0% found this document useful (0 votes)

168 views104 pages

Investment Banking Recruitment Guide

The Investment Banking Associate and Analyst Recruitment Guide provides LBS students with essential information on preparing for careers in investment banking, including mindset, market knowledge, and technical skills. It outlines the recruitment process, networking strategies, and interview preparation, emphasizing the importance of developing a compelling personal story and building relationships within the industry. The guide also details the roles and functions of investment banks, highlighting their role as intermediaries in capital transfer and advisory services.

Uploaded by

zoneyb

We take content rights seriously. If you suspect this is your content, claim it here.

Available Formats

Download as PDF, TXT or read online on Scribd

0% found this document useful (0 votes)

168 views104 pages

Investment Banking Recruitment Guide

Uploaded by

zoneyb

We take content rights seriously. If you suspect this is your content, claim it here.

Available Formats

Download as PDF, TXT or read online on Scribd

INVESTMENT BANKING ASSOCIATE AND ANALYST RECRUITMENT GUIDE

Career Services

This document is for LBS student use only. Any reference texts used for are credited in the paper. Should you receive a copy of this document
as a non-member of the School Community please contact Careerservices@[Link] immediately.
INVESTMENT BANKING ASSOCIATE AND ANALYST RECRUITMENT GUIDE
Career Services

THE INVESTMENT BANKING ANALYST RECRUITMENT GUIDE

TABLE OF CONTENTS

1. The Right Mindset

1.1. Mindset – Process - Preparation

1.2. Know the Economy, know the markets, know the deals, and know the culture
1.3. The Winners

2. What is Investment Banking?

2.1. Overview
2.2. Major Players
2.3. Roles in an Investment Banking Division

3. The Analyst Programme

3.1. Internship vs Full Time Opportunities

3.2. The ‘Penultimate’ Question
3.3. The Life of an Analyst
3.4. Making the Most of your Internship

4. The Recruiting Timetable

5. Networking and Recruiting Events

5.1. Networking
5.2. Company Presentations
5.3. Other Events

6. Applying

6.1. Cover Letter Preparation

6.2. CV Preparation
6.3. Application Process

7. Interview Preparation

7.1. What Interviewers Look For

7.2. Interview Types
7.3. Know Your Story / Pitch
7.4. Financial Knowledge
7.5. Company Research
7.6. Practice Interviewing
7.7. Phone and Video Interviews
7.8. Assessment Centres
7.9. Final Considerations

8. Interview Questions

8.1. Motivation / Fit / Commercial Awareness

8.2. IBD Technical Questions
8.3. Markets Interviews
8.4. Brainteasers and Logic Questions

9. Available Support

9.1. Career Services

9.2. Clubs
9.3. Peer Leadership Programme

10. Simple Words of Advice

10.1. Male Dress Code

10.2 Female Dress code
10.3 Professionalism and Timing
10.4 The Interview Schedule

11. Reading Materials and Additional Resources

11.1. Investment Banking Division

11.2. Markets Division

12. Advice From Previous Year Students

1. THE RIGHT MINDSET

1.1 Mindset – Process - Preparation

Before starting with the bulk of material, we want to give you a helicopter view of the key things you need to do
and what the recruiting process looks like. Believe us, at some point during the Fall Term you will be
overwhelmed. You will be asking yourself questions like “What am I doing?” and “Why am I doing this?” or, our
favourite, “Does networking really have any impact on the recruiting process?” When this happens, this single
page may be your best friend. It will help you to see the big picture, put things into perspective and ultimately
land your IB job.

Preparation is the key. Do not think for a second that reading lots of finance related material means preparation.
Here we are talking about serious, focused and detailed preparation. You really do not want to take any
chances. Our experience suggests that if you are not prepared in one particular area, this is what at one point
the interviewer will ask. But what is it that you need to prepare? Three things:

1) Your story. Career Service will make it clear that having a solid story is crucial. Your CV, cover letter
and networking activities will all help you in developing a robust story on why you want to be a banker.
Introducing yourself using your story at networking events is the first interaction bankers have with you
and so it is vital to have worked on your story so you can make a positive impression. Later on,
interviewers will challenge you hard on this one (er, the correct answer is not money). Thus it is highly
critical that you nail this: beginning with what you were doing before coming to LBS and then your
decision of why you decided to do banking (especially in the current scenario), and whether you are
aware of the skill sets required to come in, and how are you investing in developing those skill sets?

2) Market knowledge. You not only need to be fully familiar with the overall market conditions, but you also
have to know the peculiarities of each the major financial institutions, especially the one whose
representative you are meeting, as he/she is bound to ask you, “Why us?”, and you need to have a
relevant answer.

3) Technical skills. This includes both financial and interviewing skills. By the time of the interviews, you
should be pretty strong in your financial/technical knowledge but must also ensure you have answers to
the more general competency questions. Most important, you must be trained in pitching your story in
front of an interview, which is a stressful experience. Practice, practice, and practice, in front of a mirror,
with friends and during mock interviews with fellow LBSers (via PLP) and with members of Career
Services.

Developing the right mindset is also crucial. If you want to be a banker, act like a banker. To find out how a
banker thinks, networking is probably a good place to start. While every person working in investment banking
has their own personality, there are some common traits such as drive, diligence and focus on meeting goals.
You’ll need to understand these traits because these are what recruiters will look for in their future
Associates/Analysts. Through these conversations, you will learn to “talk the talk”. Pay attention to the words
and phrases the bankers use and emulate these in your recruiting conversations.

Finally, the process leading to interviews and offers extension is long, intense and pretty stressful. It involves
several moments of self-reflection and at times you will be wondering why on earth you want to do all of this. But
it is important that you don’t give up. Every step in this process counts and small mistakes, such as follow up
emails incorrectly addressed, make the difference between having an offer or having someone wishing “good
luck with your future career” (this is the standard sentence for a “ding”).

1.2 Know the Economy, know the markets, know the deals, and know the culture
Key Takeaways: Read, at a minimum, the FT every day from September and form a view – do not fall in the trap
of reading the FT the week before the interview, it won’t help you. Do not fall in the common “donkey” mistake,
reading the FT but not understanding what it is really saying.

Understanding the culture is probably the hardest part to build (it takes time), and it is almost as important as
having a good story. Investment bankers are looking for candidates that they believe will be able to perform the
job. Therefore, they want to understand if you share common ground with them, whether you could potentially
be a good banker.

The financial community in London has a common culture; they all read the same newspapers and use the
same databases, have a similar definition of “professionalism” and are exposed to the same events/deals in the
world. Do not commit the mistake to be technically perfect but not having understood the mind-set of your
interviewer.

Therefore it is mandatory to read the Financial Times, (and if possible the Financial News and the Economist)
every day from as soon as you arrive on campus.

 Financial Times: You can subscribe to the school service delivery for a student price and get an online
account which offers smartphone access. It has an excellent app that allows you to download content
each day, which you can then read offline. The short Lex column, which takes no more than 15 minutes
to read, is worth reading everyday as it provides interesting summaries and analysis of the top stories
 Financial News: You can find a weekly copy in the Taunton library, in Career Services Reception and
you can register for the online service through the library.
 Economist: You can find a copy in the Taunton.

If you are interested in Sales & Trading, include an online subscription to Roubini Global Economics, available
from the library database provided by LBS.

Financial reading will improve your familiarity with the language of the financial community and give you a good
impression of what bankers are exposed to. Remember that a critical part of Investment Banking is about
clients’ interaction, which is often heavily focused on what’s going on in the market (they want to know your
judgment, be prepared to have an opinion, otherwise why they should pay you??? For example, why Pfizer was
so keen on acquiring Astrazeneca? Was Facebook’s acquisition of Whatsapp overvalued?).

CAUTION: At the beginning you may feel a little bit overwhelmed by the amount of information and terms used,
(especially if your background was in gardening or birdwatching), but do not despair, you cannot imagine how
much information will stick on your brain just by reading the FT every day and your Corporate Finance courses
will help you to understand the concepts. You will slowly build your financial/economic knowledge, and this is
going to make a difference during your networking and interviews. Also do not forget to test your views with your
classmates on every important event, you can also form a small group and exchange views and opinions, you
will be surprised of how useful can be.

1.3 The Winners

Key Takeaways: It’s a competitive process but don’t panic, it is just hard work and interpersonal skills. Focus on
polishing your story and establish relationships with bankers/alumni, and also do everything else!

I guess there is no need to tell you this is a competitive process. In a typical Summer Associate process,
around 40 people got an IBD role from an application pool of up to 120 (and remember, these are all your fellow
LBSers who are already high achievers). The Analyst data is a bit more difficult to track but within the 2013
class, around 30 landed roles in Investment Banking. So, unfortunately we have to talk about who made it and
who didn’t.

I know, now you are worried, however you are an LBS student, and this means you are intelligent, hardworking
and very well prepared. You probably hold yourself to higher standards than other people do – and that’s the
reason why you are a success. Therefore be confident in yourself and be prepared to work hard in the next
months. If you follow this guide you will give yourself every chance of success. LBS is going soon to submerge
you with a combination of heavy academic lifting, social events and a busy recruiting calendar.

Going through this journey you should keep in mind 7 very important things:
 Plan your time wisely: you soon will wish your day had an extra 12 hours; prioritise and schedule
strategically. This cannot be overemphasised. Useful advice given to one of the authors by an
alumnus prior to joining was that looking back there were five main things you could do whilst at London

Business School: partying/having silly amounts of fun, Dean’s List academics, heavy engagement in
multiple student clubs and societies, recruiting into a top job, and gaining/maintaining a relationship. In
the first term, if you are recruiting for banking, due to the time and dedication required, it is unlikely you
will be able to maintain your sanity whilst achieving all five. Therefore consider which areas you are
prepared to deprioritise in the first term.
 Every day drink an espresso and read the FT – enter in the financial world mind-set (industry
knowledge).
 Join the Finance Club and attend all the networking events; use the club as a way to get advice from
st nd
other students (1 and 2 year MBAs, MIFs, MIMs, EMBAs, etc…)
 Start networking with Alumni as soon as possible. For the Associate roles, this is usually done in
October – many students wake up in late November and start emailing the entire alumni directory, with
poor results. For the Analyst roles, TIME STARTS NOW as processes and deadlines are as early as
September and October.
 All your classes are important, but in banking a lot of questions will involve Accounting, Finance and
Corporate Finance classes (be sure to ace them!).
 Find 2-3 classmates you like, who have similar goals and who are willing to share information. You can
divide up tasks such as bank research, preparing technical questions as well as giving each other mock
interviews.
 Attend the events and presentations on and off campus. For Associate Internship roles, the Corporate
Partner banks will be coming in to do an Introduction to Investment Banking series as early as mid-
September. This will be followed by many opportunities to network via various Finance Club Initiatives.
For Analyst roles, banks will be hosting students during MIM Career Week in October but they will also
be holding Analyst recruiting events around London which you can find on their websites, register for
and attend.

As you go through this period, remember to put particular emphasis on perfecting your story and networking:
 Perfecting your story: (why you want to move from deep-water drilling to IB?) This is the most important
question, and the answer must be rationale and convincing. You will keep telling your “what” and “why”
with every banker you meet, and they will judge you on the credibility and the rationale of your story.
Moreover, be a reactive learner and keep polishing your presentation/story after meeting with any
banker.
 Develop relationships: at the end of the day banking is a deeply personal business. Getting a job in IB is
more like asking someone for a date than taking a final exam. The human side trumps all else and all
your technical knowledge will not help if you can’t clear the hurdle on the interpersonal side. Moreover,
your final interview may be with the same bankers you met for a coffee during your networking, and if
they liked you the interview may verge on the last match of rugby you played (which actually happened
to an MBA in a final round in US bulge bracket) or the last movie you watched or a charity you were
involved in (one MBAs entire second round interview with a very senior banker was about this).

2. WHAT IS INVESTMENT BANKING?

2.1 Overview

Investment banks act as an intermediary facilitating the transfer of capital from providers of capital (lenders or
investors) to users of capital (borrowers or issuers).

An Investment Bank is a financial institution that assists individuals, corporations and governments in:

o Traditional Investment Banking Division:

- Strategic Advisory: (eg M&A, Restructuring, takeover defence, fairness opinions). In the typical
project bankers assist in negotiating and structuring mergers between companies. If, for example, a
company wants to acquire another firm, an investment bank will help finalize the purchase price,
structure the deal, and generally ensure a smooth transaction.
- Capital Raising: (eg Via Debt/Equity Capital Markets = called DCM/ECM) Raising capital by
underwriting and/or acting as the client's agent in the issuance of securities (equity, debt/fixed
income, or hybrid). In particular, the underwriting function involves the bank assuming the initial risk.
For example, in the case of a bond offering, the investment bank purchases the entire bond offering
and then starts looking for buyers in the markets. This means that the investment bank assumes the
risk of the transaction not being able to re-sell the bond in the market.

 Markets:

o Sales & Trading:

- Sales: Institutional sales are responsible for nurturing and developing business relationships with large
institutional investors such as pension funds, mutual funds, hedge funds, or large corporations.
Salespeople work with customers on what is called “the buy-side,” selling them large amounts of
securities like stocks, bonds or currencies. The largest customers on the buy-side are typically
institutions (such as mutual funds or pension funds) that manage assets for others. Salespeople who
sell to these institutions are identified by a variety of titles: institutional salesperson, sales-trader or
research salesperson. Salespeople who sell to smaller institutions or wealthy individuals are called
private client services (PCS) professionals.

Compensation: Generally paid commission (soft or hard) on client trades made through their firms or a
percentage fee on their clients’ assets held by the firm.

- Trading: Traders have two main functions: 1) Provide clients with the ability to buy or sell a security on
demand and also provide liquidity to the equity/debt of an institution’s traded securities by acting as a
market maker 2) Proprietary trading: use the firm’s capital to make directional bet on the public
markets. Typically, the marketing-making function and the proprietary trading function are performed by
the same trader for any given security. The trader never talks directly to the customer; it’s the job of
the salesperson (institutional or PCS) to act as intermediary. The trader uses an array of computer
systems to track the market and to execute orders.

Compensation: Paid relative to P+L for your desk plus client flow targets for Market making books

o Research:
- Analysis and recommendation of stocks and bonds, including company coverage and sector
coverage. Research analysts follow stocks and (bond) credits and produce recommendations to
investors on whether to buy, sell, or hold those securities. They also forecast companies’ future
earnings. Compensation varied, can be measured by industry peer ranking.

o Structuring:
- Covers everything from designing quant-heavy products, to distressed lending, to carrying out
infrastructure deals. This is a hybrid role which can mean liaising with traders, sales, compliance,
counterparties, lawyers, accountants, clients...whatever is necessary to put the deal/trade
together. For “deal” type structuring, the necessary skill set can be closer to IBD – teams can
include ex- leveraged finance guys, ex-M&A guys, as well as former accountants and lawyers
- Compensation: policy differs significantly between banks. Banks with larger structuring teams
seem to be moving to a “shadow” policy, whereby “P&L” shadows the earnings generated by
Sales & Trading that are based on deals produced by the structuring group

Many banks also have a merchant banking (private equity arm), and a private wealth management (private client
service business) division. These sometimes fall under an Investment management division.

What is the buy-side? The buy-side refers to the investment management firms, pension funds and trusts that buy
stocks, bonds and other securities from the “sell-side.”

What is the sell-side? The sell-side refers to Wall Street investment banks that sell stocks, bonds and other
securities to the buy-side. The numerous sales and trading programs that recruit on-campus are for the sell-side
firms.

How is sales and trading different from investment banking? There are several ways to compare and contrast
the differences between investment banking and sales and trading. The first is the actual work that they do and the
time in which this work is done. Investment bankers primarily help to raise money for clients through stock or bond
offerings or advise clients on mergers or acquisitions. The endless flow of pitchbooks (PowerPoint presentations to
clients), the detailed financial modelling and around-the-clock client schmoozing are all focused on achieving one
result: a deal that will generate substantial fee income for the investment bank. Investment bankers work for
months – even years – to generate one deal, schmoozing company execs until the company is ready to raise
money or acquire a company.

Salespeople and traders also work on deals – every trade is a deal – and also entertain clients. Compared to
investment banking, however, it takes much less time to consummate a transaction in S&T. Typical trades are
consummated in seconds or minutes, and the average fee per trade is measured in cents per share traded rather
than as a percentage of the deal’s proceeds.

Another big difference between S&T and I-banking is the lifestyle. Sales and trading professionals are the first-in-
and-first-out in the investment bank. To get a jumpstart on the trading day, salespeople and traders normally take
the earliest train into work. But they are the first ones out of the office, leaving shortly after the markets close.
Salespeople and traders also never work weekends – trading desks are completely abandoned on the weekends.
In contrast, investment bankers are expected to be their desks during the weekdays and weekends, at all hours
and throughout major holidays. Sales and trading is a sprint; investment banking is an endless marathon that rarely
ever stops for anything.

Sell-side
Typical Investment Bank Structure

Investment Bank

Investment
Sales & Trading /
Banking ECM / DCM or
Markets /
Division Financing
Securities
(IBD)

“Private” market = Corporate clients “Public” market = Investors

Legal & Human Risk & Corp

Finance Operations IT
Compliance Resources Advisory

IBD and the Markets divisions are heavily interrelated. A good example is a company wishing to go public. The IBD
team provides the valuation of the company and facilitates the registration and execution of the process; the ECM
(Equity Capital Markets) team helps the company during the roadshow and prices the deal; Markets then take over
the process, with Sales placing the securities with end investors and Trading providing secondary market liquidity
by acting as market makers. Research provides continuous coverage of the security and helps investor processing
information relating the company and its business.

Large investment banks usually organize their investment banking functions along products lines (M&A, Leveraged
finance, ECM, DCM), industry groups (Telecom, Oil&Gas, Retail) and geographic coverage (UK, France, Italy). As
these groups focus on industries and relationships, they are able to become very close to the clients and their
needs. Therefore, it is not uncommon for M&A advisory work to be undertaken across these groups.
Sell-side
Investment Banking Division (IBD)

Typical Investment Banking

Division

Product Focus Geographic Coverage Industry Focus

 Advisory, e.g.  Cover all products and  Areas of expertise include:

– Mergers and industries across a specific – Consumer Products
Acquisitions (M&A) region, e.g. – Financial
Institutions (FIG)
 Financing, e.g. – UK – TMT
– Equity, IPOs – Benelux – Natural Resources
– Debt – Iberia – Real Estate
– Lev Fin – Germany

Markets functions usually include Sales (selling financial products of the bank to clients), Trading, Specialised
structuring of financial products and Research.

Typical Markets Division

Sales Trading Structuring Research

 Sell financial products to  Provide liquidity for  Develop bespoke  Provide trade ideas for
investors investors (flow financial products/ salespeople and traders
trading/market making) derivatives to meet a and provide independent
and/or trade the bank’s client’s specific risk research to investors
 Specialize by: money (proprietary or management or  ie Rates, equity RV or
product “prop”) investment needs Macro (“strategy”)
geography
industry

However, every bank is different. For example, some banks include ECM and DCM in investment banking while
others have these functions in Markets. You should learn about the structure of each bank you are talking to as well
as the acronyms they use.

A note on the way to do business: the primary output of investment bankers are usually “discussion materials” or
“pitchbooks”. These highlight the issue at hand, the suggested solutions and the bank’s credentials and the
preparation of these materials will take up most of your time as an IBD banker, especially at a junior level. Usually
these services are free and are a way of putting a foot in the client’s door and developing a relationship, in the hope
that it will eventually lead to fee-generating business. Once a client has engaged a bank, the project moves from
pitch to deal as the bank works to execute the deal (whether is a merger, acquisition, equity offering, restructuring,
or debt).

2.2 Major Players

Major players in investment banking can be classified into two main types:
 Universal Banks
 Specialised players/boutiques

Universal banks who recruit in various campuses around Europe and the US include Morgan Stanley, Bank of
America Merrill Lynch (BAML), Citi, Credit Suisse, Goldman Sachs, Barclays, J.P. Morgan, HSBC, Deutsche Bank,
UBS and Nomura. These players offer a variety of services and even have corporate lending and retail operations.

This raises a very important distinction in the world of investment banking. A number of firms have remained “pure”
investment banks (Goldman Sachs, Morgan Stanley), while others have commercial banking arms (JPMorgan,
Citigroup, Bank of America). Historically, the two models were completely separate entities; while the investment
bank would provide M&A and other strategic financial advice to companies, the commercial bank would mainly lend
capital (often for the same transaction).

However, as firms evolved, many banks decided to provide both services (“one stop shop” for the clients), providing
capital and advice.

Sell-side

“Bulge” Bracket
Bank of America Merrill Lynch Deutsche Bank Nomura
Barclays Capital Goldman Sachs Morgan Stanley
Citi HSBC UBS
Credit Suisse JP Morgan

Middle Market “Regional”

Lazard Groupo Santander Commerzbank Standard Bank
Rothschild RBC Lloyds RBS
Jefferies Societe Generale BNP Paribas Standard Chartered
Moelis RBS BBVA VTB

Boutiques
Product Geography
Hamilton Ventures Industry
Fox Pitt Kelton (financial services) Frontier secs (Mongolia)
(M+A Real Estate) Cavendish (UK)
Stormharbour (Trading) Delta Partners (TMT)
EFG Hermes (Middle East)

There are many ways to measure the quality of investment banks. You might examine a bank’s expertise/track
record in a certain segment of investment banking or the growth of its revenues and net income. Many also pay
attention to “league tables,” which are rankings of investment banks in several categories (e.g., equity underwriting
or M&A advisory). However, it’s quite easy to manipulate league tables and this is not going to be a perfect
predictor of your internship experience.

The truth is that your experience (and your career) is going to depend from the quality of the people you are
working with. Therefore, spend time to meet alumni and network with bankers in order to understand in which bank
you may fit the most.

2.3 Roles in an Investment Banking Division (IBD)

Key takeaways: The Associates and the Analysts are the core of the IBD “execution team” responsible for the
execution of the team workflow. A good Analyst or Associate that can work semi-independently is considered a
“blessing” from MDs and VPs (improves dramatically the quality of their life).

 Analysts (3years)
- Everything falls on them
- Barely time to sleep, will work most week-ends
- Very analytical, financial modelling, public comps, deal comps, DCF
- Document preparation
- Assist in process work

- Work together mainly with associates but can also work directly with more senior bankers if they
are good
- In London most banks assign you to a product, industry or country team (however, other banks will
put you into a generalist pool)

 Associates (3-5years)
- May work slightly less than analysts, but will need to think more, so even if you aren’t in the office,
you are thinking about your work
- Manage and assist in the execution of transactions
- Responsible in front of the MD and the VP of the analyst’s output (investment books and
modelling). If an analyst makes a mistake, it’s you who looks bad, not the analyst.
- Discuss details and numbers involved in deals with VPs and MDs
- Expected to contribute to team discussion and clients’ meetings
- Interact with different areas of the Firm in order to bring the breadth of Firm’s resources to bear for
the benefit of the client
- Provide rapid and accurate market judgements
- Prepare and deliver clients’ presentations in a compelling manner
- Act as a mentor and role model to Analysts
- Can work “semi-independently”

 Vice-Presidents/Directors
- Responsible for deal execution, manage associates and analysts
- Expected to be able to carry on a deal almost independently from the MD
- Start having important client interaction and generating business
- Lifestyle becomes somewhat more manageable
- Travelling increases significantly, as do responsibilities

 Executive Directors and Managing Directors

- An ED is a level below an MD
- The origination of business depends completely on them. EDs and MDs spend most of their time
visiting clients and proposing new business ideas
- Have the final accountability of the strategic deal decisions and execution
- Support and guide the client in the deal’s negotiations
- Remunerated on the amount of fees generated

3. THE ANALYST PROGRAMME

3.1 Internship vs Full Time Opportunities

The decision between applying for an internship or a full-time role is typically very difficult for MiMs to make. On the
one hand the ultimate goal is a full-time offer. On the other hand these can be much harder to get if you do not
have a banking internship under your belt.

Internships are a typical entry point into a big bank. They are a great way for the banks to test the field before
committing to a full time offer. It is also a good way for you to see what IBD is really like.

Especially if you are applying to an Investment Banking Division (IBD), getting a full-time offer directly is incredibly
competitive. Virtually all banks and particularly the most prestigious ones recruit (almost) exclusively from their
internship pool. MiMs applying for full-time roles in IBD typically have prior M&A/IBD internship experience and
demonstrated a strong interest in Finance on their CV. Thus, if you have to decide between full-time and summer it
is mostly advisable to go for internships, and this is imperative if you do not have internship experience in the field.

In Markets (Sales, Trading, Research, Structuring) this looks a bit different. While it is still very competitive, it is
possible to go for the full-time directly, particularly if you have prior experience or if you’ve taken a relevant
undergraduate degree.

That being said, you can still apply directly to full time positions as well. Remember, this is an entry level position
so the expectations on prior experience are not as stringent as it is for Full Time Associates. You will likely be
competing with candidates who have the prior internship experience, however, so you will need to demonstrate that
you have more to offer and that you have a strong commitment to the space. None of the MiM 2014s have secured
full-time offers in London directly, but many have been successful for internship roles, particularly those with a
focused approach as this guide teaches you to have.

3.1.1 The ‘Penultimate’ Question

One main deterrent in applying for internships (especially summer internships) is that some banks require that you
are a ‘penultimate’ student before you can apply. This means that you need to be in the year prior to your
rd st
graduation year (i.e. a 3 year student in a 4 year course or a 1 year student in a 2 year course). The reason for
this is that the full time roles they offer at the end of internships do not usually start until a year after the internship
ends. For the 1 year MIM course, this means that you will be nearly a year out of work before you start which
employers are not keen on as candidates tend to renege more in these situations. Some banks are more strict
than others and MIMs have found ways around this by convincing banks that they understand the process or that
they have a follow on course to go to after the internship. It is best to approach this ‘one bank at a time.’

From speaking to various EMEA region recruiters at the banks, below are their policies around the penultimate
question as well as what internship programmes they offer. Please make sure to check individual company
sites and DO NOT solely rely on the data below because these tend to CHANGE during the season.

