between levered and unlevered free cash flow, and which discount rate pairs with each?
  2. 31How do you calculate unlevered free cash flow, starting from EBIT?
  3. 32Two identical companies, but one has more debt. Which has the higher WACC?
  4. 33Your DCF gives a value that seems too high. Which assumptions do you check first?
  5. 34What does beta measure, and why do you unlever and relever it?
  6. 35How do you calculate the cost of equity?

M&A

  1. 36All-stock deal: the acquirer trades at 20x P/E and buys a target at 15x. Accretive or dilutive?
  2. 37For a 100% cash deal funded with new debt, what's the quick accretion/dilution rule of thumb?
  3. 38Rank the three forms of acquisition financing — cash, debt, stock — from most to least accretive.
  4. 39How do synergies factor into an accretion/dilution analysis?
  5. 40Why can accretion/dilution be a misleading way to judge whether a deal is 'good'?

LBO

  1. 41Name the three value-creation drivers in an LBO — and which is highest quality?
  2. 42Why does using more leverage increase equity returns (when it works)?
  3. 43At a high level, how do you calculate the IRR or money multiple on an LBO?
  4. 44Build a returns bridge: entry EBITDA 100 at 9x with 600 net debt; exit year-5 EBITDA 140 at 11x with 350 net debt.

Behavioral

  1. 45"Walk me through your resume."
  2. 46"Why investment banking?"
  3. 47"Why our bank specifically?"
  4. 48"What is your biggest weakness?"

Markets

  1. 49Walk me through the yield curve — and why is an inverted curve a recession signal?
  2. 50Mechanically, why do higher interest rates lower the value of most risk assets?

Keep going

Now make all 50 reflex.

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