- Bank of America Merrill Lynch

o Offer summer internships and may have off cycle internships at regional offices
o Students should ideally be in their penultimate year of study for internships. But they can apply and
just need to know that any full time offers given out at the end of the summer will be for the
following years’ summer.
- Barclays
o Offer summer internships
o They are happy to accept non-penultimate applications for their summer internships. Their intake
for Full Time Analysts is in August and in Feb so the internship timing works for our MiMs even if
they are not penultimate students
o For the APAC office however, they only allow penultimate students to apply for summer internships
- BNP Paribas
o Have Summer and OFF Cycle internships and are open to applications from MIM students for
these various programmes
o BNP Paribas hosted the MIMs at MIM Career Week last season
- Citi

o Offer summer and off cycle internships

o They welcome applications from non-penultimate students into their summer programmes.
However, applicants have to be aware that a Full Time role will not commence until the following
year
o For the APAC offices, non-penultimate students are able to apply for summer internships and they
only hire into their Full Time programmes from these internships
- Credit Suisse
o Offer Summer and Off Cycle Internships in IBD
o Only penultimate students can apply for the Summer Internships but our MIMs can apply for their
IBD Off Cycle Autumn Internships. On the Markets side, they do not have off cycle internships so
the only route in is to apply for Full Time roles
o For the APAC office, they only allow penultimate students to apply for summer internships and they
only hire full time students from the internships
- Deutsche Bank
o Offer summer internships but you can only apply if you are a penultimate student
o So best route in is to apply for Full Time positions
o Deutsche hosted the MIMs at MIM Career Week last season
- Goldman Sachs
o Offer summer internships
o Open to applications from non-penultimate students for their internships. While there may be a
handful of early start date options, a majority of start dates will be the following year.
o For the APAC office, they are also open to applications from non-penultimate students for their
internship programmes
- Houlihan Lokey
o Offer summer internships but only for penultimate students
o So best route in is to apply for Full Time positions
- HSBC
o Offer summer internships but only for penultimate students
o So best route in is to apply for Full Time positions
o For the APAC office, they only allow penultimate students to apply for summer internships
- JP Morgan
o Offer summer internships but only for penultimate students
o They do have Spring internships which start in March for recent graduates which MIMs can apply
to
o For the APAC office, they only allow penultimate students to apply for summer internships. They
do have a Semester Internship Programme from Jan-June or July-Dec which can be applied to
- Morgan Stanley
o Offer summer internships and may have off cycle internships on an ad hoc basis
o Open to applications from non-penultimate students for their internships. While there may be a
handful of early start date options, a majority of start dates will be the following year.
o For the APAC office, they only allow penultimate students to apply for summer internships and they
only hire full time students from the internships
- Nomura
o Offer summer internships
o Open to applications from non-penultimate students for their internships and are OK with MIMs
applying to both internship of full time roles at the same time
o Nomura hosted the MIMs at MIM Career Week last season
- UBS
o Offer summer internships but only for penultimate students. We have had interns join their classes
from the MIM class however

It is advisable that you come up with a plan or a spreadsheet that maps out the various programmes that are
available and which you are encouraged to apply to. Below is an example of a plan one of the MIMs prepared as
an indicative overview of deadlines in 2013 for you to have an orientation. Where banks have recommended MiMs
to apply for summer or full-time or both, this is bolded. PLEASE DO NOT USE THE INFO BELOW AS A BASIS
FOR YOUR DEADLINE DATES. CHECK INDIVIDUAL WEBSITES.
.

Overview of Investment Banking Deadlines

EMEA EMEA
Bank Graduate Summer
Bank of America Merrill Lynch 31-Oct 12-Dec
Barclays Capital 15-Nov 31-Dec
BNP Paribas Only summer
Citi 01-Nov 27-Dec
Credit Suisse 17-Nov 11-Dec
Deutsche Bank 01-Nov 17-Nov
Evercore Partners 25-Oct 03-Jan
Goldman Sachs 03-Nov 01-Dec
Greenhill 31-Oct
Houlihan Lokey 27-Oct
HSBC 18-Nov 13-Jan
Jefferies 01-Nov
JP Morgan 24-Nov
Lazard 31-Oct 18-Nov
Moelis & Co. 02-Nov
Morgan Stanley 03-Nov 01-Dec
Nomura 01-Dec 14-Jan
Rothschild 03-Nov 31-Jan
UBS 10-Nov 29-Dec

3.2 The Life of an Analyst

Before going into the details of what to expect during the summer internship, it is essential that you fully understand
this section as you will be asked during your interviews, what your understanding is of what will be expected from
an Analyst and you are required to have a fair idea, which you articulate well.

3.2.1 The IBD Analyst

The Analysts are the backbone of the team, being key in putting together valuations and pitches, supporting the
seniors as best as they can. The best analyst is the one who makes the life of his seniors easier. While most of the
analysts’ work is execution of the directions they get from senior colleagues, they are expected to bring in their own
ideas and be able to work independently while making sure to coordinate with other members of the team.

The best analysts:

 Get the numbers right and are technically very prepared
 Are great team players and collaborators
 Have business judgment (it’s that sparkle that will make you shine)
 Problem analysis, judgment and decision making, innovation, communication and impact, drive and
commitment, planning & organizing are further skills banks pay attention to
 Are absolutely, unquestionable reliable. Think of the role as being the backbone of the entire pitching or
execution process. A good analyst is someone who you know will produce the work whenever and
wherever needed – someone you can call on your way to a client visit to run a second scenario or email
you an important piece of information

Here is a simple schedule of the main responsibilities of an Analyst.

3.2.2 The Markets Analyst

In Markets, the Analyst role is very different from what you would be doing in IBD. Depending on the specific role
you will be doing and depending on the desk you are sitting in, your role will vary. Because of the extent of the
roles in this area, it is difficult to summarise it all in one section. The best thing to do is to speak and network with
various alums who work in the space to get a view on what work you will be doing.

In general, however, the Markets Analyst has a very similar role to the Associates and often desks will not
distinguish between the two. This makes working in Markets less hierarchical than in IBD.

3.3 Making the Most of your Internship

Key Takeaways: The analyst role is technically very demanding and attention to detail is expected at all times.
Hence, the role requires a lot of commitment. A 10 week summer internship is a short time to be able to
demonstrate this. While no one is expecting you to be up and running from day 1, you will be expected to get up
the learning curve very quickly and be able to function as a ‘regular’ full time analyst by the end of the internship.

The summer analyst internship is usually a 10 week interview in which you are thrown right in the middle of the
game. As an intern you are likely to be given the same kind of work an analyst does. You will also be likely
working with more senior analysts and associates at the start. The ideal is to show that you have strong potential
so the more senior bankers take notice and also want to work with you.

Some banks also offer off-cycle or ad hoc internships outside of the summer period which can run for as long as 6
months to a year. Different banks will have different internships structures. They may staff you directly in one
industry or product team or in a generalist pool in which summer analysts sit together and are staffed on a project
basis or work a rotational programme.

On the landing page of this guide is a link to a presentation given by Career Services last May 2014 on Making the
Most of Your Internship. While the presentation was directed towards Associate Internships, most of the tips in the
slide are applicable to the Analyst internships as well.

4. THE RECRUITING TIMETABLE (Analyst Recruiting)

VERY IMPORTANT TO NOTE: Analyst recruiting starts very early and banks open applications as early as
August and have indicated that by November most roles have already been filled. So TIME STARTS NOW!

Recruiting in banking is a marathon. Many times you may feel overwhelmed by all the events and the networking,
but do not despair, it’s simply part of the process and if you are diligent and effective, you will tilt the balance in your
favour.

Your goals:
 All your preliminary work has one goal in mind, to win a 1 round interview slot. Many banks will receive
st

thousands of applications and will be able to interview only a small fraction.

 Therefore your first task is to establish meaningful connections at the firms you are interested in. Bankers
who were impressed by you will pass your name to HR/Recruiting and improve your chances to getting on
the interview list. Also, in certain banks, there is a book of CVs and is sent around to Senior Analysts,
Associates and VPs, and the CVs that get the maximum ticks get interview calls. Be very careful to make a
good impression. Establishing a connection in a bad way will ensure you are not placed on that interview
list.
 Most firms have LBS alums who are very helpful and who are engaged in the recruiting process. Use both
the portal directory and the banks’ presentations to enter in contact with them but be careful about
bothering them too much.
 Most banks also have general recruiting events around London which you can attend by registering
through their websites. Check the various websites and map out when the events take place. DO NOT
RELY ON BEING TOLD ABOUT THE EVENTS AS THESE ARE NOT ALWAYS ON THE RADAR OF
THE FINANCE CLUB OR CAREER SERVICES.

Below is an illustrative timetable for Analyst Recruiting:

September

 The goal here is to get your applications out as soon as possible, albeit only when you are ready to do so,
and then getting into preparation for technical and fit interview questions in time for your first round
interviews. To do this we suggest the following timeline but much of this best be worked on in parallel:
 Finalise your CV, work closely with career services and get at least 3-5 MiMs including native speakers and
people with finance experience to review it for you, also think about using one your PLPs for this

 Make a list of all the banks you want to apply to and their deadlines. Rankings such as the Vault Banking
50 and the Bloomberg M&A rankings are a useful first source to familiarise yourself with some of the big
names in banking. You can then browse through their websites to see if you are interested and when their
deadlines are.
 Start filling in applications, so that you can think about your cover letter and the other fit questions asked in
the applications. Many banks ask you to respond to a few questions such as “Why IB” or “What is a
challenge you overcame”. The earlier you start on those the better, as they do take time and there are
many different questions.
 Check the websites of the banks you are interested in for networking events. Most of these are in
September or October and it is imperative for you to go to at least one event per bank (those you care
about). It is one of the easiest way to establish contacts within the bank if you work it right and without at
least one contact in the bank you are A LOT less likely to get the interview. Note that it can be hard to have
a good conversation with the recruiting team when surrounded by dozens of your classmates. Try to get
two or three bankers’ business card and follow-up with a concise email and meaningful questions. You
should assume that bankers are going to keep your emails.
 Try going through this book(we know it is comprehensive, keep going) at least a few pages every day,
while keeping on top of above mentioned activities. The CV, cover letter and fit questions parts are very
useful already for the application itself. Do not go deep into the technical part before having sent out your
applications, they are the priority for the moment.
 Attend all Career Services events around Finance – i.e. Introduction to Finance during Orientation
and the Demystifying Finance events that follow

October

 Send out your first applications and keep them going from now on. Do not panic if you are not ready at the
beginning of October but do try to aim for all your main applications being done by the end of October,
starting with the ones you care most about. Banks have rolling applications and fill their programmes up
weeks before the official deadline.
 Once you have found a contact or two in the bank, send the application out as soon as possible and
mention to them that you have named them in your cover letter while thanking them again for their support
with your questions. You can continue your networking efforts after of course.
 Once the applications are done it is time to get into interview preparation. Put considerable time and effort
into working through the fit part of this book, thinking about your own answers, as well as the technical part.
Both are equally important. If bankers see that your technical knowledge is good, they may not go to deep
into it, especially if they like you, but it is a part that many applicants fail at, which is unnecessary. Fit
questions are very important, bankers do not want to work 14 hours a day with someone they do not like.
More on these in the specific sections later on.
 Participate in all Finance Club and Career Services activities and attend every presentation. Continue to
attend banks presentations and all events organized by Career Services.
 Keep in touch with your contacts and establish new ones, focus your work on the alumni network. You may
also ask to HR at presentations to put you in contact with alumni in the departments you are interested in.
 Form an “IBD/Markets Study Group” for interview prep, M&A deal review etc
 Sign up to banks presentations during MIM Career Week in early October. Check with your Career
Rep for the updated schedule of who will be hosting the MIMs that week.

November/December

 Sign up for PLP sessions for extra practice and to talk to an MBA with experience in IB about how you are
progressing and what they think you should focus on now.
 Make good use of your MBA mentor and your MiM2014 mentor to try and get as much out of them as
possible. Also use career services drop in sessions.

 Your first interviews are coming up (neither worry if you have the first ones in December and they may also
have already happened in October depending on when you managed to apply). Keep on working on your
fit questions and the technical ones, make sure you get a good night’s sleep before the interview and walk
in there with confidence, you are well prepared.
 Follow-up good interviews with thank you emails.
 Second Rounds come hot on the heels of the first. They tend to take place at the Bank’s office and some
can take up several hours of your day.
 One important input here is that if you have been lucky to bag multiple second round interviews, you will
definitely get the chance to mention it to the second round interviewers as they will ask you who else you
are interviewing with, don’t hold back. If other banks want you, then this bank will also want you, but don’t
lie as HRs at various banks are networked.
 By now you will be immersed into the process and just need to try and follow through to the final rounds
and offers in late December or January if everything goes as planned. It is important to keep working on
your interview skills and keep in touch with your contacts as well as building new ones at the banks you
progress through the rounds with.

January Onwards

 If you have not managed to be successful in the earlier months do not despair. The non-bulge bracket
banks tend to come later so keep checking websites and Career Central for roles that will constantly be
posted throughout this period

5. NETWORKING AND RECRUITING EVENTS (Analyst Recruiting)

5.1 Networking

5.1.1 Why networking is a necessary component of recruiting

Key Takeaways: Networking will be your key to interviews; successful relationships may help you unexpectedly
during the recruitment.

No other topic creates so much confusion – so let’s dive right into it and see how you use networking to break into
the industry.

Each year banks receive thousands of equally outstanding applications from LBS and other schools for analyst
roles, but they can call only interview a few of them at the first round. Networking is how recruiting teams (often
alumni) select those candidates.

Moreover, having favourably impressed a recruiter during the networking period may help you shine during the
interviews.

5.1.2 How to be effective with networking ([Link] framework)

Key Takeaways: Career Service offers a very interesting presentation every year on how to network effectively. Be
sure not to miss it. We will provide a brief summary in this chapter. Plan it wisely and execute it smoothly.

People typically approach relationship building in a fairly unstructured, haphazard and opportunistic way. While this
may work if you are lucky, the great likelihood is that you will fail.

The Connect Me framework is based on research that Career Service commissioned to a third party company. The
goal of the research was to identify the main characteristics of successful networkers. LBS students and alumni
who were regarded as successful networkers and had successful careers were interviewed and asked how they
approached networking. The results showed that they all used a methodical approach.

Essentially there are three primary sets of activities: Planning, Execution and Management.

Planning:

 Objectives: Determine the banks you are interested in and research the alumni you want to contact. Make
a file excel will all the details.
Usually, you will have to contact 10 alumni for every positive response.
 Timeline: Set a clear timeline for meeting your goals (September -November).
 Collateral: Develop marketing material to support your message (email), prepare your story, especially why
banking and why you are a good fit.

Execution:

 Research: Ensure you understand your target audience (bank’s culture, deals, banker background).
 Tactics:
- Email each of your contacts and ask for a 15-minute informational chat. Keep your email to 5
sentences at the most, and introduce yourself by giving school name, explaining how you found
them, and summarizing your work experience. Then propose 2-3 specific dates.
- Prepare some questions: start by asking about the person’s background and interests (always
keep the conversation focused on them). They may “test” you but never pre-empt this by bragging
about your accomplishments or showing off on how smart you are. Remember that the burden will
fall on you to lead the conversation. Don’t assume the banker will provide the content. Follow up
with a thank you note and leave your business card.

 Soft skills: Banking is a deeply personal business. You can’t win just by studying the practice exam. The
human element trumps all else. All the industry knowledge and technical mastery in the world will be
inadequate if you can’t clear the hurdle on the interpersonal side.

Management:
 Data management: Manage your contacts; keep track of the development.
 Managing priorities: Identify/manage your most important contacts. If you’ve made a good first impression,
they will advocate your cause. Otherwise, don’t dwell on it – focus on the bankers who are most helpful.
Follow-up when you actually have something to say. If someone wasn’t helpful or if you have better
contacts, don’t feel pressured to stay in touch with everyone all the time.

5.2 Company Presentations

Key Takeaways: Attend as much as you can, focus on the bankers with the fewest students surrounding them, chat
for a few minutes, collect business cards, and then thank them and go to meet the other bankers.

There are various company events you can target to get in front of companies.

- Off-campus, most of the banks host general Analyst ‘open’ recruiting events around London. For details on
these events you need to visit the company websites and register to attend
- MIM Career Week in October: A number of banks host MIMs at their offices. Please check with your
Career Rep for schedules and updates around the visits. Last year Deutsche Bank, Nomura and BNP
Paribas offered visits. Follow the guiding rules above and try to have your application ready to be sent out
as soon as you have a contact in each of the banks you are visiting.

Your goal is to establish business contacts in the firm and learn about its particular culture and strengths. It’s an
opportunity to find out how to respond when asked “why do you want to work with us?”

Do not misinterpret what we are saying here, the events should not be a race to collect business cards, but rather
an opportunity to win “memory share”. The best result you can achieve is that someone in the firm will remember
you in a good way and refer your name to HR. Therefore, having meaningful interactions with 2-3 bankers per
event is a sensible goal.

Standing silently in a circle around a recruiter will not help you, nor will asking bland questions inappropriate to the
context or individual you are meeting. If the group is too crowded, move along to the next group. Finally, remember

that you really want to avoid making a bad impression: every year 1-2 students become infamous for “elbowing”
their fellow students. This strategy doesn’t pay off.

When actually in the conversation you will need to practice your 30 second pitch on who you are and why
investment banking. At the same time, you shouldn’t do most of the talking. See it as an opportunity to ask
insightful questions that you would like to have answered about banking and the markets.

As a final point, many students tend to focus their time with most senior people. While they may be important
decision makers, do not forget that usually Associates and VPs prepare the first draft of the interviews’ list.
Moreover, is often harder to follow up and meet a senior banker than a VP and an Associate. . Analysts are often
very useful because they appreciate being important and asked to help, they are more likely to reply to your e-mails
and they do have enough influence to help you.

5.2.1 Trading Floor Visits

Key Takeaways: Trading floor visits are great networking opportunities and a chance to check out the fabled
trading floor environment.

It is usually difficult for MiMs to get into these, since they are mainly targeted for Associates but if you are allowed
to go, do so and read the following carefully:

Trading floor visits are networking events for all wannabe Salespeople and Traders. Generally speaking, all the
major banks looking for Associates in their Markets division will host one trading floor visit. These visits are
organized by the Finance Club between October and December i.e. before the start of the more formal recruiting
process.

These events are informal and are a great way to increase your knowledge about Sales & Trading and the culture
in a specific bank. The format is the same at all the banks and will consist of a standard presentation, a Q&A
session with alumni working at that bank and finally a short walk on the trading floor. The actual trading floor visit is
very short, lasting about 10 minutes.

Trading floor visits are extremely useful and a must attend event. First of all, it is a good opportunity to meet people
working within different banks. Second, and most important, many of the people you meet during these visits are
the actual interviewers! Finally, you should have a look at the trading floor before applying for Markets. The
atmosphere is very special (noise, interesting characters, countless monitors), and you either you love it or hate it.
It is better to find out whether you like this environment sooner rather than later.

There are some strategies to make the most out of these events.

 Read information about the bank you are visiting. Generally speaking, you should have an idea on the
financials, the current strategic issues and whether the bank has a good recruiting history with LBS.

 Follow up on the people you meet. The super simple strategy is to send a thank you email. Be sure you
send this email only to people you actually spoke with. However, we would strongly suggest you to try to
meet someone after the event for a more informative chat. Remember, some of these people will actually
interview LBS students in January-February.

 Do not tell people you are just checking out opportunities. Even if this is true, keep it to yourself. Bankers
like motivated people and it is always best to behave as if being a Salesperson is your only focus in life.

As a final note, these events are in great demand, they are made available on sign up basis via the Finance Club
and sell out in less than a minute. So you must be fast in hitting the refresh button and be sure to “outclick”
everyone else!

5.3 Other Events

5.3.1 Informational/mock interviews or Coffee Chats

Key Takeaways: Informational interviews are part of the selection process. Good candidates are referred to HR for
the interviews list.

Again, this takes place more for MBAs but it may be another opportunity for you to establish a connection if
something does come up. For the MIMs these events may happen more based on your own initiatives. But once
you manage to initiate a coffee chat, make sure to keep in mind the tips below:

Informational (or mock) interviews or informal coffee chats are an opportunity for you to visit a firm’s office and
meet bankers from different levels. These types of interviews are designed to be “informational”, in other words are
a way to answer your questions about the bank.

However, it’s not unusual for them to turn into real interviews with direct questions. Depending on the particular
person you meet you may enter in an interesting conversation or be grilled on your story, your strengths and
weaknesses (even accounting!). So, do not schedule a mock interview unless you feel prepared for a real
interview.

It is a good idea to attend these sessions if you feel ready, you may have a good shot at leaving a good impression
on the firm and be referred for the interview list. Needless to say it can easily backfire, especially if your story is not
convincing or well prepared.

Finally, if you schedule an informational interview, be ready with an agenda and a list of questions. You may find
yourself sitting with two guys looking at you and waiting for questions.

6. APPLYING (Analyst Recruiting)

6.1 Cover Letter Preparation
Key Takeaways: A cover letter must be flawless. It’s the first piece of written work you send to your future
employers.

Writing the cover letter should be a fairly easy exercise and not take too much time. The truth is that it won’t help
you in getting the interview. However, if not well written, it will seriously harm your application. Let’s put it in this
way, recruiters will examine your cover letter as an example of your ability to produce an important document
without mistakes and in a fairly structured and elegant way. Mess it up, and you may not get a second chance. So,
the best word of advice is: read, proof read, ask your friends to read it, ask Career Services for their advice on it
and re-read again.

Use the cover letter as a way to highlight your strengths and why you should be perfect for the job, and make it
fairly standard so that you will be able to easily tailor it for each bank. Also, try to accommodate names of the
individuals you have met at the bank, this will help HR get feedback about you from them.

Please find a sample of the structure below. For more detailed information check Career Services Portal pages.

Below is an actual sample cover letter from a successful MIM summer internship candidate. PLEASE NOTE THAT
THIS IS JUST ONE SAMPLE AND THAT YOU SHOULD NOT TRY TO COPY WHAT IS ON THIS LETTER –
YOU DON’T WANT RECRUITERS TO BE READING THE SAME INTRODUCTORY LINE FROM ALL MIMS! Be
original if you want to stand out.

6.2 CV Preparation
Key Takeaways: the CV is a forward looking document telling the recruiters why you would be a great addition to
their team.

Preparing a perfect CV is your top priority in the first month of School. You will use it sooner than you think (some
individuals will ask for you to send it on to them after you’ve had a coffee with them), and it’s definitely better to
have it ready when you need it.

The way you should look at your CV is not like a summary of your past experiences, but as a prospectus informing
future employers why you will be a good addition to their team. Therefore, you want to highlight all the leadership
and team working experiences you have. Moreover, if you have finance/deal related experiences, you should
definitely point them out.

While everything on the CV must be true, the content you want to include is, to a certain extent, discretionary. The
goal is simple, try to include every experience that is consistent with what recruiters are looking for in their
candidates. It’s also important to “frame” your experiences in the right perspective using appropriate wording. You
can find an excellent list of “resume action verbs” on the Career Service website. Be aware that each line of your
CV can become an interview question, therefore you should be ready to back it up. Do not make anything up!

You should approach the CV review process very seriously and make good use of all the Career Services
resources (both online and in person). The earlier you start on this the better. Start watching the CV writing guide
as soon as you start, attend the Careers CV sessions, make a draft and then ask to at least 4-5 other students
(including native speakers!) and Career Services to read it.

6.3 Application Process

The Analyst application process is very involved and apart from the usual CV and Cover Letter preparation, you will
need to engage in a number of other online screening activities. If you are successful after the application stage,
you will move on to the interview stages – see next section.

Step 1: Filling the application file online

 Personal details
 Educational background: all grades and diplomas (min 2:1)
 Work experience
 Extra-curricular activities
 Essays: why this bank, why this position, your achievements and skills, your extra-curricular activities, talk
about a recent event etc…
 Contact/Recommendation in the firm: they will frequently ask if you know someone in the firm (and their
name), and “yes” is the best response. ONLY quote someone who is OK to recommend you (so make sure
to network effectively and do your homework!)

Step 2: Online psychometric tests

 Numerical test: addition, subtraction, percentages, compound interest, graph reading, tables analysis,
problem solving. Timed (usually 20-25 mins to cover 30-40 questions, very important to finish). Calculator
and scrap paper.
 Verbal reasoning test: attention to detail! Passage of information given and required to evaluate a set of
statements by indicating whether each statement is TRUE (does it follow logically from the information or
opinions contained in the passage?), FALSE (is it logically untrue based on information or opinions
contained in the passage?) or CANNOT SAY (based on the passage are you unable to determine if the
statement is true or false without further information?)
 Logical test: series of figures (triangles squares circles) and have to guess the next one following the
pattern
 Situational judgement test: Need for effective communication and analytical skills, resilience, teamwork
and ability to plan and prioritize. Series of work-based problem situations and a selection of potential
solutions, you will have to judge what the most and least effective responses available are. Tips: common
sense, communicate especially to managers, and compliance is king

7. INTERVIEW PREPARATION
7.1 What Interviewers Look For
Key Takeaways: Passion, humility, ability, commitment and leadership potential.

In order to understand why banks use different interview types, it is good for candidates to know their ultimate goal.

Candidates are usually assessed on three main interrelated levels:

 Technical and competence (can you do the job?): you must have a mix of hard skills and soft skills,
able to work effectively in a team and having the potential to lead the workflow. Typical questions include:
- Technical questions: testing your ability to understand financial concepts.
- Your experience and unique attributes: you are selling your own story, and bankers will ask for
specific examples of when you showed the skills they are looking for, such as problem solving,
team work and leadership.
 Fit with the firm culture (do I see you working with me?): Firms have (or try to have) unique cultures.
Talking with bankers during networking sessions is a great opportunity to find out, if you fit with their
values. If yes, say it. It’s ok to repeat what you heard during the presentation or networking session; it
shows you’ve researched, listened and understood the firm. However, as a general word of wisdom, you
should maintain a positive attitude even under stress, show good presence and professionalism.
 Passion and commitment (if I make you an offer, will you consider it seriously?): Banking is a very
demanding job; therefore you must have passion and commitment. You also have to like the firm you are
working for, and that’s why networking is so important. Bankers will ask why banking? Why us? And you
should be ready with your bulletproof answer (answers must make sense). Ask yourself, do I sound
convincing? Ask your friends to give constructive feedback on your story and reasons; this will help you are
when under fire.
 These are the three main areas of a candidate evaluation. However, the list of qualities to be assessed will
usually be longer. Here’s a list we drew up with the assistance of other students who previously worked in
banking prior to LBS:
 Leadership: ability to deliver results; pro-activeness and spirit of initiative to add value to the team.
 Teamwork: communicate and work well with others, flexible, respectful with both senior and junior bankers.
There could also be references to what your study group thinks of you and how well you get along with
other members of the study group.
 Dependability: pair of “safe hands”, ability to work hard, multitask, handle stressful situations and integrity.
 Excellence: history of success and achievements; high intellectual horsepower; high standards, ambitions
and drive to excel.
 Attitude: pleasant to hang out with; sense of humour; motivated, hardworking and ability to learn and
develop.
 Presence and professionalism: commercial sense; good business judgement; articulate; inspiring trust and
confidence.

7.2 Interview Types

Usually an interview lasts for 20/30 minutes. Therefore, if you have been scheduled for one hour it will probably be
split in 2 x 30 minutes or 3 x 20 minutes.

The usual recruitment process includes two rounds of interviews, with the first round on Campus at the school and
the final round at the bank’s office. A couple of banks have more than 2 rounds and some have an Assessment
day. There is no firm rule, but you are be more likely to be interviewed by VPs and Associates in the first round and
by Directors and MDs in the final round. However, all rules are there to be broken, one year a boutique and a bulge
bracket bank sent MDs to the first round.

Interviewers will often be alumni of the School, so they will know the concepts of study groups and the MBA
curriculum. You should be ready for questions about the life in LBS and what feedback your study group would give
you. Usually it will be a one on one interview but it’s not uncommon to have two bankers conducting the interview.

Be aware, if you are interviewing for a specific team given your particular background, it is very likely that a
member of that team will interview you.

No one can ever predict the format of an interview, so you should try to prepare well for many different situations.
However, the major part of the interviews follows a common path (and a common goal). Below you can find a
general scheme:

 “Tell me about yourself” or “Walk me through your CV”: is usually the first question asked. It is an
opportunity for you to control the message you want to give you interviewer(s) :
- Frame every step of your career/story in a way that explains why you chose to do an MBA and why
you are seeking a career in banking. It must be reasonable and rational. If it’s rational then
everyone will be able to understand and believe you.
- Talk about/frame your achievements that involve transferable skills and link them to banking
(leadership, commercial, team work, deal related etc…)
 Technical, behavioural and fit: hard skills vs soft skills, the endless battle. Do not fall in the false myth
that banking is all about hard and technical skills. Banking is about good reasoning and great interpersonal
skills. The banker is an analyst, a strategist, a salesman and a negotiator. Therefore, all interviews focus on
the behavioural and fit of the interviewee.
- The technical part is a minimum threshold you have to meet. It will also show your commitment
and passion for finance.
If questions become more difficult, that can be a good sign. The recruiter probably believes you
have good knowledge and will want to push it a little bit further.
- All other questions have the aim to understand if your experience and qualities will add value to the
team, and why they would want to hire you versus another LBS student.

Sometimes you may find yourself in a hostile environment, with your interviewer trying to systematically undermine
and contradict every statement you make, even cutting you off before you finish your answer. In most cases it’s not
because the interviewer does not like the answers, but because they are testing your confidence, your
interpersonal skills and how you perform under stress.

7.3 Know Your Story / Pitch

Key Takeaways: Your story is how you will attract the interest of recruiters. It’s a great opportunity to drive the
conversation and make yourself interesting to them.

If you are not credible in selling your story and your skills, you will appear less credible and capable of selling an
idea, a project or a company. Your story will make a huge difference in driving your interviews and networking, and
it will usually be the first question they will ask.

Bankers will only take you seriously, if you can capture their attention by communicating clearly your story/pitch.
When considering your key marketing points, focus on how these points fit with the Analyst or Associate role:

 What are your transferable skills for investment banking?

 What are your significant accomplishments from your work experience?
 What in your background makes you stand from the others?

Below there is a rational path that every good story should have:

 The main passages of your life must make sense and show continuous improvement to excellence.
Never talk negatively about your experience or past employers. Always say that you decided to change
school/job/company because you were offered something better according with your drive to learn and
improve your standards. The characteristics of your job should always show similarity to the Associate job
(team working, leadership, problem solving and client standing, etc…)
 Why this programme at LBS and why banking? This should flow naturally within your story. You should
show thoughtfulness in your decisions, showing that your choice of banking wasn’t solely money driven or

following the business school crowd, but a deliberate reason for taking the programme you are in, why you
are in London and why you are passionate about (eg) corporate finance advisory?
 Your experiences/anecdotes should reflect transferable skills for banking. Always support your
statements with an anecdote from your past. For example when your boss had an emergency and left you
in charge of a project at the clients’ site or reporting directly to the CEO. Also highlight any finance related
or deal experience.
 The general format to structure an answer is SOAR: Situation, Objective, Action, and Result. Or Career
Services call it CAR: Challenge, Action, Result

A final word of wisdom, it’s very important to be structured in your exposition. Banking usually involves
multitasking on different projects with tight deadlines. The best Analysts and Associates are the ones able to
communicate clearly, concisely and quickly to time-poor senior colleagues. Therefore, think in bullet points when
communicating.

Student example: Why an MBA at LBS? I decided to do an MBA for three main reasons:

 First, I felt I touched a ceiling in my past career and the role was unlikely to stretch me intellectually
and I understood a move to London would give me the best chance of building a Career in IBD
since it is the International Finance Capital of the world.
 Second, I wanted to learn how to work effectively with professionals with different background and
nationalities, and LBS is the most diverse business school in the world.
 Third, I wanted a broader understanding of business that only a two year MBA can offer, which will
hopefully help to make me a better business leader/manager in the long term.

7.4 Financial Knowledge

Key Takeaways: Three main areas of knowledge: accounting, corporate finance and markets understanding. For
the first two, use the core courses, the training events and the material suggested. For an understanding of the
markets it is necessary also to read the leading financial publications regularly.

For many career changers the technical side is usually one of the scariest parts of the banking interviews. What is
considered to be acceptable financial knowledge? Before answering this question, you should know that recruiters
will test you on your technical skills in order to understand how prepared you are.

The financial side will involve mainly three areas:

 Accounting: the accounting class will cover the majority of what you need to know. While it is highly
unlikely that you will get a basic T-account question, it is important to understand how money flows through
the three financial statements. You should have a clear understanding of what they are and how a change
to one statement will affect the other two. This may be asked using a “real-life scenarios” like what happens
to the 3 statements when Apple manufactures and sells iPads? Sometimes, you may also end up with
more advanced questions such as what goes into shareholders’ equity, LIFO vs. FIFO, and less common
topics like revenue and expense recognition, M&A accounting, deferred taxes etc.

 Valuation/Finance: the corporate finance class and the finance club events (modelling and valuation
workshops) will cover the majority of topics that will come up during investment banking interviews,
including:
- DCF (WACC, CAPM, Beta deleveraging): Use a company’s projected cash flows, discount them
for the time-value of money and cost of capital, then sum those with the company’s discounted
terminal value to find its present value.
- Public comps: Look at publicly traded comparable companies and the multiples they trade at, and
then apply those multiples to the company in question.
- Deal comps: Look at what buyers paid for companies in similar industries and with similar financial
profiles and apply those multiples to your own company.

- Accretion/Dilution analysis: will a company have higher or lower earnings per share (EPS) after
acquiring another company? This is an analysis of the trade-off between using cash, stock, or debt
to finance an acquisition.
- Leveraged Buyout (LBO) Models – calculating the return to a PE firm when it buys a company.
Most typical questions include: “Walk me through an LBO model”.
- Brainteasers: Although not about finance, you may end up with a brainteaser. The main purpose is
usually to test your thought process. For a good list of examples (and answers) use the guide:
“Heard on the Street”
 General financial awareness: these questions test your “real” understanding of what’s going on with the
markets/economy. An example could be: “where do you think the UK economy will be in the next year?”, “if
you had a $1m, where would you invest it?”, “How would you sell the equity story for Groupon IPO?” This
knowledge cannot be found in the coursework. It is only obtained by regularly reading the Financial Times,
The Wall Street Journal and The Economist and by discussion with classmates.

Many students in the past years have found these other resources to be very useful:

 Adkins Matchett & Toy Midnight Manuals: practical manuals covering the everyday work of analysts. It also
includes basic modelling guides (highly recommended!).
 Investment Banking of Joshua Rosenbaum and Joshua Pearl: a detailed practical guide covering an
analyst’s role.
 Vault guides.
 Wall Street Oasis: is stronger on Markets than others and is available to download

 Mergers & Inquisitions IBD guide: interesting guide with over 200 questions to practice.

7.5 Company Research

Key Takeaways: recruiters will ask questions about their firms. They will test your preparation (would you go to a
client’s meeting without knowing its share price and main financials?) and interest in the company.

Banks appreciate a student’s ability to differentiate amongst banks. Every firm has its own culture, which is dictated
by their history and the particular nature of their services. Recruiters will probe your knowledge of the market and
your interest in their particular company versus others.

You should modify your pitch for each bank. Why should they hire someone who did not even bother to seriously
understand the firm he or she has applied to? Lack of preparation is definitely not a characteristic of a good Analyst
or Associate.

When preparing, remember that your knowledge of the banks should reflect your knowledge of the industry, your
potential fit with the firm and your ability to prepare for important business meetings.
Many students find it helpful to make a one page slide on each bank that they apply to. A good cheat sheet should
include:

 Market position: bulge bracket, mid market, commercial bank or independent bank? (Morgan Stanley,
Unicredit, Citi, Moelis)
 Geography: US vs. European headquarters (Morgan Stanley, Deutsche Bank)
 Breadth of services: lending (balance sheet?) division (Citi, J.P. Morgan)
 Financials: revenue breakdown
 Market cap/share price/PE ratio/ROE (current vs. 52 weeks high/low)
 Chief executive officer
 People you have met at the firm
 Culture (web site and networking)
 Major deals done in the past year - The Banker and the FT, Investment Weekly News, Global Banking
News, Euromoney and many other banking and finance magazines and newspapers are available in full
text in the database FACTIVA (available to students and alumni on and off campus)
 Key points made at the company presentations (strengths, culture)

Some students have also found it useful to read the broker reports on the banks, available through the Library
services, analysts’ reports, company data, M&A, bond, and private equity data are all available on and off campus
through Thomson1:

Portal>Library Services>A-Z list of databases>Thomson One Banker

• T1: You have access to Thomson One on Portal via “Library Services” > “A-Z of Library Databases” (you
may need to register; note that T1 only works with Internet Explorer, not Chrome)

• Banks coverage: T1 gives you access to analyst research covering the stocks of the banks that you are
applying to (the big “Initiating Coverage” reports are probably the best way to get to know a bank)

• Macro Research Reports: T1 also gives you access to research published by the banks on most key
issues. In December each bank publishes a 100 page “Year Ahead” piece, covering all main asset
classes. This is essential reading.

• Finance Guides: T1 also has some of the guides published by the banks on FX, Commodities etc.

• In-House Research: Finally, T1 gives you access to some of the research that the people interviewing you
likely read on a daily basis (e.g. “Early Morning Reid”, by Jim Reid at DB)

• Finding non-company specific research: within T1, go to “Screening and Analysis”, “Research” and then
(within “More Options”) search for key words or search by contributor

Also vital, so you can keep up with what bankers are discussing, is the Financial Times which is available online
(with hardcopies scattered across campus). Make sure you have a view on each of the major macro issues
and asset classes and that you can justify your opinion

[Link]

• If you aren’t going to read the FT every day, at least be conscious that there are three things you really do
want to read

– 6am Cut: email every morning, summarises news from the last 24hrs, updates you on equities,
LIBOR, treasuries, gold, oil, FX (2 minutes of reading time on the Circle line and you already know a
lot...)

– Lex: Lex commentary tends to be really good. In Markets, you have to have “a view”, and if you don’t
this will give you some direction

– Archive: the archive is hugely valuable because:

1. By knowing key stories (Europe, Greece, China, regulatory reform etc.) to the point where you
can reference precise details, you can demonstrate passion about Markets

2. Banks have a view on various events, and regularly comment on those views to the FT. If you
are interviewing with a bank, it helps to know the “house view”, and it’s also impressive if you can
cite the source of that view (i.e. the trader or analyst who gave the comment).

7.6 Practice Interviewing

Key Takeaways: Study groups and mock interviews are absolutely key in your preparation.

 Practicing is crucial to performing effectively in interviews. Many students who are committed to finding an
internship in banking form study groups of 2-3 people.
 IBD recruitment is a long marathon and having the right group to support you will quickly become
invaluable. In selecting your teammates, try to make a choice based on potential, commitment and
diversity.

 Study groups are usually very helpful for sharing information and practicing mock interviews. Interviewing
each other is probably the best way to prepare. Use the Career Services resources as well, including mock
interviews with external consultants (Natalie is one of the best) and PLP sessions.
 Listed below are some considerations to keep in mind when practicing with your group:
 Complete interviews: practice some complete 30 minutes interviews, with a full spectrum of questions
(motivational, behavioural and technical). Also simulate interviews with different banks so that you can
practice bank-specific questions. It is not easy to maintain the right amount of energy for the entire
interview, so practicing is a great way to become accustomed to real life situations.
 Practice as it was real: find a quiet room with chairs and table, and take it seriously.
 Delivery: you may know the right answer to all the questions, but how you communicate/deliver the
message is vital. As previously emphasized, be structured in your answers. It is okay to use “bullet points”.
Also, pay attention to how you speak, show excitement when talking about important aspects of your life.
 Mock interviews in group of three: it can help to interview in a group of three, with one as the interviewer
and another observing and taking notes.

7.7 Phone and Video Interviews

While most of the EMEA Associate role interview are face to face. Those applying for Analyst positions and those
applying for APAC or US roles or roles outside of London, are usually subject to a phone and/or a video conference
interview.

7.7.1 Phone interviews

For Analyst recruiting, the next stage after the online tests if you make it through is a short phone interview (15 to
30 mins). This is with either an HR/Recruiter or with junior bankers.

As a general rule for all phone interviews, make sure you have your notes well organized and prepared! Sound
energetic (helps to smile!) and enthusiastic as the interviewer cannot see you but only hear you… At this stage you
can get asked a variety of questions: they will likely touch on motivation, industry and markets knowledge and also
a few technical questions (perhaps not as deep as in a face to face interview due to limited time).

One good thing to do is to record yourself answering a question. This gives you an opportunity to hear how you
actually sound over the phone. Make sure you check for clarity and energy.

7.7.2 Video Interviews

Some interviewers will ask you to set up a video conference or Skype call. It is important to prep for these like you
are doing a face to face interview so having notes on hand may not work because it will be obvious if you keep
checking your notes.

But you will need to take note of things like energy, tone and clarity when you answer questions. Again, recording
yourself is a good idea. The portal has a resource that allows you to do this called ‘Virtual Mock Interviews’ under
the Career Skills/Get Hires/Interview Stream section.

7.8 Assessment Centres

While this usually applies to Analyst recruiting, it is useful to look through for Associate recruiting as well. Last
season, Jefferies used this format in their interview process.

The Assessment Centre is half a day where you will be assessed with other candidates, usually a dozen or less.

You will have different tasks during the day which can be:
 Numerical test: same as the online one but ensuring you do not get help
 Individual presentation/pitch: you will get a booklet, usually information about a company, and will have
some time to prepare a pitch/presentation with a final recommendation to give at the end. The objective is
to test your presentation skills when you deliver in front of interviewers. BE CAREFUL with timing!! Do not
lose track of time during preparation and during presentation. Key aspects they assess: structure,

presentation/communication skills. Speak clearly, at a good pace and tone, use gestures and any support
you may be given (flipchart, board, etc).
 Group exercise: usually a case study where you have to come up with ideas and a final recommendation
as a group. Tips: be polite, do not lead too much or interrupt others, participate with innovative and creative
ideas, keep track of time (be the time keeper and remind the group of the time), summarize once in a while
where the group is at and what are the ideas, involve those who are not, keep the final goal in mind don’t
lose track. Remember: You are watched at all times!

The table below summarises how group exercises are usually assessed. Please also check out Career Services
material on portal around Assessment Centres.

Competency Positive behaviours Negative behaviours

Commercial  Links information from task to wider commercial  Takes narrow view of task, fails to link to wider
awareness concerns commercial concerns
 Focuses on improving profitability while minimising  Fails to recognise risks associated with
risk alternatives
 Takes account of impact on different stakeholders  Ignores stakeholders
 Drives pragmatic and creative solutions to improve  Adopts a single plan or strategy without fully
outcomes exploring alternatives
 Spots opportunities for competitive advantage  Misses important information, makes
 Looks for strategic long term solutions assumptions
 Misses the opportunity to explore creative
solutions
 No evidence of long term commercial thinking
Builds alliances  Contributes constructively throughout discussion  Makes little or no contribution
 Actively seeks to develop shared goals.  Sticks rigidly to one viewpoint
 Embraces individual differences in the team and  Fails to acknowledge other’s input
recognises the benefits of different perspectives.  Is impatient with others
 Actively engages others, encouraging input and  Dominates discussion and imposes own ideas
contributions. on team
 Checks that others have understood  Shuts down contribution of others
 Looks for ways to resolve conflict and achieve  Fails to use different interpersonal styles to
consensus establish relationships
 Lacks interest in developing relationships with
team
 Lacks interest in working towards a shared goal
Tracks  Proactive in establishing process to deliver task on  Fails to plan or organise work
performance time  Imposes goals and targets without agreement
 Takes organised and structured approach, planning  Sets goals that are irrelevant to the task
ahead and building contingencies to meet deadline  Blocks or resists attempts to set targets
 Continually monitors performance  Resists taking action to move team on
 Takes initiative and encourages others  Cites or blames others for lack of progress
 Sets specific, measurable goals/targets  Fails to grasp opportunity to deliver beyond the
 Takes action to improve team performance brief
 Looks to deliver value add beyond the brief  Fails to keep to time
 Is reactive rather than proactive

Influencing  Actively listens and responds effectively to questions.  Does not listen
 Demonstrates a clear and structured communication  Fails to respond to questions or unconvincing
style. response
 Influences others to change their thinking using  Difficult to understand
objectivity and fact, showing specific advantages of  No eye contact
plan/strategy  Speaks too fast/slow/quietly/loudly
 Builds on the ideas of others.  Rambling or confused speech
 Does not use jargon, clearly describes technical  Over simplifies or over complicates
issues.  Uses emotion rather than fact
 Uses a range of influencing styles to get the best  Patronises others
result.  Fails to acknowledge or build on others ideas
 Varies pitch and tone to engage listener  Forces own agenda
 Demonstrates personal presence to earn trust and  Consistently negative towards other ideas
respect  Presents own position with no attempt to get
 Negotiates effectively for a win-win solution buy in from others
 Fails to convince or win others to their view
 Ineffective negotiator

7.9 Final Considerations

Key Takeaways: Find the right attitude and style of communication. Approach every question as an opportunity to
market yourself to the interviewer. Maintain an elegant and appropriate body language.

Keep calm:
 The interview period is draining, but with the right amount of practice you can become more comfortable
and better able to control your nerves. Therefore, keep practicing and try to simulate a real interview
situation.
 It is also important that you don’t appear too nervous or unsure. Can you imagine a client trusting a banker
who doesn’t appear confident on a vital matter? Remain communicative and maintain a positive attitude
during the entire interview. Avoid appearing arrogant.

Keep in mind that interviews tend to follow a similar path:

 First impression: be confident and upbeat when you walk in. The first impression is crucial in the
interviewers’ opinion of you.
 Tell me your story: this is usually the first question, even if it comes in different forms (walk me through
your story, why IBD, etc). It is probably the most important question. Depending on whether your answer
sounds credible and reasonable, the interviewer will decide how seriously he should listen to you for the
rest of the interview.
 Behavioural questions: use examples from your past to highlight why you would be a perfect fit for IBD
and the bank. It is a great opportunity to market yourself.
 Technical questions: be structured and concise in your answers. If you do not know the answer, remain
calm and try to think through the answer aloud and ask questions in order to engage the interviewer. Often
there will be no right answer, and the interviewer simply wants to see your thought process(be structured
and consequential!). Last suggestion, never give up unless the interviewer changes the question.

Maintain appropriate body language:

 Posture: sit straight with your shoulders, do not cross your arms and keep your hands where the
interviewer can see them.
 Face: smile and make the interview an opportunity to learn from an expert practitioner.
 Eye contact all the time: do not look down (not confident/shy) or up (evasive, afraid), but maintain a positive
eye contact with each of your interviewers. It’s very important to do this when trying to convince someone
that you are perfect for the job.
 Voice: maintain enthusiasm, do not rush but maintain a good pace. Also vary your volume and speed
according to what you are saying.
 Legs: must not be crossed, and try not to let them shake.

8. INTERVIEW QUESTIONS
Sources used to create this guide:

 Adkins Matchett & Toy Midnight Manuals:

 Investment Banking of Joshua Rosenbaum and Joshua Pearl: a detailed practical guide covering an
analyst’s role.
 Vault guides to finance interviews and advanced financial interviews.
 Mergers & Inquisitions IBD guide: interesting guide with over 200 questions to practice. (internet
website)
 Questions experienced in actual interviews

8.1 Motivation / Fit / Commercial Awareness

View motivational question as an opportunity to present the main decisions of your life in a way that will highlight
the characteristics necessary to be successful in investment banking. Banking is a highly demanding job, and
recruiters want to be assured that you are passionate about it.

You will also be heavily tested on your understanding of the industry players and main services.

Answers should be clearly communicated: make use of points when talking. There is nothing worse than
burying a good answer in a flood of words. Remember your interviewer will meet at least 10 students and will easily
get bored and lose attention.

Make use of specific anecdotes to support your statements. Whenever you are asked a behavioural or
motivational question, you need to have anecdotes ready to back up what you say. Go through your resume and
make sure you have stories prepared for the most common questions; you can modify them as necessary for any
new question you get.

It is also important to ensure consistency and credibility. Saying that you want to do banking because Uncle
Tom is a banker and you always liked the guy is not a credible answer. Tell the interviewer exactly why you are
passionate about advising companies on extraordinary operations. M&A transactions are a way to shape
competition in industries and are usually life-changing operations for many companies. IBD projects are usually
time-sensitive and critical to a client’s competitive positioning, often leading to a time frenetic environment where
multi-tasking, time management, strong analytical and communication skills, stamina and team work are essential.

Also keep in mind that how you answer the motivational questions is going to determine the interviewer’s attitude
for the technical part.

Below you will find a list of the most recurring questions. This is not an exhaustive list of all the questions you may
get.

8.1.1 Background and personal questions

1. Walk me through your resume / tell me about yourself / tell me who you are:

Almost every interview starts with this question. This is a way for bankers to form a preliminary opinion
about you and to see how well you can sell your story.

The answer should not take more than 2 minutes and you should focus on strengths and skills that are
relevant to investment banking. You do not have to cover everything on your resume, but you should
highlight all the main points by giving a short preview of the stories you want to tell them later. Focus on
relevant achievements and transferable skills.

By the time you go for your interview, you should have repeated your story so many times that even you
should be bored of it. Be careful not to sound mechanical.

2. Why did you major in … ?

If it was business related you can discuss your interest in the area. For different majors you can emphasize
how you liked the challenge and/or you had a personal interest in the field. But also mention you took your
programme to study business.

3. Why LBS?
LBS is the best finance business school in Europe, it’s also the most diverse and is located in the financial
heart of Europe. Find your story building on the school strengths.

4. Why not a different course or programme?

Emphasize the strengths of your chosen course and point out some of the key coursework which you
believe makes you an ideal candidate for the role – i.e. not just the Finance courses but the strategy
courses as well.

5. What do you do for fun?

If you have anything unique or uncommon (climbing, wine tasting, mountaineering, investing) you should
bring that up. It will be a differentiating point. You should also highlight what is fun for you and quote some
of the transferable skills that may apply to banking (multitasking, teamwork, leadership).

6. Tell me something interesting about you that is not listed on your resume
Use common sense. Talking about a trip in Italy or the Manchester – Liverpool match you saw last month is
totally fine.

7. What are your favourite movies /books?

Pick something that you really liked, but avoid being overly finance focused with titles such as Liar’s Poker
or Wall Street. Avoid saying you really like Harry Potter. Pick a balanced choice (you want to be seen as a
normal person!)

8. Other background and personal questions

 What other business schools did you get into?
 Tell me about your extra-curricular activities at LBS
 What’s your proudest achievement at LBS?
 What has been your greatest learning at LBS?
 Which subject did you find more interesting in LBS? Which did you enjoy the most? And the least?
 Why did you choose your campus involvements?
 How did you contribute to the LBS community?
 What was unexpected, both positively and negatively, at LBS?
 What was the last book you read for fun? What are you reading right now?
 What three things would you want stranded on a desert island?
 What’s your favourite quote?
 Who is your idol/mentor? Other than a relative?
 Whose personality do you think had the biggest contribution to your own personality to date, your
mother or your father? Explain.

9. What’s your GMAT?

8.1.2 Commitment and Motivation Questions

1. Why investment banking?

You were researching a lifesaving medicine or well on your way to becoming a top manager, so why on
earth should you change your career to banking?

Be honest with yourself and try to really understand what bankers do, it is the best way to find an answer.
Then practice it every time you can.

Prepare for strong rebuttals and think ahead about how you will respond to them. Recruiters will often
question your reasoning in order to understand how solid you are.

The answer to this question is very personal; it could vary from the focus on the client, the intellectual
challenge, the teamwork, the colleagues and/or the project management skills. Many fail to understand
what M&A really is: advising clients on decisions that will likely transform how they do business in their
industry. Think of the example of the third and the fourth largest players in an industry merging and
becoming the largest one. M&A is a strategic competitive response. Competitive pressures, changing
markets, and other forces may put pressure on management to seek external means to improve
shareholder value. Mergers, acquisitions and restructuring are an integral part of every company’s strategic
development plan.

2. What do you know about the lifestyle of this industry? Do you think it will suit you?
Say that you have been researching the industry and have talked with many bankers and that you are
prepared to work as long as the client and your team need you to (80-100 hours per week).
As an example, give one situation in your life when you were required to work that hard, and say that even
if no one likes continuously long hours, you still enjoyed it because you like to be challenged and being part
of a team.

3. What you don’t like about banking?

There is no correct answer to this question. Usually no one likes working all the weekends for multiple
months (unless you live only for your work and this would make you quite boring). Conclude saying that
you understand that M&A situations are so critical for clients and often have tight deadlines; therefore
investment bankers have to work so hard. It’s part of price you should be prepared to pay for doing such a
challenging and exciting job.

4. I see you changed quite a few jobs before business school. If we hire and invest you, are you going
to leave early?
Your answer should show that you are a good team player and an ambitious young professional striving to
grow. While it may be strange if you changed 4 jobs because you did not like the people, it is rational if you
did so in order to grow professionally.
You should also explain why you think that banking is a long-term choice (it has all the characteristics you
were looking for when you were changing positions)

5. You have an engineering background. Why change your tech job with Banking?
Keep it as personal as possible. Frame your precedent job in a positive light, but say that you like the
business side of technology more than the tech side by itself. You want to advise tech companies in
extraordinary operations that will change the competition in the industry.
Many students also point out that they felt capped in their growth since limited advancement opportunities
are typical in the corporate world.

6. You have been an auditor. Why you now want to switch to Banking?
As usual, keep it personal. Your story is your differentiating factor.
Many students find the faster pace of IBD and the career advancement opportunities more attractive. Say
that you are excited about the opportunity to certify not just a small part of a balance sheet, but to help the
CEO of a multinational corporation change the shape of a company and the competition dynamics. It is
always helpful while making such statements that you also back up these statements with either personal
examples or examples from a recent transaction.

7. You have been a successful M&A lawyer with a potential for being a partner in few years. Why
would you forego a lucrative career and enter in banking as a summer associate?
While being an M&A lawyer has many important transferable skills, many students with a law background
find their job too narrow and focused on only one part of the deal.
Point out how you would like to lead the client on business/investment side, which is of course the most
important.

8. You have worked in a consulting firm for three years, why change for banking?
Make your own story, starting from a good understanding of what M&A advisory is.
Many students say that in consulting they learned how to approach management and analyse market and
companies, but that the work was too project specific and that often you never got to see what appended
after it.

M&A advisory it is always a high-level view of the company and it is deeply dependent with the final results
of the recommendation (bid price – deal closing).

9. In which other sectors are you interviewing? Only in banking?

Only banking. You should already be committed to banking when at the interview, or someone else will.
IBD is a very demanding job, with 80-100 hours per week. It requires passion and commitment.

10. Recently some Analysts and Associates have left for Private Equity. If the opportunity comes out,
would you leave our team?
Recruiters want to hire students with a long-term view on the job. You should say that Private Equity is a
possibility that every banker has to consider in their career, but that you do not see a foreseeable career
path in PE due to the lack of structure and internal promotion potential. Moreover, decreasing fund size and
increasing competition are seriously threatening the traditional PE model. Back up statements with recent
numbers.

11. You had been working in a small boutique, and you liked working in a small team. Why do you want
to move to a larger bank?
Always refer to your previous experience in a positive way. Say you loved it and you learned a lot, but that
you felt you touched a ceiling in your growth (only middle market deals, only one country deals, the centre
of the IB profession is London) and therefore moving to a large investment bank is your natural next step.

12. Which other banks you are interviewing with?

It’s ok to say you are interviewing with all the other large banks. You want to work in investment banking
and you want to maximize your probabilities to get a job. It’s perfectly rational and everyone should agree
with you. It’s advisable to conclude by stating your interest in the interviewer’s bank of course.

13. When did you start being interested about finance? You say that you are very passionate and
interested in investment banking. Why did it take you so long to make this switch?
It should flow with your story. Make sure it’s reasonable and credible, and not too recent. Possibly you
should have done your programme as a way to move into a career in finance.

14. Why our bank?

What are our strengths and why you would be a good fit in our team? Think about the banks specific
characteristics and strengths and try to say why you feel you really appreciate/fit with their culture. Also, try
to study the most recent annual report and the most current statements by the senior management of the
bank. Ensure that you are aware of some of the major happenings relating to the bank.

15. I am concerned about (a certain area)… Can you explain more in detail?
Everyone will be questioned on this line. If you worked in IBD they will ask why you left; if you are a career
changer they have many angles to explore

Ask your study group to question you on your reasons behind the career move, find out in advance what
the main areas of concerns will be for recruiters and be ready (and proactive) to address them at the
interview.

Sometimes the interview can become quite stressful with your interviewers questioning everything you say
in order to test the sincerity of your statements. Relax. it is just part of the process. If you have a well
thought out story and you rehearsed your answers through many mock interviews you will be fine.

16. Where will you be in 10 years? What’s your career goal?

A business school graduate should be committed to a career in banking, or at least be able to convince the
interviewer that he or she is. For a career changer, some degree of doubt is acceptable.

However, you should state that you have networked and studied the industry thoroughly and you are ready
to work long hours in a team on more than one deal, and you look forward to your summer internship so
you can have the opportunity to put in practice everything you have learned.

17. Is there anything else you would like to tell me?

Consider yourself fortunate if you get this question. This is an opportunity to sell yourself in total freedom,
go with why banking, why this bank and why you.

18. If we were to make you an offer right now, would you accept it? Assuming you get an offer, how will
you make your decision between us and other firms?
Some banks are particularly sensitive about their acceptance rate; therefore they may ask the question to
candidates at the final round.

It is important to not say yes unless you mean it. If you say yes remember you are bound by your word, in
line with the LBS Renege Policy. Recruiters talk to each other.
It is not necessary to say yes in order to get an offer, but be ready to discuss what criteria would you use to
evaluate multiple offers. The criteria can highlight some characteristics that match the strengths of the firm
you are interviewing with. This is a way to show commitment without giving your word. It is also usually
advisable to mention that your main driver will be the fit with the people you meet. Banking requires long
hours, and if you do not get along with your team it can be a nightmare.

19. What are our greatest weaknesses?

This question is rarely asked. It is designed to test your knowledge (and therefore level of interest) in the
bank. Usually it is advisable to point out some “non-dangerous” areas of improvement for the bank, such
the lack of presence in Asia or lack of leverage or their unique international footprint.

20. Why do you think we selected your resume out of the hundreds that we received for an interview?
Why we should hire you instead of your classmates? Were you surprised that we called you back
for the second round of interviews?
Consider yourself fortunate if you get this question. It is an opportunity to sell yourself on why banking, why
this bank and why you.
Do not make the mistake of not sounding sufficiently humble. The Analyst or Associate role requires a lot of
self-confidence but also a good degree of humbleness. There will be a times when you will have to follow
the guidelines of senior bankers even if you disagree or don’t fully understand them.
Moreover, no one likes to work with overly narcissistic people. They are a problem for everyone.

21. If you were not offered a position in investment banking, what other jobs would you consider?
How would you deal with a rejection?
There is no perfect answer. However, you are in an interview and you should show commitment and
thoughtful planning. Some non-dangerous answers may be:
- Small boutique bank in order to gain enough experience and then re-apply for a bulge bracket
- M&A/business development at a corporation
- Project finance for a lending bank
- Small cap PE fund

22. Which of our competitors do you admire the most?

It is another question designed to test your knowledge of the market. It’s advisable to choose a bank with
similar characteristics of the one you are interviewing for.
For example a good comparable for J.P. Morgan would be Citi, highlighting their ability to cross sell
products leveraging their lending capabilities.
A good comparable for Morgan Stanley would be Goldman Sachs, saying that you really appreciate their
pure investment banking model and their culture for excellence.

23. What would you tell a client to convince him to hire this bank to provide DCM services?

24. Why are you interested in DCM? What attributes are required for a person to succeed in DCM?

8.1.3 Behavioural Questions

Recruiters ask these questions in order to understand how you react to different situations, and consequently if
they would like you on their team. It’s important to make a wise use of your “anecdotes” portfolio. You must always
support your statements with real examples.

1. Tell me about a time you or your team succeeded/failed or your biggest achievement/failure:
This is part of the “tell me about a time…” questions and is supposed to show the interviewer how you
handle situations involving stress and emotions. What did you learn and what was your role?
Your answer should be tailored such that the skills demonstrated should be the ones relevant to be a good
Analyst or Associate. Good examples usually include a project that did not go as planned or a work
situation that did not develop as expected.

Avoid empty statements like my greatest failure was not getting a job at Morgan Stanley right after
undergrad. Also avoid big mistakes. It is advisable to use real situations and then show how you used the
failure to progress and learn, and how the next time you handled the same situation brilliantly.

2. What are your three major strengths?

The interviewer is going to judge if you are a good fit for banking. Answer using the qualities described
earlier for a good Analyst or Associate.

3. Tell me why I should hire you in three sentences/ what are the three words that best represent you?
Welcome this question as a great opportunity to talk about your unique selling points. It is a variation of the
three major strengths, but you should back-up your qualities with examples from your professional
background.

4. What are your three major weaknesses?

This is a delicate question and you should treat it accordingly. No one is perfect, so there is no fault in
admitting it. Say a real weakness and most important tell the interviewer how you have been working on it
and the improvements you have already achieved.
However, avoid suicidal statements such as “I do not like working in teams” or “I am not good with
numbers” or “I lose control under stress”.

5. If your best friend/classmates had to describe you in three words, what would they say?
This question is a variation of the three major strengths. The interviewer is just trying to figure out if you
would be a good addition to the team. Answer using the qualities described earlier in order to convey the
right message.
For each word you list you should also give an explanatory sentence, possibly recalling a short anecdote.

6. What would someone you have not gotten along with in the past say about you?
Many students live these questions with anxiety. You should not, it is indeed another opportunity to sell
yourself.
It is a variant of the weaknesses question, but with the caveat that you should tell an anecdote of your past
possibly related to a misunderstanding / team working situation. For example a time when you

were in charge of delivering a project for the client and one of the advisors (for example the legal) was not
delivering their work on time putting the entire operation at risk, so you had to step down and “push” in
order to make the process flow again.

7. What would your ex-boss say about you?

This is a variation of the strengths question and represents another great opportunity to sell your unique
marketing points. Just ensure that you support your statements with real anecdotes.

8. Is there any reason we should not hire you?

There is no right answer. It all depends on how your interview is going. You can view it as a variance of the
weaknesses question.

If the interview is going well and it appears that you would be a good fit, you can answer with a joke like “if
you did not hire me you would probably not hire at all” or “I sincerely do not see any plausible reason!”

Another option is to try to think about the recruiter’s perspective. Figure out what about your profile would
worry a recruiter, and then convince them about how that is not a weakness at all. Make sure you support
your statement with a relevant story from your professional background.

9. Do you have any questions for me?

All interviews end with this question. The worst response to this question is, I have none. The interviewer
wants to understand if you are naturally curious and can ask intelligent questions.

It is another great opportunity to show how thoughtful your research has been and how well you would you
fit in their team. Here is a suggestion on some common questions to ask:

- Interviewer background: how did you get started in banking? Why did you choose your group?
- Ask for advice: what distinguishes a good Analyst or Associate from a great Analyst or Associate?
What are the key factors that make a summer internship successful?
- Discussion: you can ask senior bankers on their view of their sector. While this is usually
appreciated, you should be prepared to discuss the topic.

While these are all good questions, you should try to use your intelligence and creativity. Final questions
are a way of differentiating yourself.

8.1.4 Initiative / Leadership Questions

Bankers are not employees, but independent professionals competing in the business arena for clients. Associates
have often to use their own business judgment to lead analysts, while VPs and MDs have little or no time to follow
them. Analysts who come in at the entry level are ideally groomed to then take on these Associate roles.

Therefore, initiative and leadership (coupled with business judgment) are essential characteristics that recruiters
look for in candidates. Use anecdotes from your professional background to support your statement.

1. Tell me about a time you when you showed leadership

You should talk about an experience when you were requested to take the lead of your team and
successfully obtained the results you waited for.

 Start by stating the situation/problem and the objective.

 Describe the team and relative roles. Explain how you delegated/managed the work flow.
 State the results of your work and the client’s reaction.

This is also a good opportunity to talk about how you manage expectations with your seniors and how you
can work well with others, try to state anecdotes and prove that you have the required skills of an Analyst
or Associate.

2. Define leadership and describe your leadership style

There is no right answer, but a “balanced” approach is advisable. The best Associate or even Senior
Analyst is able to lead analysts and leave them with a good grade of independency but at the same time
will take responsibility/double checking (the mistakes of analysts) for delivering the output in time and with
no mistakes.

3. Tell me about a time when a team did not work as intended. Tell me about a time when you
successfully resolved a conflict.
It is strongly recommended you use a story when a team wasn’t working until you began to fix it.
Never be negative in an interview, therefore you should avoid pointing the finger against someone in
particular.

Many students take a situation where there was a personality clash between two members of the team
(ensure you are NOT one of the two) which was blocking the workflow; and then explain how they worked
to “bridge” the two antagonist’s positions, ultimately allowing the group to deliver results.

4. Are you a leader or a follower?

The truth is you must be both (be a balanced person!). A good Analyst or Associate must be versatile and
take the lead or take advice and follow, according to the team’s needs.

5. What was the most difficult situation you faced as a leader and how did you respond? Tell me
about a time you overcame adversity/greatest challenged as a leader? Give me an example of a
leadership role you have held when not everything went as planned.
The answer is your opportunity to talk about a situation where you stayed calm and effectively managed
the situation.

8.1.5 Teamwork / Interpersonal

Analysts and Associates constantly interact with other analysts, other associates, other departments, VPs and
MDs. Therefore, the ability to work in teams is a necessary skill. 99% of the time you WILL be working with other
people to get the job done.

1. Do you like to work with other people? Do you want that to be part of your job?
As said before, of course you like it. Efficient teams achieve the greatest results and in the shortest
time.

2. Tell me about a time you worked on a team. What was your role?
Teamwork questions are meant to test your knowledge of the work of an Analyst or Associate. They
want to know if you will work well with senior bankers, peers in different groups and analysts, in a
constant and pressing communication flow.

Many students tell about a time when teamwork was complex and eventually very successful and they
were both leader and followers in the process.

3. If an analyst asks you that he can’t come to work on the weekend and you’re required to finish
a critical project, what would you tell the analyst?

4. How will you manage analysts that, at least initially, will know more about the team/ business
than you?

5. If you are asked to deliver 3 projects for which you don’t have enough time, what would you
do?

8.1.6 Problem Solving

Analysts and Associates often face problems with no easy or immediate solution. Therefore, problem solving and
the ability to overcome any obstacle are essential skills for both roles.

Use these questions as an opportunity to show you would be a great addition to the team, someone who doesn’t
just “pass” the ball, but that actually deliver value and take off “worries” from the shoulders of VPs and MDs.

8.1.7 Understanding Banking

1. You have never worked in finance before, what do you know about the job of an Analyst/Associate?
You should acknowledge that fact, but show how much research you have carried out (including talking to
friends who work in banking etc) which means you have formed a good idea of the role and believe that
you would be a great fit. Then you should talk about what you understand the role to be.

eg. An Associate In IBD

The associate leads the execution of all the work done by the team, from the pitch to the execution of the
deal as well as acting as the coordinator of the team.
The main qualities/roles of an Associate:
- Successfully lead and coordinate with Analysts.
- Get the number rights and are technically prepared.
- Have business judgment (do not waste time of analyst by working on useless things).
- Have commercial skills when facing a client.

2. What’s the work of a banker in managing an IPO?

In an IPO the main role of banks is to guide companies in the process to raise money from equity investors
on the public markets.

The process is lengthy and involves many steps and different actors. Bankers are in charge of the
coordination of the all process, with particular attention to the communication with potential investors. The
final responsibility of the process being in time lies always on the bankers.

In managing the IPO, banks have four main activities:

 Coordination:
- Coordination and planning of the process
- Control and monitor work streams
 Documentation/Listing filings:
- Prospectus
- Due diligence (legal, business, financial)
- Legal filings
- Documents/contracts (Underwriting agreement, legal opinion…)

 Valuation / Equity story:

- Valuation (price range)
- Equity story (why the company is a good investment?)
 Marketing:
- Offer structure (index, size)
- Communication
- Roadshow/book building
- Aftermarket (greenshoe, stabilisation)

3. Tell me about a deal you have been following

This question is highly important, even if it is not directly asked during an interview, it can be used during
your interview and is nowhere else, you can use it during the last part of your interview when the
interviewer asks if you have any questions for them, thus prepare a recent deal that the bank has done.

This question reflects an everyday situation in banking. Often senior bankers ask analysts and associates
to scout for information on specific deals and prepare a concise summary.

However, the main purpose for this question is to understand your passion about M&A and how well you
followed the market. If you are applying for a specific sector you should cover that with particular attention.

Summarise the deal and why you think it is interesting in few sentences. Prepare a one-page deal
summary on at least 4-5 transactions. You should include the following information:

- Announcement date
- Acquirer and target description
- Enterprise Value and Equity Value
- EBITDA and PE multiples (in line with industry average? Accretive or dilutive for the buyer?)
- Structure of the deal (Cash vs stock, LBO?)
- Deal rationale (VERY IMPORTANT, remember what’s M&A all about)
- Synergies announced at transaction
- What is the impact on the industry?
- Market response
- Banks involved

4. What do you think are the three most important criteria for hiring someone into this position? What
about your background will make you a good investment banker?

Use your story and the answer to the role of an Analyst or Associate to formulate your unique answer.

5. If you can relate a sports position on a team to an Analyst/Associate's role, what would it be?
If you played any sports it’s a good opportunity to link its particular skills with those required from an
analyst/associate. Build the answer around “what makes a great analyst/associate?”

6. What do you expect to get from your summer experience?

Again, this question is a test of your understanding of the job. Many students say that you look forward to
contributing to your team and finally practicing/learning what you have been studying so hard.

7. Would you rather be on the buy-side or sell-side of a transaction?

If it is an auction, of course you want to be on the sell-side because it is more probable you’ll earn the
success fee.

Think of an auction where 10 buyers are in competition to buy one company. The advisors on the buy-side
are going to earn the success fee only if their client ends up buying the company, while those on the sell-
side can sell to each one of the 10 buyers. If you had to be on the buy-side, you should prefer to be on the
side of a strategic buyer, because they’re more likely to be able to pay more, since they will generate more
synergies through the transaction than a financial buyer.

8.1.8 Investment Evaluation Questions

Business judgement is one of the most important qualities of a banker. Knowing how to analyse an investment will
make you stand out from the crowd. Most of the material produced by investment bankers includes an equity story
and a risk and mitigants analysis.

As an analyst/associate you will be required to draft pitches, info memorandums and management presentations,
all analysing why a company should be attractive for investors.

These kinds of questions tend to repeat themselves and usually involve how you would invest a large amount of
money, evaluate the attractiveness of an investment, or decide whether to start a business on your own.

While it’s very easy to start wandering around with your answer, the only good way is to be structured and ask the
right questions:

 Ask the interviewer what your goal is (understand the risk profile and expected return)
 Ask whether there are any constraints such as time horizon, markets, assets class etc

1. If you had £1m, where would you invest?

Ask for the goal of the investors. Is it a 20% return in one year or a long-term investment looking to cover
your retirement needs?

Build the portfolio of investments around your objective. If it is a short-term capital gain you should pick a
high beta stock. Good ideas can be found from the stock pitch competition organized every year from the
Investment Management club.

Evaluate the investment, stating why you believe the industry is attractive and then why the company is
going to be able to capture value in the industry.

If the investment goal is to create returns on a 30 year time horizon, a balanced portfolio may be the best
option. Use the corporate finance class to prepare better for this question, but keep in mind that recruiters
are interested in your ability to understand clients’ need, respect limitations and understand why some
investments are better than others.

Another strategy that can really help is if you have been building on your own portfolio, this can be a real
winner as you have spent time on choosing certain sectors and or companies and while doing so you have
built some understanding/rationales for the same. If you have done so, you will be able to very comfortably
answer this question and possibly win over the interviewer.

2. In which sector/trend of the industry would you invest and why?

This is an obvious question if you are interviewing for an industry team. They want to test your
understanding and your passion for the industry, don’t miss out on this opportunity to show your
preparation.

Structure your answer by addressing:

 Why this trend is going to create or shift demand
 How the competition in the industry is likely to change
 Why M&A activity may happen as a consequence (quote a recent deal if you can)
 Returns in the sector
 Regulatory environment and possible changes in the near future
 Major players and their returns
 Future of the sector
You should pick a relevant and recent trend, and be specific.

3. If you owned a business and were approached by a large multinational for selling it, how would you
make a decision on what to do?
Recruiters want to see how well you reason about valuing an investment. In fact, if you do not sell, it means
you are “investing” the lost price in the company. Therefore, from a pure financial point of view you expect
the present value of future cash flows to be higher than the price offered.

Of course there are other factors you would like to address, such as the cultural affinity, the governance
and the fact that you may want to retain a decisional role in the company.

From an evaluation point of view you should understand the future of your company and the potential
business plan:

 How attractive is the market?

 Is the company going to capture value in the market? This will give you an estimate of the growth
of the company.
 At what price can the company be valued in 5 years? What’s the present value? This can be done
by either looking at the intrinsic value of the company (done using DCF) or also looking at
comparable public companies or even comparable transactions in the past. Also, try to get a range
of an acceptable value for the company.

This exercise will give you the guidelines to understand how to look at the value of your company. Then
you should consider the key terms of the offer:

 What’s the price vs the combination of the value of the company calculated in the previous step
and the present value of the synergies the acquirer expects to realize
 Payment structure (cash vs stock), for a better idea of what this means, have a look at the section
on Merger Consequence Analysis.

Finally draw your conclusions.

8. INTERVIEW QUESTIONS
Sources used to create this guide:

 Adkins Matchett & Toy Midnight Manuals:

8.2 IBD Technical Questions

Key Takeaways: study groups and mock interviews (Career Services/PLP/friends) are absolutely vital in your
preparation.

Technical questions are an important part of the interview and it is vital that you are well prepared. You should see
it as a threshold you have to pass in order to be considered for the job.

Technical questions will not ultimately get you the job. The behavioural part of the interview (your passion for
banking and your potential to succeed in it) is much more important. If you do well enough on the behavioural part
and you haven’t given the interviewer cause to think you don’t know finance, you may not even get any technical
questions.

Before even trying to understand the questions, you should have a solid knowledge of the basics of corporate
finance. Then, you should use this section as a way to perfect your knowledge and fine tune your preparation.

It’s not only important to know the answers to technical questions, but also to communicate clearly your thinking
process. Recruiters are more interested in how you reach the solution of the problem. So, even if you do not know
the answer to a particular problem, you should try to show the interviewer how you would structure/dissect the
problem in order to reach a conclusion. Like an exam, the recruiter is going to give you partial credit for being on
the right path, thinking the right way

8.2.1 The Foundation – Some very basic knowledge you should already have in place
Key Takeaways: we are going to provide some very basic theoretical concepts before introducing the questions.
They are not in any way a substitute of your own personal study, which you need to get to a higher level. We just
want to provide some basic guidelines to help you orientate your personal studies.

Enterprise Value
The value of the Assets of a company is given by the fact that owning 100% of the company will give you 100% of
all the future income generated from the company.
Therefore, the value on the financing side (owners of the future income) is equal to value on the assets side (you
are as rich as much it’s valued what you own). Usually companies are financed through a mix of debt and equity;
therefore the enterprise value is equal to the sum of the value of debt and the equity

Why debt is part of the EV?

Think about the case you buy a house worth $100m using $70m of Debt. After one year you decide to sell the
house, which is worth now $120m, how much is the value of the equity?
You receive $120m, from the sale, but you have to repay your debts for $70m, so equity is what remains after you
repay debt: $120 - $70 = $50m. Here we go.

Value of Assets: present value of the future income generated by the assets of the company.

Value of Debt: present value of the payments to debt holders less the excess cash (Net Financial Position).
Payments to interest holders include passive interests and capital repayments (think to your HSBC loan).

Value of Equity: present value of payments to equity holders (if listed, share price x shares outstanding). Payments
to equity holders include all the income left after having paid the debt holders. For this reason equity represents a
“residual” claim on the value of the company assets.

Therefore, in every valuation we will use the following equation:

Enterprise Value = Equity Value + (Debt – Cash “net debt”)

However, given that you are interviewing from LBS and have studied Corporate Finance, you need to come up with
a more sophisticated answer to this question:

Enterprise value =

common equity at market value + preferred equity at market value + minority interest at market value, if any + net
debt (debt at market value - cash and cash-equivalents) + unfunded pension liabilities and other debt-deemed
provisions

- Long term and Equity Investments – Net Operating Losses + Capital Leases

 Preferred and Minority Interest are just other types of equity and thus treated just as common equity is
treated
 Net Operating Losses – Should be valued and arguably added in, similar to cash.
 Long-Term Investments – These should be counted, similar to cash.
 Equity Investments – Any investments in other companies should also be added in, similar to cash (though
they might be discounted).
 Capital Leases – Like debt, these have interest payments – so they should be added in like debt.
 (Some) Operating Leases – Sometimes you need to convert operating leases to capital leases and add
them as well.
 Unfunded Pension Obligations – Sometimes these are counted as debt as well.

How do I find the value of an Asset?

Good question, the value of an asset depends on the cash you will receive from it. But because future cash flows
are risky, we have to discount them in order to account for risk and time value of money.

Discount Rates - how do you value something that is uncertain and in the future?
By using discount rates, which reflect the cost for the time value of money and the cost for remunerating the risk of
volatility of the future cash flows.

How do you find the right discount rate for cash flows to equity investors? Using the CAPM:

Return of market portfolio = Rf + Beta (Rm – Rf)

Let’s start from a basic question, what does return to equity investors compensate? It compensates for the time
value of money and for the risk of the investment.

 Time Value of Money: imagine a US govt T-bill which matures in 1 year. It is assumed to carry no risk (US
Govt will not default), but is still offering a positive return on your investment. Why? The return offered from
a T-bill (Rf) is compensating the investors for the fact that if you lend money today you will not get it back
for a year.
 Risk: risk arises from the standard deviation of the cash flow profile. As we have seen, a T-Bill carries no
risk (standard deviation = 0), because the US government is asumed to be able to pay back the exact
amount promised. However, if you are buying a market portfolio ( eg ETF on SP500), you will require a

higher expected return than T-Bills since it does not offer the same certainties of return. Since there is a
higher risk that you might lose money, you want to be compensated for that by receiving a greater return.

But how do we find out about risk and how we measure it?
It all boils down to the variability (standard deviation) of cash flows, which are influenced by two kinds of risks:

 Unique project risk: These are the risks associated with the fact that there are some perils which threaten
the success of an individual company but not necessarily the economy in general (management, plant
failure, etc.)
 Market risk: These are the risks arising from the fact that there are economy wide perils which threaten all
businesses (nuclear meltdown, recession, FED interest rates…)

Good, but should investors be worried about both types of risk?

If you own only one stock in your portfolio, of course the unique project risk is going to be important, but if you own
more than 20 stocks, you are going to worry more about the covariance of the stocks of your portfolio (market risk).
Think in the following way: if the specific risk of each stock is idiosyncratic, it means that it moves randomly. If each
specific risk in your portfolio moves randomly it means that their net effect will be zero (one stock goes up and
some other goes down, net effect averages zero).

Therefore, for a reasonably well-diversified portfolio, only market risk matters since it influences all your stocks in
the same direction. This is the risk you can’t diversify. That is why stocks have a tendency to move together, and
that’s why investors are exposed to market uncertainties, no matter how many stocks they hold.

Which risk should then be remunerated?

As we have just seen, the risk of a well-diversified portfolio depends only on the market risk of the securities
included in the portfolio, in others words from the covariance of the stocks with the market portfolio. Why the market
portfolio?

Because market risk is by definition measured by the movement of the market portfolio (SP500 for example).

Great, and how do I measure the market risk of a stock?

You simply measure how sensitive it is to market movements. The sensitivity of an asset to the market is called
beta. Stock with betas greater than 1.0 tend to amplify the overall movements of the market. Stocks with betas
between 0 and 1.0 tend to move in the same direction of the market, but not as far. Of course the market is the
portfolio of all stocks, so it has a beta of 1.0.

Example: a stock with a beta equal to 1.20 will amplify market movement by a factor of 1.2 (market movement
+10%, the stock will perform +12%).

I see, so how does CAPM find the required return?

CAPM states that the return required by equity investors in order to invest in a stock, is a function of the market
return and its sensitivity with it (remunerates only non-diversifiable risk).

Required return for stock A = Rf + BetaA (Rm – Rf)

Rf = Risk free
Rm = Return on the market portfolio
Beta A = Beta of company A

CAPM can be expressed graphically:

CAPM relation
14.0%
12.0%
CAPM return
10.0%
8.0%
Return
6.0%
4.0%
2.0%
0.0%
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5
Beta
Data:
Rf = 3%
Rm = 9% For Beta = 1
Return is equal to
the mkt return

Rf: Risk free return, ie the yield on a US bond, no risk of default and no risk of variability of cash flows. It’s the
return offered when there is no risk at all.
Rm: return of the all stock market, if you owned the “market portfolio” you will get exactly the market return.
(Rm – Rf): is the market risk premium (MRP), how much more is the market offering in order to attract investors to
invest in the market instead that in risk free assets? Rm should always be higher.

Ok great; we have just seen how the value of a company is equal to the present value of the future cash
flows it will pay. But how does a company generate value for its shareholders?
As easy as that, it should generate a return higher than the required return by investors. In doing so it will become a
positive NPV investment and its stock price will appreciate.

What if a company can’t deliver the required rate of return?

Investors will discount expected cash flows with the required return, thus achieving a lower valuation. Stock price
will go down in order to align it with the required rate of return.

We talked about discounting the cash flows, but what exactly are we discounting?
That depends on what you want to value. A company produces Revenues through its business activities on an
ongoing basis. Then it pays all the operating costs, taxes and makes important investments decisions for the future.
What remains is called “unlevered” cash flow, which is not influenced by how the company is financed.

However, the financing mix dictates how this cash flow is then divided among holders of rights on the company. If
there is debt, debtholders have a fixed claim and get paid first. What is left goes to equity holders.

So, if you discount the cash flows to debtholders using the debt discount rate, you will find the value of the debt.
In the same vein, if you discount the cash flow to equity holders using the CAPM discount rate, you will find the
equity value. Adding the value of debt and equity will give you the enterprise value.

However, what do you derive if you discount the unlevered cash flows? You will get directly to the Enterprise Value,
but of course the discounting rate will be the weighted average of the cost of debt and the cost of equity (CAPM),
which is called WACC (Weighted Average Cost of capital)

The formula of the WACC is:

WACC = Rd (1-tc) * D/EV + Re * E/EV

Return on Debt
(Rd)
Return on
Assets
(WACC) Return on
Equity
(CAPM)

How would WACC change if debt were to go up? How would WACC change if tax rates were to go up?
These are the category of questions, which are derived from the formula given above, so if debt were to go up,
given that it is a cheaper source of capital, WACC would go down.

Now answering the second question, if tax rates were to go up, WACC would go down as the after tax cost of
capital has come down. Thus, remember the formula and also reason what the effect of each component of
WACC’s formula is on WACC and why.

How would you find the WACC of a private company with no debt?
Firstly, here WACC is simply the cost of equity or in other words how much should the equity sponsors be
compensated for taking on the business risk of the company. The answer lies in looking at similar companies on
the basis of the following criteria:

 Industry
 Size
 Geography ….

8.2.2 General Finance and Banking

1. What is an Income Statement? What are the major line items on it?
The income statement provides the results of a business’ operations during a specified period of time.

 Revenues: Income that arises from the sales of goods and/or services and is recorded when it’s earned.
 Expenses: Commonly includes COGS, SG&A, D&A, Interests and Taxes, which are the costs a business
incurred over a specified period of time to generate the Revenues reported.
 Net Income = Revenues minus expenses.

2. What is Revenue?
Sales (or Revenue) is the first line item, or “top line,” on an income statement. Sales represents the total dollar
amount realized by a company through the sale of its products and services during a given time period.

Sales levels and trends are a key factor in determining a company’s relative positioning among its peers. All else
being equal, companies with greater sales volumes tend to benefit from scale, market share, purchasing power,
and lower risk profile, and are often rewarded by the market with a premium valuation relative to smaller peers.

Revenue = Units Sold * Price

3. What is COGS?
Cost of Goods Sold includes all the costs directly related to the production of products and services, such as raw
materials, direct labours, plant costs.

4. What is Gross Profit?

Gross profit is the profit earned by a company after subtracting COGS. As such, it is a key indicator of operational
efficiency and pricing power, and is usually expressed as a percentage of sales for analytical purposes.

Gross Profit = Revenue – COGS

Gross Profit % = Gross Profit / Revenue

5. What is SG&A?
Selling, General & Administrative Expense usually refers to all the “central” costs, and includes expenses such as
salespersons' salaries and commissions, advertising and promotion, travel, office payroll and expenses, and
executives' salaries.

6. What is EBITDA?
EBITDA = Revenues – COGS (not including depreciations of plants) – SG&A (not including amortisation)

EBITDA Margin = EBITDA / Revenue

It refers to Earnings Before Interests, Taxes, Depreciation and Amortisation. It is generally considered a proxy of
the operating cash flow generation of a company, but does not include change in working capital, capex, principal
repayment’s and dividends.

EBITDA is widely used for financial analysis and valuation and is considered a proxy for operating cash flow since it
reflects the company’s total cash operating costs for producing its products and services. In addition, EBITDA
serves as a fair “apples-to-apples” means of comparison among companies in the same sector because it is free
from differences resulting from capital structure (i.e., interest expense), tax regime (i.e., tax expense) and
accounting policy (D&A). [However, you will also find advocates who prefer using EBIT as they believe that the
company’s investment in CAPEX is an indicator of the future growth of the company, and one such advocate is
Warren Buffet]

It is also considered a good indicator of the ability of the company to generate profits, because it measures the
profitability of the company after having paid all the operating costs. However, it does not include the cost of the
tangible and intangible assets which for, particular industries such as Telecom, could be significant. In these cases
analysts often use EBITDA-Capex

You should also remember that even EBITDA can be influenced by individual company accounting decisions
(revenue recognition, unjustified rise in account receivables, etc…).

7. What is EBIT?

EBIT = Revenues – COGS (not including depreciation) – SG&A (not including amortisation) – Depreciation –
Amortisation

EBIT Margin = EBIT / Revenue

EBIT refers to earnings before interests and taxes and is commonly referred as “operating profit”.

EBIT is generally considered a proxy of the operating profitability of a company and it is independent by the capital
structure (before interest). It is used to compare companies, but as it includes non-cash expenses (D&A), it can be

impacted by particular accounting policies of the company. Since those policies may differ from company to
company, comparability may be affected.

8. What is Net Income?

Net income (“earnings” or the “bottom line”) is the residual profit after all of a company’s expenses have been
subtracted. Net income can also be viewed as the earnings available to equity holders once all of the company’s
obligations have been satisfied (e.g., to suppliers, vendors, service providers, employees, utilities,
lessors, lenders, state and local treasuries). Wall Street tends to view net income on a per share basis (i.e., EPS).

9. What is a balance sheet? What are the major line items on it?
The balance sheet is a snapshot of the financial position and the economic resources of a company.

 Assets: resources that a company uses to operate its business

o Current Assets: assets that could reasonably be expected to be converted in cash within one year.
These are important because they fund day-to-day operations. Include mainly receivables,
inventory, cash & equivalents.
o Long-Term Assets: assets which are not liquid, such as Plant & Equipment.

 Liabilities: claims that creditors and shareholders have on company resources:

o Current Liabilities: include both operational (payables) and financial obligations due within one
year.
o Long-Term Liabilities: include both operational (payables) and financial obligations not due within
one year.

Shareholders’ Equity: the book value of the equity of a company. It comprises the original “paid-in” capital plus
any subsequent issues of new equity plus the retained earnings less the dividends, which “flow through” from
the income statement each period

10. Describe the three main parts of the cash flow statement
Net Income
+ Non Cash Expenses (D&A)
- Change in Working Capital

Cash from Operating Activities: Cash flows related to producing and delivering goods/services
- Capital Expenditure (Capex)
+ Disposals
- Acquisitions

Cash from Investing Activities: Cash flows related to acquiring or disposing of long-term assets
+ Issue of Debt
- Repayment of Debt
+ Issue of Equity
- Dividends and Buy-backs

Cash flows from Financing Activities: Cash flows related to obtaining cash from lenders and shareholders,
and repayments of amounts borrowed.

11. What is Enterprise Value?

Enterprise value is the value of the assets of the company. It reflects the discounted future cash flows to all
claimants, whereas equity value reflects the discounted future cash flows only to equity holders.
Since the assets side of a balance sheet must be equal to the liabilities side, we can derive that EV is equal to the
value of all the financing instruments emitted by the company (ie bonds).:

EV = Equity Value + Net Financial Position + Minority Interests + Preferred Stock

12. What is Equity Value (market cap)?

Equity Value (“market capitalization”) is the value represented by a given company’s basic shares outstanding plus
“in-the-money” stock options, warrants and convertible securities (called fully diluted shares outstanding).

It is calculated by multiplying a company’s current share price by its fully diluted shares outstanding.

Equity Value = Share price * Fully Diluted Shares Outstanding

13. How do you find the number of Fully Diluted Shares Outstanding?
A company’s fully diluted shares are calculated by adding the number of shares represented by its in-the-money
options, warrants, and convertibles securities to its basic shares outstanding.

The incremental shares represented by a company’s in-the-money options and warrants are calculated in
accordance with the treasury stock method (TSM).

The TSM assumes that all tranches of in-the-money options and warrants are exercised at their weighted average
strike price with the resulting option proceeds used to repurchase outstanding shares of stock at the company’s
current share price.

In-the-money options and warrants are those that have an exercise price lower than the current market price of the
underlying company’s stock. As the strike price is lower than the current market price, the number of shares
repurchased is less than the additional shares outstanding from exercised options. This results in a net issuance of
shares, which is dilutive (ie, it increases the outstanding share count)

If the CEO of a company owns 100 call options with a strike price of $18 and the current stock price is $20, the
CEO will pay the strike price to the company 100*$18 = $1,800 in order to exercise these options. The company
receives the money but has the obligation to give to the CEO 100 shares (which are worth $20 each). Therefore, it
uses the $1,800 to buy shares on the market. $1,800/$20 = 90 shares, but it has to give to the CEO 100 shares, so
it has to issue the difference: 100-90 = 10 shares, which is the addition to account for the dilution of the in-the-
money options.

Treasury Method (New Shares)= ((Share Price – Strike Price) / Share Price)* Number of Options

14. What’s the difference between common stock and preferred stock? How do they trade relative to each
other?
Preferred stock are shares with a guaranteed dividend, while common stock are not. Moreover, in case of
bankruptcy, preferred stock shareholders have priority over the commons stock.

As a result, they have claims on the same cash flows, but just as debt usually requires a lower cost of capital (Rd)
than the cost of equity (Re) because it has a precedence on being satisfied, so preferred stock cash flows are a
little safer than common and so returns will be lower than those offered to normal shareholders.

15. What are Minority Interests?

Minority interest occurs when one company purchases a controlling stake in another but does not acquire 100% of
the Equity. Due to consolidation accounting, however, even if you acquire only 70% of a company, the acquiring
company will recognize 100% of the acquired company’s assets and liabilities on its own balance sheet. Minority
Interest is the line item on the balance sheet where you will net out the 30% you do not own.

Let’s say LBS is listed and buys 90% of the shares of Columbia, what happens to the 10% that they did not buy?
The Columbia shareholders become minority shareholders and keep their 10%.

16. Why is Minority Interest not included in the Equity Value calculation (market cap)?
Think about if from a cash flow perspective. 10% of the cash flows coming from the subsidiary are owned by
minority shareholders, not regular shareholders. So you can’t have what is not yours… but it is still part of the
enterprise value, which is the present value of all cash flows discounted for the appropriate WACC.

17. If one of your clients had some extra cash, how would you tell him to invest it?
First of all we should define “extra cash” (keeping in mind that the industry maybe cyclical, and what is extra cash in
one period may be necessary in the next). Every business requires some level of cash and working capital to run
operations on a day to day basis. Anything that is not required to meet these day-to-day cash flow obligations is
excess cash.

If the managers have positive NPV investments they should undertake them by definition. If they do not have where
to invest they should return money to stockholders via dividend or stock repurchase.

They may also repay debt, but only if this would be useful to move the D/E ratio toward the optimal ration (minimise
the WACC thanks to tax shield).

18. In a tax free world, if you have a company with an Enterprise Value of $10bn and you issue $2bn in
debt, what is the new EV?
This question represents the type of questions where the interviewer is trying to test your ability to connect the
three statements, so try to work with the interviewer one statement at a time. In this question, it is just the balance
sheet, issuing $2bn in debt increases the assets side of $2bn of cash, but also the liabilities side for $2bn of cash.
So the net effect is zero, value is $10bn.

19. What if after issuing the debt you use the $2bn to pay a dividend?
If the company uses the cash raised with the debt to pay a dividend, equity goes down by $2bn. The firm value
therefore remains at $10bn. Remember that the value of a company depends only on its future cash flow and the
return on assets. Capital structure matters only if there is a tax shield on debt or for the present value of financial
distress.

20. What if, instead of paying a dividend, the Company uses the $2bn to invest in a new project with an
NPV of $3bn?
Enterprise Value increases by the NPV $3bn and the Investment $2bn, therefore of $5bn. New firm value is $15bn.

21. Why do you subtract cash in the formula for Enterprise Value?
In an acquisition the buyer would “get” the cash of the company, so effectively it is paying a price minus the cash
he will receive back once he becomes the owner.

Theoretically, it’s not very accurate since one should only subtract the “excess cash”, the amount of cash the
company has above the minimum needed to fund its operations.

22. In a world with taxes, if you issue debt for $100 and pay it out as a dividend, how does it affect your
EV? Ignore the present value of financial distress.
Simply speaking, you are decreasing the amount of equity in the company by increasing the amount of debt in the
company, thus the presentation of debt (cheaper source of capital and also having a tax shield) has increased and
presentation of equity has decreased, thus enterprise Value increases by the PV of the tax shield generated by the
new debt (please refer to the APV method of calculating the enterprise value of the company for a better
understanding).

23. Could a company have a negative equity value?

No, but it could be zero if the value of the assets are lower than the value of the debt. You can’t have a negative
share price or a negative number of shares outstanding.

24. Can a company have a negative enterprise value?

Yes, a company can have a negative enterprise value if the company has loads of cash.

25. Why are some stock options relevant to valuation?

Unexercised, in-the-money options represent implicit equity value that will dilute current shareholders.
Theoretically, it should already be reflected in the company share’s price.

26. When looking at establishing the price of a company, do you pay more attention to the Enterprise Value
or the Equity Value?
Enterprise Value, since it represents the present value of all the future cash flows generated by the real assets of
the firm.

8.2.3 Valuation

1. How do you value a company?

There is almost a 100% chance that you will be asked this question, so please pay extra attention to each method
and also how one is different from the other. To value a company you can create a football field showing the results
of main Valuation methodologies:

 Discounted Cash Flows: measures the “intrinsic value” of a company by discounting to the present value
all the future cash flows of the firm available to stakeholders. This can be done using the WACC or APV.
 Public Comparables: measures “relative value”, looks at a group of listed peer companies to understand
how the market values companies in the same business or industry along relevant metrics, such as
EV/EBITDA and P/E. You might use different metrics depending on the industry.
 Acquisition Comparables: Analyses which prices and multiples companies in the same business or
industry have been bought and sold historically.
 Accretion/Dilution analysis: it is an affordability analysis of what the acquirer can pay rather than an
analysis of the value of the target.
 Leveraged Buyout: indicates how much a financial sponsor should pay a company given a targeted IRR,
the debt capacity of the firm and an exit hypothesis.

Another two methodologies are also widely used to frame the value of a company:

 Liquidation Value: Examines how much the assets of the company are worth if sold on a stand-alone basis
and used in potential distressed situations.
 52 week Trading Range: if the company is listed, then market valuation is an important benchmark

2. Which valuation methods tend to lead to the highest valuation?

To be honest, there exist many versions to this question; however, following is the most highly accepted answer
during the recruitment season for 2012 interns:

 DCF tends to give the highest valuation as this valuation is generally based on the estimates (growth) by
company and for obvious reasons, every company would want to get the highest valuation and thus get
the maximum price.
 Acquisition comparables tend to give a higher valuation than public comparables because strategic buyers
generally generate synergies in an acquisition, which will drive a higher valuation. In addition, there is also
an acquisition premium to public comparables because the acquiring entity will win control of the company
and will now have access to that company’s cash flows (a public shareholder can’t decide how to allocate
cash flows)
 Leveraged Buyout Valuation (LBO) will be driven by financing terms available in the market.
 Public Comparables tends to lead to the lowest valuation

3. What are the pros and cons of each method?

 DCF it is probably the best measure of the “intrinsic value” of a firm as it discounts the unlevered free cash
flow of the company by its cost of capital. It takes into account the synergies, management expectations
and the tax shield generated by the desired capital structure. However, DCF is extremely sensitive to
changes in its assumptions, in particular on growth expectations and discount rates. Moreover, the WACC
method works only if the capital structure (D/E) doesn’t change, otherwise you must use the APV method.
Finally, it is “subjective” because it reflects only your view.

 Public Comps have the great advantage of showing the market valuation/expectations on companies in the
same business. The main disadvantage is that depends on the availability of good peers and it relies only
in public information. It also does not include a control premium which would be relevant in you are trying to
value the company for purposes of an acquisition.

 Deal Comps show how valuation in M&A transaction for companies in the same business has evolved in
the past. However it suffers of the same comparability problem of public comps, exacerbated by the often

lack of information on the deal. Moreover, M&A transactions are cyclical (move in waves), tend to respond
to shocks in the industry (include a strategic premium) and include synergies that are very hard to
extrapolate.

 Leveraged value is basically a DCF with special conditions. It gives you the value that a financial sponsor
can pay given a certain business plan, an exit multiple and a targeted IRR.

4. Walk me through a DCF

To create a DCF valuation involves 5 steps:

 First, you look at the financial statements of the target in order to derive the historical financials such as
Revenue, COGS, SG&A, EBITDA, CAPEX, Change in Net Working Capital, D/E, etc.

 Second, project financials (usually 5-10 years) in order to derive future cash flows available to both
debtholders and shareholders (unlevered FCF) for the business plan period. There are two ways to
extrapolate FCF, both give you the same result:
METHOD 1 METHOD 2

EBITDA Net Income

- D&A + Interest expense * (1-Tc)
EBIT + D&A
- Taxes - Capex
NOPLAT - Increase in Working Capital
+ D&A Unlevered Free Cash Flow
- Capex
- Increase in Working Capital
Unlevered Free Cash Flow

 Third, find the right discount rate. Bankers often use the WACC, which is very convenient when you use a
long-term D/E and you don’t expect the capital structure of the company to change dramatically.

Where Re is the Return required by equity investors (CAPM), Rd is the cost of debt, Tc is the marginal tax
rate, and D/E is the long-term capital structure for the company.

If the D/E ratio is expected to change dramatically you need to use the APV method. Basically you first
calculate the value of the company as if it were all equity financed (WACC = Re if there is no debt) and
then you add the present value of the tax shield created by interest expense and subtract the present value
of the financial distress.

 Fourth, determine the Terminal value of the company, in other words the present value of all the future
cash flows after the least year of projections/business plan. There are three ways to find the TV:

o Gordon Growth Model (Perpetuity formula): present value at the last year of projections of
an infinite series of cash flows growing at g and discounted at WACC. Perpetuity growth is
obviously highly sensitive to the long-term growth assumptions, which is usually calculated
between inflation and long-term GDP growth (2-5%).
FCF (last year) * (1+g)
WACC - g
This document is for LBS student use only. Any reference texts used for are credited in the paper. Should you receive a copy of this document
as a non-member of the School Community please contact Careerservices@[Link] immediately.
INVESTMENT BANKING ASSOCIATE AND ANALYST RECRUITMENT GUIDE
Career Services

o Exit multiple: terminal value is most commonly calculated as a multiple of the EBITDA or
EBIT in the last year of projections. Of course, a high EBITDA multiple implies high growth
expectations. The multiple you use is generally based on the average multiple observed for
companies of this type in the public market (ie, from your public comparables analysis)

o Liquidating value in the terminal year (used for example in mining)

 Fifth, obtain the Net Present Value of the company by discounting to today using the WACC the cash flows
for the year of projections and the terminal value.

5. Walk me through how you get from Revenue to Unlevered Free Cash Flows. And to cash flows to
equity holders?

METHOD 1

Revenue
- COGS
Gross Profit
- SG&A
EBITDA
- D&A
EBIT
- Taxes
NOPLAT
+ D&A
- Capex
- Increase in Working Capital
Unlevered Free Cash Flow
- Interest expense * (1-Tc)
- Principal repayments
Free Cash Flow to Equity

6. What percent of the company NPV is usually in the Terminal Value?

The terminal value typically accounts for a substantial portion of a company’s value in a DCF, sometimes as much
as three-quarters or more. Therefore, it is important that the company’s terminal year financial data represents a
steady state level of financial performance, as opposed to a cyclical high or low. Similarly, the underlying
assumptions for calculating the terminal value must be carefully examined and sensitized.

The weight on the value depends mainly on:

 Length of projections period before using the TV (visibility of the business)

 Long-term growth rate (g) used to calculate the TV. Note that if you used the exit multiple method, your
assumption would be the same. A high multiple corresponds to a high growth rate, and you can always
calculate the implied perpetuity value to an exit multiple value by finding the g where the two values are
equal.

7. Why would you use (1+g) in the Terminal Value?

Mathematically, (1+g) grows the last projected year out another year (to the first year of the perpetuity method).
Why? The simple formula without (1+g) is: FCF / (WACC-g) says: “give me a constantly growing stream of cash
flows that starts at the end of the year and I will give you the value of that cash flow stream at the beginning of the

year. However, you need the present value of the cash flows to fall at the end of the last projected year, not at the
beginning.

8. What is an unlevered cash flow?

A business generates cash through its daily operations of supplying and selling goods and/or services. Some of the
cash has to go back into the business to renew fixed assets and support working capital. If the business is doing
well, it should generate cash over and above these requirements. Any extra cash is free to go to the debt and
equity holders. The extra cash is the free cash flow to stakeholders.

9. Why does DCF use unlevered cash flows?

Unlevered free cash flows are generated by the use of the company real assets, disregarding the company
financial structure (D/E). Therefore, discounting unlevered cash flows will give you the enterprise value of the whole
company.

If, however, you discounted the cash flows to debt holders by the cost of debt you would be able to find the value of
the Debt, while if you discount the cash flows to equity holders by the cost of equity you would be able to find the
value of Equity. The unlevered free cash flow is equal to the sum of cash flow to debt holders and the cash flow to
equity holders.

10. How do you get to the free cash flow to equity holders?

There are two ways to extrapolate FCF to equity holders, both give you the same result:

METHOD 1 METHOD 2

EBITDA Net Income

- D&A + Interest expense * (1-Tc)
EBIT + D&A
- Taxes - Capex
NOPLAT - Increase in Working Capital
+ D&A Unlevered Free Cash Flow
- Capex - Interest expense * (1-Tc)
- Increase in Working Capital - Principal repayments
Unlevered Free Cash Flow Free Cash Flow to Equity
- Interest expense * (1-Tc)
- Principal repayments
Free Cash Flow to Equity
Important note: you should know both ways of calculating FCFs as the interviewer might be bored of hearing
one kind and then might want you to tell him the other ways, so be prepared, this happened to me.

11. What is the WACC?

WACC is the Weighted Average Cost of Capital of a company including the tax shield generated by the tax-
deductible nature of interest. It reflects the riskiness of the cash flows you are discounting and can be seen as an
opportunity cost of capital or what an investor would expect to earn in an alternative investment with a similar risk
profile. For example, a large utility company should have a lower cost of capital than a more risky start-up in social
media.

Most companies use a combination of debt and equity to finance their assets; therefore their cost of capital will be a
combination of the cost of debt adjusted for the tax shield and the cost of equity. WACC is the combined, weighted
cost of debt and equity:

Debt Equity
WACC = * Cost of Debt * (1-Tax Rate) + * Cost of Equity
Total Capital Total Capital

Cost of Equity = is the return required by equity investors, which is dependent by the riskiness of the cash flows
(Return on Assets) and the financing mix (D/E).

Cost of Debt = yield to maturity implied by the trading price of a company publicly traded debt.

D/E = Long-term ratio of the company, usually in line with the industry and the long-term strategy of the
management. In the absence of explicit company guidance on target capital structure, the banker examines the
company’s current and historical debt-to-total capitalization ratios as well as the capitalization of its peers.

Tax Rate = use the marginal tax rate, not the effective.

12. Why do you put tax savings from interest in the WACC?
The WACC uses the after tax cost of debt because unlevered free cash flows do not include the effect of interest
when you calculated taxes. However, most businesses have debt and interest payments, and the WACC picks up
the tax savings from interest payments.

The idea is that because interest payments are tax-deductible, the cost of debt to the firm is actually lower than the
stated coupon.
1
13. How do you estimate the cost of equity? What is the CAPM?
Cost of equity is the required annual rate of return that a company’s equity investors expect to receive (including
dividends). Unlike the cost of debt, which can be deduced from a company’s outstanding coupons and maturities, a
company’s cost of equity is not readily observable in the market. To calculate the expected return on a company’s
equity, the banker typically employs a formula known as the capital asset pricing model (CAPM).

The Capital Asset Pricing Model is based on the premise that equity investors need to be compensated for their
assumption of systematic risk in the form of a risk premium, or the amount of market return in excess of a stated
risk-free rate.

Systematic risk is the risk related to the overall market, which is also known as non diversifiable risk. A company’s
level of systematic risk depends on the covariance of its share price with movements in the overall market, as
measured by its beta.

By contrast, unsystematic or “specific” risk is company or sector-specific and can be avoided through
diversification. Therefore, equity investors are not compensated for that form of risk. As a general rule, the smaller
the company and the more specified its product offering, the higher its unsystematic risk. Here is the formula:

Cost of Equity (Re) = Risk Free + Beta Equity * (Market Risk Premium)
Risk-Free Rate (rf): The risk-free rate is the expected rate of return obtained by investing in a “riskless” security
such as U.S. government securities such as T-bills, T-notes, and T-bonds. The general goal is to use as long dated
an instrument as possible to match the expected life of the company (assuming a going concern), but practical
considerations also need to be taken into account. Due to the lack of liquidity on the issuance of 30-year Treasury
bonds, bankers often use the 10-year T-bond.

Market Risk Premium (Rm - Rf): The market risk premium is the spread of the expected market return over the risk-
free rate. Finance professionals, as well as academics, often differ over which historical time period is most
relevant for observing the market risk premium. Some believe that more recent periods, such as the last ten years
or the post-World War II era are more appropriate, while others prefer to examine the pre-Great Depression era to
the present.

Ibbotson tracks data on the equity risk premium dating back to 1926. Depending on which time period is
referenced, the premium of the market return over the riskfree rate (rm – rf) may vary substantially. For the 1926 to
2007 period, Ibbotson calculates a market risk premium of 7.1%. Many investment banks have a firm-wide policy

1
For the answer we refer to the following book: Joshua Rosenbaum and Joshua Pearl, Investment
Banking, Wiley Finance

governing market risk premium in order to ensure consistency in valuation work across their various projects and
departments. The equity risk premium employed on Wall Street typically ranges from approximately 4% to 8%.
Consequently, it is important for the banker to consult with senior colleagues for guidance on the appropriate
market risk premium to use in the CAPM formula.

Beta: Beta is a measure of the covariance between the rate of return on a company’s stock and the overall market
return (systematic risk), with the S&P 500 traditionally used as a proxy for the market. As the S&P 500 has a beta
of 1.0, a stock with a beta of 1.0 should have an expected return equal to that of the market.
A stock with a beta of less than 1.0 has lower systematic risk than the market, and a stock with a beta greater than
1.0 has higher systematic risk. Mathematically, this is captured in the CAPM, with a higher beta stock exhibiting a
higher cost of equity; and vice versa for lower beta stocks. A public company’s historical beta may be sourced from
financial information resources such as Bloomberg, FactSet, or Thomson Reuters. Recent historical equity returns
(i.e., over the previous two-to-five years), however, may not be a reliable indicator of future returns. Therefore,
many bankers prefer to use a predicted beta (e.g., provided by MSCI Barra27) whenever possible as it is forward-
looking.

The exercise of calculating the Cost of Equity for a private company involves deriving beta from a group of publicly
traded peer companies that may or may not have similar capital structures to one another or the target. To
neutralize the effects of different capital structures (i.e., remove the influence of leverage), the banker must unlever
the beta for each company in the peer group to achieve the asset beta (“unlevered beta”). The formula for
unlevering beta is shown below:
BLevered
BUnlevered =
D * (1-Tax Rate)
1+
E

After calculating the unlevered beta for each company, the banker determines the average unlevered beta for the
peer group. This average unlevered beta is then relevered using the company’s target capital structure and
marginal tax rate. The formula for relevering beta is shown below:

D * (1-Tax Rate)
BLevered = BUnlevered * 1+
E
The resulting levered beta serves as the beta for calculating the private company’s cost of equity using the CAPM.

14. Should the cost of capital be higher for a $10bn or $100m company with the same capital structure?
In theory, the cost of capital of the smaller company should be higher, because its future cash flows are more
sensible to movements in the macro-economy factors (higher beta).

15. How do you calculate the WACC for companies with different business segments?
WACC can also be thought of as an opportunity cost of capital or what an investor would expect to earn in an
alternative investment with a similar risk profile. Companies with diverse business segments may have different
costs of capital for their various businesses. In these instances, it may be advisable to conduct a

DCF using a “sum of the parts” approach in which a separate DCF analysis is performed for each distinct business
segment, each with its own WACC. The values for each business segment are then summed to arrive at an implied
enterprise valuation for the entire company.

16. If you discount the free cash flow to equity with the cost of equity, what do you get?
Equity Value

17. How do you value a private company?

The methods are always the same, with some complication on how to find the data, especially the cost of debt and
equity for computing a WACC for the DCF.

To find Re:

 Find the Leverage beta of a group of comparable companies and then unlever it. In this way you will get to
a measure of the industry unlevered beta (Beta Assets).
 Relever the unlevered beta using the target long-term D/E for the private company.
 Recalculate the cost of equity using the CAPM.

To find Rd:
 Some private companies have public traded debt; having the price and the payment structure of the bond
will give you the YTM requested by the market.
 If the debt is not traded, estimate the credit rating of the company based on its leverage ratios and
operating statistics and use the current market yields for similarly rated companies in that sector. Many
banks have a credit rating advisory group or debt capital markets team that can help with this.

18. Two companies operate in the same business and have the same beta, however, one of them has debt
while the other does not. Which has the lower WACC?
Because the cost of debt (interest expense) is tax deductible, the WACC of the company using leverage will be
lower. However, the company must have sufficient earnings to use the tax shield and the amount of debt must be
sustainable.
2
19. Draw for me the relationship between WACC and “use of leverage” and explain it to me.
Like for the graph used to show the CAPM relation, we use in the X-axis the D/E ration and on the Y-axis the
WACC.
Debt Equity
WACC = * Cost of Debt * (1-Tax Rate) + * Cost of Equity
Total Capital Total Capital

The graph in shows the impact of capital structure on a company’s WACC. When there is no debt in the capital
structure, WACC is equal to the cost of equity. As the proportion of debt in the capital structure increases, WACC
gradually decreases due to the tax deductibility of interest expense. WACC continues to decrease up to the point
where the optimal capital structure is reached. The optimal point is the financing mix that minimizes WACC, thereby
maximizing a company’s theoretical value (lower discount rate, higher EV).

Once this threshold is surpassed, the cost of potential financial distress (i.e., the negative effects of an over-
leveraged capital structure, including the increased probability of insolvency) begins to override the tax advantages
of debt. As a result, both debt and equity investors demand a higher yield for their increased risk, thereby driving

WACC upward beyond the optimal capital structure threshold

2
For the answer we refer to the following book: Joshua Rosenbaum and Joshua Pearl, Investment
Banking, Wiley Finance

3
20. How do you do a public comparable valuation ?

Comparable companies provide a market benchmark against which a banker can establish valuation for a private
company or analyze the value of a public company at a given point in time. The foundation for trading comps is
built upon the premise that similar companies provide a highly relevant reference point for valuing a given target as
they share key business and financial characteristics, performance drivers, and risks. Therefore, the banker can
establish valuation parameters for the target by determining its relative positioning among peer companies.

The core of this analysis involves selecting a universe of comparable companies for the target (“comparables
universe”). These peer companies are benchmarked against one another and the target based on various financial
statistics and ratios. Trading multiples are then calculated for the universe, which serve as the basis for
extrapolating a valuation range for the target. This valuation range is calculated by applying the selected multiples
to the target’s relevant financial statistics.

Comparable companies analysis is designed to reflect “current” valuation based on prevailing market conditions
and sentiment. Market-trading levels may be subject to periods of irrational investor sentiment that cause valuation
to differ on a constant basis. Furthermore, no two companies are exactly the same, so assigning a valuation based
on the trading characteristics of similar companies may fail to accurately capture a given company’s true value.
As a result, trading comps should be used in conjunction with other valuation methodologies. A material disconnect
between the derived valuation ranges from the various methodologies might be an indication that key assumptions
or calculations need to be revisited. Therefore, when performing trading comps (or any other valuation/financial
analysis exercise), it is imperative to diligently footnote key sources and assumptions both for review and defense
of conclusions.

To perform a public comparable valuation, perform these 5 steps:

 Step I. Select the Universe of Comparable Companies: look at companies with similar operations
(products/services, customers/clients, distribution and geography) and financial aspects (size, profitability,
growth profile, ROI, Credit Profile). You can screen for comparable companies from:
o Previous analysis of other bankers such as fairness opinions and equity reports.
o Proxy statement and 10-K
o Industry reports
o Screen by SIC or NAICS code using databases such as Capital IQ, Factset, Thomson,
Bloomberg.
 Step II. Locate the Necessary Financial Information (both historical and future) to calculate key financial
statistics, ratios, and multiples for the selected comparable companies:
o Latest 10-K and 10-Q in order to get the historical financials (mainly for Revenues, EBITDA,
EBIT, Net Income, Diluted Shares Out, Net Financial Position, Minorities).
o Equity research or IBES estimates for the future three years.
o Market information, such as share price and dividends.
 Step III. Spread Key Statistics, Ratios, and Trading Multiples: Calculate the key financial statistics and
ratios, such as:
o Enterprise Value and Equity Value.
o Key financial data such as Revenue, Gross Profit, EBITDA, EBIT and Net Income.
o Calculate key trading multiples such as P/E, EV/EBITDA, EV/EBIT, EV/Revenue.
 Step IV. Benchmark the Comparable Companies: analyze and compare each of the comparable
companies with one another and the target. The ultimate objective is to determine the target’s relative
ranking so as to frame valuation accordingly.
 Step V. Determine Valuation: the trading multiples for the comparable companies serve as the basis for
deriving an appropriate valuation range for the target. The banker typically begins by using the means and
medians, min and max, of the most relevant multiple for the sector (e.g., EV/EBITDA or P/E) to extrapolate
a defensible range of multiples.

3
For the answer we refer to the following book: Joshua Rosenbaum and Joshua Pearl, Investment
Banking, Wiley Finance

4
21. What are the main key trading multiples?

While various sectors may employ specialized or sector-specific valuation multiples, the most generic and widely
used multiples employ a measure of market valuation in the numerator (e.g., enterprise value, equity value) and a
universal measure of financial performance in the denominator (e.g., EBITDA, net income).

For enterprise value multiples, the denominator employs a financial statistic that flows to both debt and equity
holders, such as sales, EBITDA, and EBIT. For equity value (or share price) multiples, the denominator must be a
financial statistic that flows only to equity holders, such as net income (or diluted EPS). Among these multiples,
EV/EBITDA and P/E are the most common.

 Equity Value Multiples: equity multiples compare the value of common shares to the earnings available to
common shareholders. Use equity multiples to calculate the value of a company’s equity:

o Price Earnings Ratio / Equity Value to Net Income: The P/E multiple gives investors an idea of how
much the market is paying for a company’s earning power. P/E ratios are typically based on
forward-year EPS (and, to a lesser extent, LTM EPS) as investors are focused on future growth.
Companies with higher P/Es than their peers tend to have higher earnings growth expectations in
earnings.
While the P/E ratio is broadly used and accepted, it has certain limitations because by using
earnings it is influenced by the company’s capital structure (interests), differences in accounting
policies (depreciation and taxes) and one-off expenses.

P/E Ratio = Price of Stock / Earnings per Share

o Enterprise Value to Revenue Multiple: EV/sales is also used as a valuation metric. Sales may
provide an indication of size, but it does not necessarily translate into profitability or cash flow
generation, both of which are key value drivers. In certain sectors, however, as well as for
companies with little or no earnings, EV/sales may be relied upon as a meaningful reference point
for valuation.

Enterprise Value / Revenue

o Enterprise Value to EBITDA or EBIT Multiple: EV/EBITDA serves as a valuation standard for most
sectors. It is independent of capital structure and taxes, as well as any distortions that may arise
from differences in D&A among different companies. For example, one company may have spent
heavily on new machinery and equipment in recent years, resulting in increased D&A for the current
and future years, while another company may have deferred its capital spending until a future
period. In the interim, this situation would produce disparities in EBIT margins between the two
companies that would not be reflected in EBITDA margins. For the reasons outlined above, as well
as potential discrepancies due to acquisition-related amortization, EV/EBIT is less commonly used.

Enterprise Value / EBITDA

Enterprise Value / EBIT

22. What quantitative and qualitative factors drive the P/E multiples?

 Quantitatively, P/E is moved by changes in share price and earnings through the numerator and
denominator, respectively.
 Qualitatively, share price is affected by market perception/expectation of risk, growth, quality of earning and
general investor confidence.

4
For the answer we refer to the following book: Joshua Rosenbaum and Joshua Pearl, Investment
Banking, Wiley Finance

23. What do you get when you multiply a firm’s net income by its P/E ratio?
Market capitalization (equity value).

24. How would you present the valuation of a company using all the main methodologies to a client?
Bankers use football fields to summarise the outcome of each valuation method.

25. When would you not use a DCF for valuing a company?
If the company has unstable or unpredictable cash flows, you cannot discount them. It doesn’t apply for banks and
financial institutions. In addition, in a distressed situation, a liquidation valuation methodology would be more
appropriate.

26. Would you use Enterprise Value/Net income as a multiple?

No way! Total value to debt holders and shareholders (EV) should be matched only with the flows available to
them. Remember, enterprise multiple use earnings above the interest line of the P&L; equity multiples use earnings
below the interest line.
5
27. What is a precedent transaction analysis?
Precedent transactions analysis, like comparable companies analysis, employs a multiples-based approach to
derive an implied valuation range for a given company. It is premised on multiples paid for comparable companies
in prior M&A transactions.

The selection of an appropriate universe of comparable acquisitions is the foundation for performing precedent
transactions. This process incorporates a similar approach to that for determining a universe of comparable
companies. The best comparable acquisitions typically involve companies similar to the target on a fundamental
level.

There are four main issues with valuations using M&A multiples:

 Timing and market condition: as a general rule, the most recent transactions (i.e., those that have occurred
within the previous two to three years) are the most relevant as the relevant market conditions (state of
capital markets) were probably similar to current conditions.
 Control Premium: buyers generally pay a “control premium” when purchasing another company. In return
for this premium, the acquirer receives the right to control decisions regarding the target firms business and
its underlying cash flows.
 Strategic buyers often have the opportunity to realize synergies, which supports the ability to pay a higher
purchase price. Synergies refer to the expected cost savings, growth opportunities, and other financial
benefits that occur as a result of the combination of two businesses.
 There is limited availability of public information on the deal terms and multiples. You will often be relying
on rumors, articles or footnotes to financial statements to determine the purchase price for the company
and financial information for the acquired company.

28. How would you value an early stage company (such as Groupon or Facebook) that has no profit?
If you can predict cash flows in the future, use a DCF. If you can’t, avoid it.

You can look at creative multiples such as EV/Unique visitors, EV/Pageviews.

29. Why do some investors prefer EBIT multiples versus EBITDA multiples?
EBIT reflects the depreciation of Capital Expenditure, which is the price paid for building the company’s real
operating assets, which in turn are used to generate profits.

That’s why some investors prefer EBIT multiples, EBIT accounts for a different level of investments. The
difference between EBIT and EBITDA is particularly important in capital-intensive industries.

5
For the answer we refer to the following book: Joshua Rosenbaum and Joshua Pearl, Investment
Banking, Wiley Finance

30. When would you use liquidation value?

It is the most common method when a company is about to default and banks have to assess whether the
value of the assets will be enough to cover the value of the debt.

It is also used in deciding whether a company should be refinanced, sold as whole or broken up and its assets
sold separately.

31. Why would a company with similar growth and profitability to its comparables be valued at a
premium?
 The company has higher cash generation.
 It is the market leader in the industry and has a stronger and more sustainable competitive advantage.
 The company has reported stronger than expected earnings and the market expects this to continue.

32. When would the liquidation value give a higher value than a DCF?
This can happen when the company has substantial tangible assets that can be sold on the market but very poor
cash flow generation in the ongoing business.

33. Let’s say a company has 100 shares outstanding at a share price of $10 each. It also has 10 options
outstanding at an exercise price of $5 each, what is the fully diluted equity value?
 Shares outstanding * Share Price: $10*100 = $1,000.
 10 options are exercised, the company receives the strike price $5*100 = $50.
 The company uses the $50 to buy shares from the market, $50/$10 = 5 shares.
 The company must issue 5 new shares in order to pay the call option: 5*$10 = $50.
 So the fully diluted shares number is 100 + 5 = 105 and the market cap is 105 * $10 = $1,050

34. Let’s say a company has 100 shares outstanding at a share price of $10 each. It also has 10 options
outstanding at a strike price of $15 each. What is the fully diluted equity value?
The options are not in the money, therefore there is no dilutive effect on the market cap.

35. What are some common ratios used to compare equity performance?
 Price/EPS
 Market Value / Net Income
 Market Value / Book Value
 PEG Ratio: Price to Earnings / Growth Rate

36. You never use Equity Value/ EBITDA, but is there any case where you might use Equity Value
/Revenue?
This may happen only if the company has a negative Net Financial Position (more cash than debt), so that the
Enterprise Value is equal to the Equity Value.

37. Why would you use Sum of the Parts valuation?

When you have a company with completely different divisions, such as broadcasting and chemicals, you should
value each division separately, with its own cost of capital, and then add them together to get to the Enterprise
Value.

38. How do you normalize earnings?

Many times you’ll see one-off expenses or income items on an income statement. “One-off” means they will not
recur. If you include them in your calculation of the multiples, they will distort your multiples and therefore your
valuation. Your earnings number in a multiple should reflect the company’s underlying profitability, not a one-time
event.
 When you are using EBITDA and EBIT to calculate a multiple, just add back the non-recurring expenses
and subtract the non-recurring income.

 When you are using earnings after tax, you must adjust the tax expense. For example, you can remove a
non recurring cost by multiply the increase in profits by (1-Tax Rate).

39. How do you annualize or calendarize?

Companies in the set of comparables may not have consistent year-end dates. You can adjust for these timing
differences by annualizing the data.
Annualization or calendarization means you must calculate a time weighted average of two year-end numbers. You
are simply taking part of one year and adding it to part of another year to adjust for different year ends.

40. What do we do if debt is not traded and thus, we do not have a market value of debt available?
If the yield has not significantly changed since the issue of the debt then the book value is a good proxy of the
value of the remaining coupon payments and principal (In fact on the books we always use the yield at the time the
debt was issued and then we expense the interest each year using this yield. We adjust the bond payable account
for coupon payments, both in the case of a bond issued at a premium or at a discount.) If you observe that the yield
in the market is significantly different from the coupon rate, either because the company has become riskier or
because the interest rate has changed, then we have to recalculate the market value of the debt. To do so, we look
at the cash flow that the debt contract has promised in the future and discount it at the right yield to find the market
value.

41. Why do we use the market value of equity and market value of debt?
We use market value of equity because we want to find the market value of assets. The market value of assets is
given by the discounted free cash flow to assets. The free cash flow to assets is then divided between the equity
holders and the debt holders. If we assume that the equity is fairly priced by the market then the market has
incorporated all the information about the future cash flow to assets (considering part is going to equity holders and
part to debt holders). If the market has fairly priced the securities, i.e. it has evaluated the present value of cash
flow to equity and the present value to debt; the firm becomes a portfolio of the securities at their market value.
Thus, we say that the value of assets is the present value of the cash flow to assets that can either go to equity
holders or to debt holders

42. Why do we use cash flow?

Cash flow and assets are two drivers of value for capitalholders. Provided the company is viewed as an ongoing
enterprise, you calculate cashflows to derive a value for the company.

Cash flow is not the same as net income. Net income captures non-cash expenses like depreciation and interest
expense depending on the company’s debts. Net Income thus, doesn’t give the true value of the cash flows to the
assets.

43. What are the drawbacks of WACC?

 It assumes that the capital structure of the firm, and consequently the Debt/(Debt+Equity) ratio and
Equity/(Debt+Equity) ratio, remains constant during the life of the company. This is restrictive and an
approximation. If it changes as it does in an LBO we cannot use WACC.
 WACC assumes that the company can take advantage of tax savings, i.e., the company will make a profit
in order to actually pay for taxes.
 WACC includes the effect of the debt tax shield the firm gets by leveraging up but it does not account for
the cost of financial distress, i.e., the cost of additional default risk due to the higher leverage. It is very
difficult to formally model the effect of financial distress on the return on debt and therefore model it into
WACC.
 For conglomerates you should calculate a WACC for each of the divisions since the risk that the assets
bear may be different for each division and also the way divisions are leveraged may be different.

44. What is APV (Adjusted Present Value)?

APV is another method used to discount the unlevered cash flows of a company.

In this case we separate the evaluation of the operations from the evaluation of the benefit we derive from
financing. Thus, we need to calculate the NPV of financing (i.e. the tax shield benefit) and also the cost of financial
distress. It is important to include the cost of financial distress because without this calculation the firm value would
only increase with higher leverage. Higher leverage will increase the risk of bankruptcy of the firm.

45. What are steps to calculate value of a firm using APV?

Discount unlevered free cash flows with the unlevered cost of equity cost to derive the value of the firm as if the
firm were entirely equity financed
plus
Present value of the tax shield
Minus
Present value cost of financial distress. This would the reduce the value of the company.

While debt adds value to the firm because interest is tax deductible, the debt also increases the risk to the
company. Too much debt could result in losses due to too much interest expense and this probability of loss should
be considered in the valuation. In the WACC we included the tax benefit of interest in the calculation, but did not
include the cost of financial distress. We discount the free cash flow and the terminal value using the return on
asset, which is an unlevered return. We go through the same steps as we did in the DCF analysis.

The next step is to find the beta of the Assets by looking at comparable betas and the effect of unlevering as
described elsewhere, and applying the CAPM to find the return on the assets. You then use the return on assets to
discount the unlevered free cash flow (of the specific period - we examine 5-10 years) and the terminal value.

To this you add the value of the tax shield. To calculate the value of levering up the company, calculate the debt
tax shield in any year of the specific period being analyzed. D/V and E/V need not be constant in the periods. The
interest expenses for each year are:

Interest expenses =
rdebt  Debt

Thus, the tax shield for each year is:

DTS    rdebt  Debt

46. What discount rate do we apply to the debt tax shield to calculate the present value of the debt tax
shield?
If we assume that the risk of using the tax shield is as much as the risk of the asset (that is as risky as the cash flow
assuming that the company has profits on which it will pay taxes and thus, can have a tax shield) then we use the
return on asset (i.e. the cost of unlevered equity). If we say that the risk of capturing the tax shield is as much as
the risk of the debt then we use return on debt. In particular, we should also judge the probability that the company
has to use the debt tax shield which is dependent on the probability of the company actually being profitable and
paying taxes.

47. What does cost of financial distress cover?

 Direct bankruptcy cost like court fees

 Indirect bankruptcy costs like difficulty of managing a company that is undergoing restructuring (additional
cost of supplies)
 Conflicts of interest between bondholders and stakeholders may lead to poor operating and investing
decisions that may add to losses (stakeholders may try to play games at the expense of bondholders; the
contract should avoid this but there is a cost of setting up the contract and enforcing it

48. What are the differences between WACC and APV?

The main difference between the WACC and the APV is that the WACC takes the target ratio Debt/(Debt+Equity)
as a constant whereas APV removes the effect of this target ratio in the calculation of the value of the assets from
the cash flows and takes it into account in calculating the debt tax shield. The APV is more of an academic method
and it is often problematic to find data to apply it. Investment banks in general use WACC

49. What is a rights offer?

It is a way in which a company can raise more cash in Europe. It is very uncommon in USA. The company gives
existing shareholders the right to buy one additional share for every share they own, at a price lower than the one

at which the share trades currently at. Shareholders can decide to exercise the option (rights) or decide to sell
them. Anyone who buys the rights will then have the option to buy the share at the “rights” price.

50. How can we increase a stock price?

 Pay or increase dividends.
 Increase the transparency of the financial statements.
 Acquire a company paying less than its NPV.
 Any positive NPV projects.
 Work on the capital structure of the company and leverage up the company to increase the value because
of the debt tax shield (provided the company is profitable and is paying taxes, also provided the company
expects to be able to service the debt in future and has a good, stable cash flow to do this).
 Give some signal to investors that the stock is undervalued by buying back stock (this is a way to
redistribute cash or assets to shareholders but it is not perceived to be a long term commitment).

51. What is a PEG ratio?

Price/earnings divided by the growth rate (of earnings per share):
 More than 1 is poor.
 Less than 1 is good.
 Less than 0.5 is excellent.

52. What is a private placement?

Private placement is the issuance of stock to private parties. This does not require registration with the SEC but it
must be to less than a certain number of investors. Often insurance companies are not concerned with
marketability and thus, the market for not traded debt has increased. If the placement is large then an investment
bank can be involved to deal with the investors.

53. What happens if a company buys back stock?

Share price should increase:
 Earnings per share: If a company buys back stock, the earning per share will increase afterwards and the
investors anticipate this and drive the prices up. (However, value is driven by cash flows, not earnings)
 Signaling effect: a company that buys back its own stock gives a good signal of what the company
management believes are the prospects of the company, “who else has better information about the
company than its own management?”
 Debt Tax Shield: Buying back stock drives up the net debt, thus increasing the effect of the debt tax shield
and the valuation goes up; the company is changing its capital structure by buying back stock and
replacing it with debt.
 The taxes for shareholders are different on capital gains and on dividends.
There is also a reason why the price may go down instead. The fact that the company is distributing excess cash
could mean that it has utilized all growth opportunities with a positive NPV.

54. What information do dividends carry?

Generally the dividends controversy is complex but the way market reacts to dividend announcements proves that
the dividends actually carry information to the market (in a Modigliani-Miller world, the dividend policy should not
matter).

The assumption behind the signalling effect is that the managers are reluctant to change dividends unless they
have concerns about the future prospects of the firm. Therefore the signalling effect is negative if dividends are
reduced and positive if increased. Thus, a firm should pursue a policy of dividend stabilization.

55. Company A trades at P/E of 20. Company B trades at P/E of 10. Both are considering acquiring
Company C, which trades at P/E of 15. For which of the two acquiring companies would the deal be
dilutive? For which would it be accretive? Explain why for each.
Before you even start answering this question, it is important to ask if the deal is an all-stock one:

 For Company A the deal would be Accretive, this is because company A is paying less for earnings (of
company C) than what the market is paying for company A’s earnings, this is reflected in the price to
earnings ratio of both companies
 For Company B the deal would be Dilutive for the same reason as stated above.
 The earning per share will increase for A after the merger. It will depend on the sum of the earnings after
the merger and the number of total share after the merger.

56. Now, lets say that the transaction is changed so that the acquirer gets debt from the market at lets say
5% and then uses this money as cash for the acquisition, whether the deal is still accretive or dilutive?
The first step is to calculate the acquirer’s P/E, which has now become 1/interest rate *(1-t), as t = 0 (or so we can
assume), acquirer’s P/E is now 1/5% = 20, and as given in the question above, target’s P/E is 15, thus the deal is
accretive.

8.2.4 Mergers & Acquisitions (M&A)

1. Why do companies undertake M&A transactions? Which major factors drive M&A?

Companies undertake Mergers and Acquisitions mainly for three reasons:

 Commercial synergies / growth opportunities: This is a wide category which includes access to new
markets, new geographies, new products, gaining market share and bargaining power with customers,
cross – selling in the same distribution channels, vertical integration, network effects and brand recognition
 Cost synergies / savings: This refers to economies of scale and scope. When companies merge, they are
usually able to reduce their overhead/administration costs, including IT and rent expenses. They can also
optimize their supply chain and gain bargaining power with suppliers.
 Strategic concerns: M&A transactions often happen after a shock in the industry, such as deregulation or a
threat of new entrants and potential substitutes. M&A activity is a strategic tool that managers have to
quickly reshape the competitive profile of their company.

2. A client comes to you and would like your opinion on whether it should do an M&A deal.
To evaluate an M&A deal you should cover three main areas:

 Shareholder value: As discussed previously, the major consideration when valuing an acquisition is
whether it creates value for the shareholders or not. Investments create value only if NPV>0.
 Financial considerations: Accretion/dilution analysis in the EPS post acquisition, capital structure and
financing of the acquisition, impact on margins, tax implications and cost of capital concerns.
 Strategic considerations: Does the M&A deal make strategic sense for the company? Is it improving its
competitiveness? Does it include growth in market shares, industry growing trends, vertical integration or
regulation changes?

3. What is a fairness opinion?

A fairness opinion is a professional evaluation by an investment bank or other third party as to whether the terms of
a merger, acquisition, buyback, spin-off, or going private deal is fair for the shareholders.
The board of directors of public companies under takeover often request it, in order to determine whether to
accommodate the buyer or not.

4. Company A wants to buy company B for $500m, the maximum they think it is worth. Under what
circumstances might company A agree to pay $530m in a stock transaction rather than a cash one?
The answer should address two hypotheses:

 Why is Company A paying $30m more? Company A uncovers additional synergies which will lead to a
present value in excess of $30m. Another option is that the company has a deferred tax asset with a
present value higher than $30m.

 Company A agrees to pay $30m more but to convert the deal to a stock one because it believes its stock
price is currently overvalued.

5. What are some common hostile takeover defenses?

 Poison pill, issue of new shares that can be redeemed at a premium in case of hostile takeover, thus
diluting the acquirer.
 Poison pill, staggered board of directors. So that a hostile buyer cannot gain the majority of the board of
directors until a certain number of years (buyer can change a limited number of directors each year).
 Buy a number of small companies in order to dilute the shareholders.
 A white knight or "friendly investor" may be a corporation, or a person that intends to help another firm and
buy it in order to protect it from a hostile bid.
 Increase leverage massively and spend all the cash available (for example in the form of an extraordinary
dividend).
 Greenmail, buying shares back from the acquirer at a price at which he is happy to sell (definitely not the
preferred way).
 Golden Parachute: is a clause in an executive employment contract that provides the executive with a
significant severance package in the case that the executive loses his job through firing, restructuring, or
even scheduled retirement. This can be in the form of cash, equity, and other benefits, and is often
accompanied by an accelerated vesting of stock options

6. A company has 4 divisions and its stock price is depressed because of the underperformance of one of
the divisions. What are five things you could do to improve the stock price?
 The best option is to improve the performance of the divisions (restructuring).
 Spin-off or sell the division trying to achieve the highest valuation possible.
 Shut down the division.
 Ensure that the accounting methods allocate headquarters costs correctly so that you don’t have cross
subsidization among divisions

7. What are the pros/cons on a stock vs. cash acquisition?

Without issuing any debt, the company can finance an acquisition in three ways:

 Use cash accumulated on the balance sheet.

 Issue equity to the public and use the cash raised to finance the acquisition.
 Offer stock as payment for the target firm. i.e. Structure the payment in terms of a stock swap.

A variety of factors should be considered when deciding the best option, such as:

 Cash position: Obviously if the company has no cash available at hand it cannot use it to finance a deal.
 Perceived value of the stock: Managers have private information and are able to assess if the company is
fairly valued by the market. If they believe that the stock is trading at a price significantly below value, they
should not use stock as currency on acquisitions.
 The acquirer is not sure about the value of synergies. In this case by issuing equity it will “keep in” the
former shareholders.
 Tax issues: Stock deals offer a tax advantage to sellers because they do not have to pay taxes until they
sell the stocks. Therefore the present value of taxes is lower.

8. What advantages do financial buyers have?

 Financial sponsors tend to move quicker than corporate buyers since their decision process is leaner.
 Financial buyers are often favored by incumbent managements since they tend to keep former
management in place and offer conspicuous incentives packages.

9. What is an accretion/dilution analysis?

Bankers use accretion/dilution analysis to measure the pro forma effects of the transaction on earnings, assuming
a given purchase price and financing structure. The acquirer’s EPS pro forma for the transaction is compared to its
EPS on a standalone basis. If the pro forma EPS is higher than the standalone EPS, the transaction is said to be
accretive. Conversely, if the pro forma EPS is lower, the transaction is said to be dilutive.

As a general rule, public companies are reluctant to pursue dilutive transactions due to the potential detrimental
effect on their share price. Therefore, a given public buyer’s perception of valuation and corresponding bid price is
often guided by EPS accretion/dilution analysis.

10. Who would pay more for a company, a financial sponsor or a strategic buyer?
Strategic buyers should be able to pay more for targets because they are able to achieve synergies. However, in
periods that had hot leverage markets, financial sponsors were often able to achieve higher prices.

11. What are the pros and cons of a purchase of assets instead of equity?
An assets’ deal is usually very advantageous for the buyer because it can depreciate the price paid and therefore
have a tax shield. Moreover, it allows the acquirer to pick and choose the assets of the company he wants to take.

However, this is allowed only if the remaining entity keeps its ongoing business open. In the event that they don’t,,
tax authorities require an equity deal

12. Why are accretive transactions sometimes not well received by the market?
There can be plenty of reasons; the bottom line is that EPS is not cash flow, and present value (NPV) of future
cash flows is the ultimate driver of shareholders’ value.

13. If a company with a lower P/E multiple acquires through a stock merger a company with a higher P/E
multiple, is the transaction going to be accretive or dilutive?
If the exchange ratio is 1:1, the transaction is going to be dilutive. The acquiring company is going to give to the
target shareholders 1 of its shares in exchange for 1 share of the target.

The acquisition decreases the acquiring company’s EPS because the price paid by the buyer exceeds the addition
to EPS.

Dilution can be minimised or completely avoided by issuing debt or using cash to buy the company.

14. When pursuing an accretion/dilution analysis, which factors impact the pro-forma company’s EPS?
In the numerator, the pro-forma earnings of the combined entity are a result of the buyer’s and the target’s net
income, the expected level of synergies, the amount of new interest from debt and goodwill amortization.
In the denominator, the pro-forma shares number is a function of the acquirer outstanding shares and the number
of shares issued to fund the acquisition.

15. How do you derive a breakeven price on the EPS for an all-stock transaction?

Target EPS * Buyer’s P/E Ratio

16. What is likely to yield the highest synergies? A diversification or a consolidation deal?
A consolidation deal enables (in theory) the buyer to extrapolate cost, commercial and strategic synergies.

8.2.5 Capital Structure & Financing

1. What factors should be considered in determining the optimal capital structure?

 Optimal D/E structure minimizing the WACC.
 Tax considerations.
 Dilution by issuing new shares.
 Signaling effects.
 Strategic concerns.

2. Why is equity riskier than debt?

Equity is a residual claim, meaning that it gets satisfied only after all the bondholders have received their money
back in full.
However, debt holders have limited upside on their investment.

3. What is the LIBOR?

The London Interbank Offered Rate is the rate at which international banks lend money to each other; it is often
used as a basis for many other corporate loans, which pay the LIBOR plus a spread.

4. What are the major factors that affect the yield on a corporate bond?
The yield to maturity of a corporate bond is usually expressed as a spread over the risk free rate (such as LIBOR).
The spread is driven by the creditworthiness of the company and the standard deviations (riskiness) of its future
cash flows.

The riskier the company the higher the yield it must pay to convince investors to buy its bonds.

5. How would you value a bond?

The value of a bond is equal to the present value of its future payments (coupons and principal repayments)
discounted at the market rate.

If the bond is traded, the discount rate is equal to the YTM. If the bond is not traded, determine the credit rating the
company would have given its D/E. Once you have the rating, try to find out the cost of debt of similar companies or
ask the debt capital markets department.

The difference between a company’s cost of debt and the benchmark rate (usually LIBOR or government debt) is
called spread. Bankers talk about spreads when discussing a company’s cost of debt.

6. What type of debt is the most expensive? The least? Apart from the cost, why might a company might
choose one type of debt over the other?
 Senior Debt is the least expensive, because it is usually secured by the assets of the company and it is the
first to be repaid in case of default. It also tends to have covenants that limit the firms’ ability to undertake
extraordinary operations.
 Unsecured debt is usually the most expensive debt because it is not secured by any asset of the company
and in case of distress it gets repaid senior debt. The covenants are also usually quite light.

7. Describe the difference between a bond issued at par, at a discount or at a premium.

The amount borrowed is the nominal value (principal) of the bond. The coupon rate is the interest rate that the
company will pay its bondholders and is calculated as a percentage of the outstanding nominal value. Sometimes
the market will require a higher cost of debt than the coupon rate. In this case, the price of the bond will go down so
that its yield to maturity will increase accordingly.

 A bond is issued at the par when the coupon rate is equal to its yield to maturity (market rate).
 A bond is issued below par (at discount to the nominal value) when the coupon rate is lower than the
required market rate, which will decrease the price of the bond.
 A bond is issued at a premium when the coupon rate is higher that the market rate, which will raise the
price of the bond.

8. How would you approach the valuation of a convertible bond?

A convertible bond has two parts: a bond and a warrant (an option to buy equity). To calculate the value of the
convertible bond you add these two components:

 PV of the bond
 PV of the warrant (Black Scholes model)

9. When should a company issue equity rather than debt?

 Growth firms, or in general high-risk profile companies (high volatility in cash flows), find it problematic to
get access to debt.

 A company has too much debt and wants to lower its D/E ratio.
 A company with predominantly intangible assets will find it more difficult to get access to debt.
 Market signaling: when managers expect to have higher earnings in the future, issuing debt is a better idea
because of the tax shield and the fact that they are then keeping all the upside for current shareholders.
Conversely, if managers expect earnings to decrease, equity may be a better choice since it will lower the
interest expense burden.

10. How can a company reduce its Debt/EBITDA ratio? How can you achieve it without increasing EBITDA
or paying down debt?
 Acquire a company with a lower Debt/EBITDA ratio.
 Convert the debt to operating leases (not preferred, it’s still part of the debt).

11. Why does an issue of equity tend to decrease the share price?
This is partially explained by the signalling theory. Managers who believe that their share price is overvalued will
have an incentive to issue stock at the current price. If they believed that the stock was undervalued, they would
issue debt or buy back stocks.

Moreover, if managers need the funds to invest in a positive NPV project, they should issue debt, thus keeping the
all upside of the project for the existing shareholder base rather than diluting it.
Finally, the fact that the management is taking on additional debt shows the market that they are confident about
the prospects of the company.

12. If you were pitching to be the underwriter for an IPO, what would be the table of contents for the pitch
book?
 Executive Summary.
 Industry overview and main trends (is the industry attractive?).
 Company positioning, track record and financials (why the company is going to be able to capture value in
the market?).
 Equity story.
 Preliminary valuation (Trading comps, DCF, Deal Comps).
 Credentials of the Bank

13. Why are IPOs generally underpriced?

 Conservatism, issuers do not want their stock to lose value the first day it trades.
 Attract investors to the IPO in order to generate demand.
 Compensation to initial owners for the risk they are taking.

14. If a company with a market cap of $80m issues $20m of new equity, what % of the company will new
shareholders own?

20 / (80+20) = 20%
Old shareholders get diluted to 80%.

15. Why would an entrepreneur embark on an IPO?

 Need capital to undertake new strategic opportunities with a positive NPV.
 Need capital to fund its business.
 Looking to diversify/monetize his/her wealth by selling part or all of the shares.

16. What are the implications for cash dividends versus share buybacks? Why should you use one instead
of the other?
In deciding, you should keep three main facts in mind:

 Signalling effect of regular dividends - quality of earnings and confidence for the future. Because of
a certain degree of freedom in accounting policies, sometimes investors are not able to separate
marginally profitable firms from the best ones. Therefore, investors interpret managers’ actions to
assess the quality of a company.

We can understand, therefore, why investors would value the information content of dividends and
prefer to believe a firm’s reported earnings were backed up by an appropriate dividend policy.

Of course, firms can cheat in the short run by overstating earnings and scrapping up cash to pay a
generous dividend. But it is hard to cheat in the long run. A firm that is not making enough money
will not have enough cash to pay out and will have to lower the dividend (with a consequent drop in
the share price).

Therefore, most managers don’t increase dividends until they are confident that there will be
sufficient cash flows going forward to pay them constantly. Dividends anticipate future earnings.

This of course applies only to an increase in regular dividends. An extraordinary one-time dividend
does not carry this information.

 Signaling effect of share repurchases - stock price may be undervalued. Share repurchases, like
dividends, are a way to hand cash back to shareholders. But unlike dividends, share repurchases
are frequently a one-off event. So a company that announces a repurchase program is not making
a long-term commitment to earn and distribute more cash.

A share repurchase tends to increase stock prices because it signals that management thinks the
firm’s stock is undervalued. Other effects are an increase in net debt from the use of cash,
increasing the tax shield.

o Taxes. In some jurisdictions capital gains taxes have a lighter taxation than dividends (income).

Therefore, handing cash to investors also can be interpreted as:

 Confidence in the future, positive message (price increase)

 The company does not have positive NPV projects to invest in (price decrease)

In conclusion, increase cash dividends only if you think you can commit to the new pay-out ratio for the long-
term.

17. What are the main issues encountered in project finance?

18. In the construction of an NHS hospital where the revenue of the project finance SPV depends on the
UK government, what’s the credit risk?

19. What’s tier 1 capital? How does it differ from total capital?

8.2.6 Financial Sponsors & LBOs

1. What is a Financial Sponsor?

The term “financial sponsor” refers to traditional private equity (PE) firms, merchant banking divisions of investment
banks, hedge funds, venture capital funds, and special purpose acquisition companies (SPACs), among other
investment vehicles.

PE firms, hedge funds, and venture capital funds raise the vast majority of their investment capital from third-party
investors, which include public and corporate pension funds, insurance companies, endowments and foundations,

sovereign wealth funds, and wealthy families/individuals. Sponsor partners and investment professionals may also
invest their own money in particular investment opportunities.

This capital is organized into funds that are usually established as limited partnerships. Limited partnerships are
typically structured as a fixed-life investment vehicle, in which the general partner (GP, i.e., the sponsor) manages
the fund on a day-to-day basis and the limited partners (LPs) serve as passive investors.

These vehicles are considered “blind pools” in that the LPs subscribe without specific knowledge of the
investment(s) that the sponsor plans to make.
General partner’s goal is to purchase assets, which they plan to sell in the short-medium term for a substantial
profit.
 Their time frame is typically 3/5 years.
 They fund a substantial portion of the purchase price using debt.
 Leveraged valuation established the maximum price a financial buyer can pay for a business.

2. How many types of LBO deals there are?

 Institutional buy out (IBO): Private Equity buys all the equity and does not involve the current management.
 Management buy-out: Private Equity buys the equity of current owners in conjunction with the current
management team.
 Management buy-in: the Private Equity buys the equity of current owners and brings in a new management
team.
 Leverage recapitalization: an existing LBO deal is refinanced to release some cash to equity investors
through an extraordinary dividend.

3. What are the advantages and the disadvantages of high leverage?

The main advantages are:

 Returns: value gains are not shared equally thereby enhancing potential equity returns.
 Fiscal: interest expense is generally a tax-deductible expense.
 Discipline: high leverage increases default risk, forcing business efficiency.

The main disadvantages are:

 Volatility: fixed costs increase, as high proportion of profit and cash flow is used to service debt, thus
increasing earnings and cash flow volatility.
 Default risk: higher leverage and higher volatility result in higher default risk.

4. What deal metric is most important for PE firms in evaluating deals?

 IRR: it is the breakeven discount rate or return that equals the present value of future cash flows to zero.
The price that can be offered by a financial sponsor will be heavily influenced by the IRR required by the
PE to invest. The IRR captures both time-weighted and cash flow metrics.
 Money Multiple: it is still used but it does not take in account the time value of the money.

5. What is a leveraged buyout?

A leverage buy-out is the acquisition of a target company primarily financed with debt collateralized by the target’s
cash flow (or in some cases its assets).

A company’s value is derived by establishing how much a financial buyer could pay given two constraints:

 A target cost of equity (required minimum IRR).

 The maximum sustainable leverage given the forecast cash flows.

Financial buyers maximise their returns by purchasing companies using as much as leverage as possible. Debt is
paid down using the cash flow of the acquired company. The debt tax shield is one of the “magic” ingredients that
enhance the financial sponsors’ return. They expect a high return on their equity usually between 20% and 30%.

6
6. Describe the steps in the evaluation of an LBO*
Step1: Understanding the story looking at the qualitative aspects of the target company, trying to find answers to:

 Is this a good debt story? in terms of stability of revenues, margins, requirement of working capital; also
looking at the requirement for future capex investment; track record of the management team etc
 What are the risks and mitigants?
 Are you convinced with the projections?

Step2: Normalize EBITDA

Step3: Construct the sources and uses, where the typical sources would be Senior Debt, Senior Subordinate Debt,
Revolver, Management Rollover Equity, Sponsor Cash Equity (this is what the acquirer company is putting in); and
the typical uses are Refinancing of debt, transaction costs and purchase price (this is the plug in). And obviously
sources equal uses.

Step 4: Calculate IRRs, assuming exit multiple = entry multiple; running various scenarios

Step5: Evaluate if the LBO makes sense given the debt multiples, are the coverage ratios (described in the next
question) adequate, and most importantly (amongst other things), are the IRRs acceptable to the sponsors given
the contribution and the risk being taken.

7. What multiples are traditionally stated as financial parameters for an LBO?

 Leverage Ratio: Net Debt/EBITDA – 4.0x – 5.0x
 Interest Coverage Ratio: EBITDA / Interest Expense - >2x
 Equity Contribution: Equity/EV, before credit crunch was 20-30%, recently 40-55%.

8. If you buy a company for $100 and sell it for $100 two years later, how can you make money?
 You paid yourself dividends.
 You paid down debt.

9. Why you should take private, through an LBO, a listed company?

The company is perceived as undervalued by the acquirer. Thus, to take control of the company the financial
sponsor uses leverage and equity to offer an attractive price to current investors.
Once private, the acquirer puts in place a new management team and works on improving the performance of the
target.

After 3-5 years, when the company performance is improved and therefore it is worth more, the financial sponsor
sells the company, thus making a profit.

10. What are the criteria for finding a good LBO candidate?
 Strong and stable cash flows
 Good management team
 Limited Capex
 Undervalued
 Motivated seller
 Viable exit strategy

11. A PE acquires a Company with EV of 100 and Debt of 60. After 3 years it exits the investment; at the
point of exit, EV is 120. No debt repayments have taken place during the 3 years. What’s the IRR of the
PE investment?
(1+ IRR)^3 = 60/40 = 1.5  IRR ≈ 16%

12. Is the above IRR reasonable?

*
[Link]

Typical PE IRR is +20%

13. What if this investment related to an infrastructure project backed up by the government (e.g. the
construction of a motorway the revenue of which does not depend on tolls, but on government
payments?
IRR in a project backed up by the government would be expected to be lower.

8.2.7 Accounting

1. Tell me about the three financial statements. What is the connection between the three?
 P&L shows the economic performance of a company for a determined period. However, because of the
matching principle and the accruals method, profits are not equal to the cash generation of a company.
 The Balance Sheet is the picture of the value of a company’s assets and liabilities at the end of the period
(end of fiscal year or quarter). It describes the financial status at a specific time, and it shows the
business’s economic resources that creditors and shareholders can claim.
 The Cash Flow statement is what connects the P&L to the Balance Sheet. In fact, cash flows can be
inferred from income statements and balance sheet alone. Here is an exemplified version:

Net Income
+ Non Cash Expenses (D&A) (Decreases Assets and Net Income)
- Change in Working Capital (Receivables, Payables, Inventory)
Cash from Operating Activities: Cash flows related to producing and delivering goods/services

- Capital Expenditure (Capex) (Increases Assets)

+ Disposals (Decreases Assets)
- Acquisitions (increases Assets)
Cash from Investing Activities: Cash flows related to acquiring or disposing of long-term assets

+ Issue of Debt (Increases Liabilities)

- Repayment of Debt (Decreases Liabilities)
+ Issue of Equity (Increases Shareholders’ Equity)
- Dividends and Buy-backs (Decrease Shareholders’ Equity)
Cash flows from Financing Activities: Cash flows related to obtaining cash from lenders and shareholders, and
repayments of amounts borrowed.

By adding the three cash flows you have the change in cash & equivalents during the period.

2. If you have to choose two statements to value a company, which would you pick?
P&L and BS, since the cash flow can be approximately inferred looking at the change year to year.

3. What is working capital?

Net Working Capital is the difference between a company’s short term assets and liabilities.
 The principal short-term assets are accounts receivable (customers’ unpaid bills) and inventories of raw
material and finished goods.
 The principal short-term liabilities are accounts payable (bills that you have not paid).

Net Working Capital = Receivables + Inventory – Payables

 Receivables are a way to finance the firm’s customers by extending payment terms, so the company is
temporary financing its clients.
 In the same vein, payables can be seen as a short-term loan from company’s suppliers.
 Inventory is comprised of finished goods and works in progress and can be seen as money that the
company spent to produce the products that have not yet been sold

From a valuation perspective, the changes in net working capital impact cash flows. An increase in net working
capital is associated with a decrease to cash flow because more cash is being used to finance the purchase of
short-term assets such as inventory than is being generated through a decrease in short-term liabilities such as
payables. Similarly, a decrease in new working capital is associated with an increase in cash flow.

4. Why is income statement not affected by changes in inventory?

Expenses (COGS) are recognised only when sales are realized due to the matching principle and accrual-based
accounting. Therefore, an increase in inventory only represents an accumulation of finished goods and work in
progress that have not yet been sold. When this inventory is sold, the corresponding expense of the product will be
matched with the revenue realized at the sale.

5. Where do you look to find the full depreciation expense of the year?
In the cash flow statement since depreciation is added back (a non cash expense).

6. Let’s say a company is buying $100m of new factories using leverage. How are all the three statements
affected at the beginning of the first year?
 P&L: at the beginning of the period there is no transaction recorded.
 Cash Flow Statement: Cash Flow from Investing will go down of $100m, but Cash Flow from Financing will
go up of $100m (debt issue). Net Effect is zero.
 Balance Sheet:
o Assets: PP&E goes up of $100m
o Liabilities: Debt goes up of $100m
o Shareholders’ Equity: unchanged.

7. Now let’s go at the end of the first year, Assume the debt is “bullet” so the principal is not repaid, and
assume an interest rate of 10%. Also assume that the plant depreciates at 10% per year.
 P&L:
o Depreciation of 10% * $100m = $10m
o Interest Expense of 10% * 100m = $10m
o Net effect pre taxes = -$20m
o Net effect on net income = -$20m * (1-40%) = $12m

 Cash Flow Statement:

o Add back non cash expenses (depreciation) = +$10m
o Net effect on the cash flow = -$12m from net income + $10m of Depreciation = -$2m

 Balance Sheet:
o Assets: Cash goes down by $2m.
o Assets: PP&E goes down though Depreciation by $10m.
o Assets net effect is -$12m.
o Liabilities: Net Income goes down by $12m; therefore Shareholders’ Equity goes down by $12m.
Net Effect on Liabilities is -$12m.

8. Walk me through how additional depreciation of $10 would affect the financial statements. Assume a
tax rate of 40%.
 P&L: EBIT would go down by $10, Net income by $6.
 Cash Flow Statement: Cash flows goes up by the tax shield $10*40% = $4.
 Balance Sheet:
o Assets: PP&E go down $10.
o Cash: goes up of $4.
o Liabilities: Shareholders’ Equity goes down of the minus income, $6.

9. What line item is usually found in all three financial statements?

Net Income (P&L, Beginning of Cash Flows, Part of Shareholders’ Equity).

10. If depreciation is a non-cash expense, why does it affect the cash balance?
Depreciation is tax deductible.

11. If you had to choose only 1 statement to assess the health of a company, which one would you
choose?
There is no right answer to the question. A well-done profit & loss it’s the best representation of the economic
performance of a company. However, because of a certain degree of freedom in accounting practices, a company’s
earnings (including revenues) can be easily manipulated.

Since what drives the value of a company is cash flow generation, many would probably vote for the cash-flow
statement. However, it’s useful to note that cash flows can be manipulated as well in the short term (for example a
company can increase payments terms to win additional customers).

12. If a company changes its inventory accounting policy from LIFO to FIFO, how would that impact on the
three financial statements?
It would depend whether the cost of materials has been increasing or decreasing.

If costs are increasing, by passing from LIFO to FIFO the COGS will decrease (using past raw materials) and
operating and net income will increase. Taxes will go up as well.

However, the net effect of the cash flow should be negative since the inventory will go up.

13. What happens when Inventory goes up by $10 assuming you pay for it with cash?

 P&L Statement: no changes in the income statement. Inventory has not been sold.
 Cash Flow Statement: inventory is an asset, part of working capital. Increase in working capital decreases
your cash flow. Therefore, cash goes down by $10.
 Balance Sheet: Inventory goes up $10, Cash goes down $10. (A = S+L)

14. What do you do if you understated depreciation by $100 and discovered the error in a period after the
statements are issued? Use a tax rate of 35%.
 P&L Effect: Depreciation is a non-cash expense, however is tax deductible. Therefore, Net Income
decreases of $100* (1-0.35) = $65.
 Balance Sheet Effect:
o Liabilities: Shareholders Equity will decrease by $65, (Net Income).
o Assets: PP&E will decrease by the new depreciation of $100.
o Assets: A deferred tax asset is created = $35.
 Cash Flow Statement Effect: Cash Flow remains the same, because we are looking at the past we have
created the deferred tax assets to balance the accounting equation (A 0 L + SE):
o Net income goes down of $65.
o Add back new depreciation of $100.
o Take out $35 of deferred tax assets.

Net Income (P&L, Beginning of Cash Flows, Part of Shareholders’ Equity).

15. What is FAS 142? How does it treat goodwill?

Goodwill is no longer amortized on the P&L, but is subject to impairment every year. In case of impairment,
goodwill is impaired and the impairment passed as a one-off charge through P&L.

16. What are deferred taxes and liabilities? How do you treat them?
 Deferred Tax Assets arise because taxes from the P&L are different from the amount of taxes effectively
paid to authorities. Cash Taxes are usually calculated more on a cash basis than a P&L basis.

An example could be a prepayment, when you receive the payment for a service you still have to supply to
the client:
o The Company pays taxes on the prepayment.
o However, for the matching principle the Revenues from the prepayments have not been recorded
in P&L, therefore no taxes are shown for it.
o A deferred tax asset is created in balance sheet, so that when in the next period revenues will
booked and taxes show in the P&L, there will be an adjustment for the use of the deferred tax
asset.

 Deferred Tax Liabilities arise from booking taxes in accrual terms prior to payments to tax authorities.

An example could be the use of accelerated depreciation for tax purposes while use straight-line
depreciation for the income statement. This would create a deferred tax liability.

17. In calculating the Net Tangible Assets for the Balance Sheet, is the value a market value or book value?
Book value.

18. Walk me through the impact of an asset write-down on the financial statements
When the net book value of an assets is lower than its market value (present value of the assets), the asset is
impaired.

The impairment loss is equal to the difference between the net book value and the market value.
The loss is then recorded in the P&L, reducing net income and therefore shareholders’ equity.

19. What’s the difference between an operating and a capital lease?

When a company leases equipment, it’s providing itself with a long-term financing for the asset. It can account for
the its leases in two ways:
 As an operating lease. Accounting treats operating leases like rentals. The P&L shows only an expense
and no assets or liabilities appear on the balance sheet.
 As a capitalized lease (finance lease). Accounting treats capitalized leases as though the company used a
loan to purchase the leased asset. The company records the depreciation of the assets and the interest
expense from the loan on the income statement. The balance of the loan and the undepreciated amount of
the asset appear on the balance sheet.

20. How do you distinguish between an operating and a capital lease?

A lease is a capital lease if it respects at least one of the following conditions:
 Transfer of ownership at the end of the lease term.
 Contains a bargain purchase option
 It lasts at least for 75% of the assets’ life.
 The present value of the payments it is more than 90% of the fair market value of the asset.

21. How can a bond’s cash payment and interest expense be different during a given period?
 The cash payment of a bond is equal to the face value multiplied by the coupon rate.
 The interest expense of a bond is its market yield times the value of the balance sheet debt liability.

If the bond was issued at par, its market yield and the coupon rate are the same. If the bond was issued at
premium or discount, the rates will differ.

22. Why the operating and finance leases are important to valuation?
A company with operating leases expenses them before interest: they are part of EBITDA but to do not appear on
the balance sheet. A company with finance leases expenses the lease in the depreciation and interest lines, which
are not included in EBITDA, but shows them on the balance sheet.
It is important to know how to convert an operating lease into a finance one for two reasons:
 When comparing companies with different accounting policies, you need to make the accounting for leases
consistent across all companies.

 Companies sometimes may try to hide debt in the balance sheet through the use of operating leases.
 The loan connected with a finance lease should be considered as part of the net financial position of a
company.

23. How do you convert an operating lease to a finance one?

Most analysts convert operating to finance leases. To do so:
 Calculate the Present Value of the minimum operating lease payments at the current balance sheet date.
 Add the Lease obligation and the value of the asset to the balance sheet.
 Adjust EBITDA and by removing the rent expense, add back the amortization and the interest expense to
find EBIT and Net Income.
 Adjust Cash Flow Statement by removing the rent expense and adding back interest and amortization.
Classify the repayment of the obligation as financing.

As a shortcut, analysts use the rule of eight as a common method of estimating the equivalent finance lease
liability. They multiply operating lease payments by eight in order to come up with an estimate of their value if
capitalized.

24. What is goodwill? Does it affect net income?

Goodwill is the excess cash paid over the net identifiable assets of the target company as well as the “write-up” of
the assets’ historical value.

Goodwill generated internally to the company is not recognized in the balance sheet. It is only recognized in case
of an acquisition.

The buyer recognizes the goodwill as an asset in its balance sheet. Goodwill is not amortized and its tested on an
annual basis. The testing for goodwill impairment requires that the reporting unit being valued and the fair market
value should be compared to the carrying value of the unit. If the carrying value is greater than the fair market
value, the goodwill impairment should be reported in the income statement.

Goodwill = Price paid for the acquisition – fair market value of tangible assets

25. What are two possible explanations of a declining ROE?

 Net Income went down.
 Shareholders’ equity has gone up (issue)

26. How a disposal of fixed assets in exchange for cash would be reflected on the GAAP/IAS cash flow
statement.
The gain or the loss on the disposal (versus the book value) is recorded on the P&L.

The price received is recorded under the voice “net cash flow from investing activities”.

The book value of the assets is removed from the balance sheet.

27. You are the adviser of a local restaurant. The owner of the restaurant has had losses this year and asks
you to figure out what’s causing the losses. How would you approach it?
I would use a Revenue/costs framework, i.e. analyse whether the losses are driven by low revenue or high
costs and then break down those into sub-areas (e.g. fixed vs variable costs, etc.).

28. In the example above, what are the possible reasons why the restaurant has losses?
It’s a new business with initial high discounts to attract new customers, unexpected one off cost (e.g. fire), not
enough sales to cover fixed costs, adverse macroeconomic conditions (e.g. crisis), etc.

8. INTERVIEW QUESTIONS
Sources used to create this guide:

 Adkins Matchett & Toy Midnight Manuals:

8.3 Markets Interviews

8.3.1 Introduction

In structuring this section, we will provide you a list of the most typical questions that you may encounter in an
interview for an Associate level position. Please bear in mind that this list is not exhaustive and the type of
questions you may actually get is potentially infinite. This is particularly true for market awareness questions.

You will not find answers to all of the questions proposed below. For market awareness questions, giving an
answer is actually impossible. Instead, we will provide a guideline for a good general answer. For technical
questions, we provide answers only for some of the trickiest and less obvious questions. The answers we provide
are what, according to our experience, recruiters want to hear. However, it is strongly suggested that you review
and study each subject for which you do not feel confident.

Finally, remember that practice is crucial. You want to be over prepared for the interviews as this is the best thing to
do to secure your job. On top of these questions, you should read all the books that contain interview questions.
The most popular book is probably “Heard on the Street: Quantitative Questions”. We strongly advise you to learn
that book by heart.

You can’t (and don’t need) to know everything going in, not least because the banks provide excellent training
programmes once you start, however, you should have general understanding of all the key areas, and have a
particularly strong knowledge and understanding of one or two areas that really interest you (e.g. equities, FX, fixed
income etc.)

Why Markets interviews for programme hires are difficult

 It’s important to spend some time thinking about why IBD interviews are easy to prepare for, but preparing
for Markets interviews is very difficult
 Markets interviews are difficult because it’s very hard for a “specialist” who works on a specific desk,
covering a specific product, to interview someone for a “general” Markets role which could involve
completely different knowledge or skill requirements
 Furthermore, because roles within Markets can be very desk-specific, with steep learning curves that
involve acquiring knowledge that you don’t cover in business school, interviewers can’t expect you to know
too much about what they do.

What do Markets interviewers look for?

 Intellect: there are different types of intelligence, so think carefully about how your strongest intellectual
attributes will be useful in Markets
 Passion: demonstrate through knowledge of markets, products, trade ideas, etc.
 “Fit”: the interviewer has to be able to see you in a role, so think carefully about what roles would be a
good fit your personality and skill set (you don’t need to want to do that role, but definitely don’t make the
mistake of ruling it out at interview stage)
 Drive: apart from your technical skills, senior managers will assess your aspirations and leadership
potential within the firm

8.3.2 Essential Resources

 Class material:
o Corporate Finance Core class: prepares you well for IBD, but is not that focused on Markets. (Part
II and fixed income stuff from Part I are probably the most useful bits.)
o CFM Elective: Unfortunately, this elective is taught during/after recruiting season and also focuses
on finance theory. One of the most beneficial things you can do in these classes is speak to the
lecturers to explain how, given that everyone can price an option (or whatever asset), banks, funds
etc. use that knowledge to return a profit (i.e. how this is actually sued in practice).
 LBS Clubs: it is essential that you join the relevant clubs like: the Finance Club, Investment Management
Club, PE/VC Club, and Energy Club (particularly useful re. commodities – see commodity trading training).
Also join the relevant geographic clubs depending on what geography you are targeting.
 Some Recommended Guides:
o Hull: “Options, Futures, and Other Derivatives” textbook by John C. Hull. This is the most important
textbook and a key reference for preparation for interviews.
o Vault Guides (two available on Portal via “Library Services”): not great for markets, but worth
reading. The IBD stuff is also worth reading if you have time, if only because it’s actually a good
way of consolidating the corporate finance class
o Wall Street Oasis: stronger on Markets than the others and you can download
o Mergers & Inquisitions: has some interesting stuff
o Heard on the Street: for Brainteasers
 Finance in Practice Series: Practical educational workshops organised by Career Services where actual
bankers come on campus to pre4sent various topics. This is also a good opportunity to compare banks
 External Providers:
o Come in various guises, but almost all are really useful. Anything by a hedge fund manager/trader
is essential for trade ideas and market knowledge.
o Presentations by banks’ economists (sometimes advertised through Emerging Markets club or the
IMC) are usually poorly attended but often really, really useful.
o Interview prep and modelling courses by Wall Street Prep, Training the Street etc. – go to all of this
stuff. Even if you are pretty comfortable with the material you can still supplement your knowledge
by coming prepared with good questions.
 [Link] (subscription available on portal)
o Most important and common advice is “read the FT every day!”
o If you aren’t going to read the FT every day, at least be conscious that there are three-five things
you really do want to read:
o 6am Cut: email every morning, summarises news from the last 24hrs, updates you on equities,
LIBOR, treasuries, gold, oil, FX (2 minutes of reading time on the Circle line and you already know
a lot...)
o In today’s FT: email every morning with the key headlines in the UK, US, Europe, Asia, World,
Companies, Markets, etc. Worth having a look.
o Lex: Lex commentary tends to be really good. In Markets, you have to have “a view”, and if you
don’t, this will give you some direction
o Videos: useful resource for key Markets and macroeconomics facts and opinions, as well as
different views from well-known asset managers, bankers, etc.
o Archive (via the Library)
o Reading the FT is important because:
 By knowing key stories in the Markets space to the point where you can reference precise
details, demonstrates your passion about the industry
 Banks have a view on various events, and regularly comment on those views in the FT. If
you are interviewing with a bank, it helps to know the “house view”, and it’s also impressive
if you can cite the source of that view (i.e. the trader or analyst who gave the comment).
 Thomson One

o T1: You have access to Thomson One on Portal via “Library Services” > “A-Z of Library
Databases” (you may need to register; note that T1 only works with Internet Explorer, not Chrome)
o Banks coverage: T1 gives you access to analyst research covering the stocks of the banks that
you are applying to (the big “Initiating Coverage” reports are probably the best way to get to know a
bank)
o Macro Research Reports: T1 also gives you access to research published by the banks on most
key issues. In December each bank publishes a 100 page “Year Ahead” piece, covering all main
asset classes. This is essential reading.
o Finance Guides: T1 also has some of the guides published by the banks on FX, Commodities etc.
o In-House Research: Finally, T1 gives you access to some of the research that the people
interviewing you likely read on a daily basis (e.g. “Early Morning Reid”, by Jim Reid at DB)
o Finding non-company specific research: within T1, go to “Screening and Analysis”, “Research” and
then (within “More Options”) search for key words or search by contributor

8.3.3 Essential Markets Knowledge

[Link] Fixed Income

• Current rates: Know where things are trading (US, UK, Germany, France, Japan, China, Emerging
Markets, etc.) and why ([Link] and [Link]
[Link]/interest-rates/libor/[Link])
• Understand the different term structures and shifts in the curve.
• Know how to draw spot rate curve, swap curve and a corporate spread curve.
• Bond valuation:
• Types of securities by issuer: government securities, corporate bonds, etc.
• Types of Bonds: vanilla, convertible bonds, index-linked, zero coupon, callable, etc.
• Pricing of bonds. Relationship between interest rates and bond prices.
• Option Adjusted Spread, Zero volatility spread. How to price a bond when there are embedded
options
• Convertible bonds: knowledge on features and valuation.
• Duration and convexity:
• Know how to draw bond price vs. interest rate. Draw convexity and duration.
• Understand different durations: modified duration, key rate duration, etc. and know how to
calculate them for the different bonds (coupon bond, zero coupon bond, etc) and how it is
measured. Understand how duration is used to hedge risks
• Understand convexity and benefits/disadvantages of convexity from the perspective of a fixed
income trader vs. a risk manager.
• Negative convexity in bonds with a call embedded option.
• Resources: If you just want an overview, Investopedia has plenty of succinct but decent articles to read. In
addition textbooks as “Options, Futures, and Other Derivatives” (John C. Hull) have extensive material.

[Link] Equities

• Current levels: know where all the major indices are trading (and have been trading), i.e. Dow, S&P 500,
Nasdaq, FTSE 100, CAC, DAX, Nikkei 225, etc. Useful as well knowing current levels and past trends of
volatility (VIX Index).
• Dynamics: Try to understand what drives equity markets, so that you can have a sensible view on where
markets may go from here (it’s probably OK to not have a view, but it’s not OK to not have a reason for
your lack of a view). Understand the relationship between the equity markets, money supply, commodity
prices, etc. Have a view on Macro threats to equity markets.
• Fundamental analysis: Know the main valuation techniques (e.g. DCF, PE multiples and other multiples,
etc) and stock types (e.g. Consumer staples, cyclicals etc.)
• Stock Pitches (Very important): If you are interested in equities, you really need to have a couple of good
stock pitches ready (read T1). Be ready as well to further discuss the pitch idea (industry specific
questions, rationale of any of the arguments, valuation multiples, threats of investing in that stock/strategy,
etc.)
• Resources:

o Decent free resources (for UK equities ideas) include [Link] and

[Link] (in particular, see interviews with fund managers)
o If you are too lazy to read the FT, and also want lots of stock picks, Money Week magazine
(subscribe at [Link]) is a useful resource. Subscription gets you access to their
complete archive, so you can read countless interviews with fund managers

[Link] Commodities

• Energy
– History of oil prices (Brent and WTI), why oil went to ~$150, why it fell to ~$30, where it is now,
view on the next 12 months
– History of natural gas prices, impact of shale gas
– Implications of shift away nuclear (check out Japan’s energy policy)
– Understand current geopolitical risks in Energy prices (e.g. Ukraine, etc.) as well as OPEC policies,
etc.
• Metals
– Relationship between USD, S&P 500, money supply and Gold. E.g. Effect of tapering in metals
such as gold.
– Current gold price and recent trend (e.g. capital outflow of Gold ETF’s, etc).
– Forecast of gold prices in the upcoming future.
– Thesis for why gold is even an investment
– Knowledge of precious and industrial metals, and what drives those markets
• Soft commodities
– Relationship between food and energy
– Implications of rising food prices
• Different ways of playing a commodities trend, e.g. futures, options, ETFs, stock of companies that produce
the commodity, other entities that may be affected by a particular trend ([Link] service companies, fertiliser
suppliers, shipping companies)
• Relationship with currencies
• Important macro indicators
• Resources:
• Again, T1 has some fantastic bank-published resources, e.g. DB’s “Oil & Gas for Beginners”
(September 2010)

[Link] FX/Money markets

• Current exchange rates: [Link] and [Link]. Know the main ones and the past
performance and the rationale for the trend.
• What drives exchange rates (macroeconomic and technical answer). Clearly understand the relationship
between exchange rates and interest rates and inflation. In addition, understand the likely impact of
different monetary policies. Have a view on the evolution in the coming future of the main currencies.
• Covered Interest Rate Parity and Uncovered Interest Rate
• Purchasing Power Parity (PPP)
• Arbitrage opportunities: Cash-and-carry and reverse cash-and-carry.
• Virtual currencies: Bitcoin and others. Know the current trends and regulatory challenges.

[Link] Credit

• Current risk premiums in sovereign securities

• Credit Ratings. Have an overall knowledge on the current ratings of US, UK, France, Germany, etc. and
the credit outlook.
• Product knowledge: Basic knowledge on CDS, CDO, RMBS, ABS, etc.
• Different risks: prepayment, credit risk, etc. Collateralization and securitization.
• Credit Indexes:
– iTraxx Indexes:
– Other Indexes: LCDX, CDX.

[Link] Derivatives

• Options:
• Know main types of Options: vanilla/European, American, Bermuda, Asian, caps, floors, etc.
• Understand payoffs, draw payoff charts, etc.
• Pricing: (Important)
• Basic valuation methods: Black Scholes, binomial trees, etc. Many questions may for
instance come up regarding Black Scholes formula, thus know the assumptions of the
model, applications, pricing formula and main criticisms/flaws of the model.
• Greeks: (Important)
• Know the Greeks (really not as tricky as they sound), and know how to draw the charts
(e.g. Vega reaches its maximum when close to the strike (at the money option), etc.). Work
the intuition on the relationship of strike, underlying price, time, volatility and interest rates
on option prices (calls and puts).
• Try to get a sense of how people make money with options by trading volatility (i.e. delta
hedging, being long gamma, etc.). Be very familiar with delta hedging and how to
rebalance the portfolio.
• Swaps:
• Understand what a swap desk does
• Knowledge on basic swap products (e.g. IRS, Cross Currency Swap, Equity Swap, Basis Swap,
etc.)
• Basic swap valuation knowledge (e.g. valuation at t=0, etc.)
• Futures:
• Understand features of futures (standard contract, clearing house, settlements, margin call, credit
risk, etc.)
• Main future indexes
• Pricing of futures and daily/periodic clearing
• Forwards:
• Understand differences of forwards vs. futures
• Pricing of forwards (e.g. FRA, FX forwards, etc.)

• Resources:
• Investopia, Brealey etc. give you a decent overview. Hull (Options, Futures and Other Derivatives)
is the main text. For a simple (i.e. read on the tube, no maths, lots of pictures) guide to option
pricing and trading, Buying and Selling Volatility (1996) by Connolly is a good introduction and a
pretty easy read. Heard on the Street is also really good on this stuff

8.3.4 Market Awareness Questions

1. What is your current global outlook? What about for next year?

This is a typical question. You are guaranteed to get a question of this kind during one of your interviews.
While it is true that there’s no correct answer, there are good and bad answers. Here’s how to structure a
good answer.
You want to have a clear snapshot and two or three themes/drivers to discuss. After you state what the two
or three main themes are, you need to explain what the potential impacts on the global economy are (you
can disaggregate by asset class). After you do so, it is very important to specify how likely that specific
scenario is. What you really need to avoid is to give the interviewer a list of ten different issues without
explaining anything about a particular theme.

2. If you were the Governor of ECB/BOE/Fed, what would you do at the next ECB/BOE/Fed meeting?

These questions are fairly common. Note that this question is similar to question 1, but it also asks you to
elaborate on the possible actions following a particular scenario that may happen.
So a good answer should first focus on highlighting what you think are the most important issues out there.
Then, you would elaborate on these issues as suggested in question 1. At this point, you need to tell the
interviewer what actions you would take given the scenario you imagined.

3. How would you invest €100M?

Again, you should try to have two or three investment ideas ready to use. Interviewers are not looking for a
particular answer, but they are instead particularly interested in hearing a structured answer and whether
you have a clear vision of the markets. Giving a structured answer means covering the following four
aspects:

a) Ask or identify the risk and return objectives as well as the financial constraints prior to stating your
investment strategy
b) Explaining the rationale behind each investment idea
c) Describing what factors can negatively affect your idea
d) Give a rough estimate of the expected return, riskiness and time horizon of the investment (e.g. I
think this investment can generate a 50% return in one year time, although there is substantial
downside risk)

4. During the recruitment for Summer 2014, there were many questions related to:

US countries affected, analysis of the reasons, predicted evolution, how to exploit the crisis, etc.

Thus, read up on how tapering has affected every market paying attention to the relationship between
monetary policy, FX, equity markets and commodity prices (e.g. gold, etc.), as well as the direct impact of
US Monetary policy in specific Emerging Markets such as Turkey, Indonesia, South Africa, Argentina,
Brazil, etc.

8.3.5 General Knowledge of the Business

Throughout the interview process, you may be asked some questions about your understanding of the
different roles and processes within the Sales & Trading division. Be ready to answer the following
questions:

- Different roles and processes within Sales & Trading (Sales, Trading, Structuring, support areas).
Understand the dynamics of a deal flow and the task of each of the roles.
- Market and operational risk related questions: what kind of risks (market and operational) you
identify if a counterparty wants to change its settlement by 15 days? Talk me about potential
operational risks in a sales & trading desk. How those relate with the new regulatory requirements?
- Opportunities and challenges for a Markets division in the short and long-term.
- Firm specific questions:
o Key figures (Share price, Market cap, EPS, Profits, etc.).
o Management team. Know at least the names and leadership style of the key managers of
the firm and the division you specifically interview for.
o Key news on the business (e.g. sale of the Commodities desk to XX, etc.) and the firm (e.g. recent
payment of 6bn$ in fines for miss-selling of mortgage-backed securities during the subprime crisis,
etc.)

8.3.6 Technical Questions

With some exceptions, the typical interview is not extremely technical. You are unlikely to get numerous super
complicated technical questions during an interview. And when you get technical questions you normally are not be
required to write formulas.

The bad news is that you will get one technical question each interview. And getting the answer wrong will
inevitably lead to a rejection. So it is crucial that you “over prepare”

The following questions cover some examples of the most typical questions for Associate interviews. However, you
may get questions that are slightly different to the ones proposed. Alternatively, the interviewer may be geekier and
wants you to write down the Black-Scholes equation. Hence, treat the following question as a starting point for
further reading and studies.

[Link] Fixed Income

1. What is an interest rate swap (IRS) curve?

The IRS curve represents the different swap rates (for the fixed leg) at different maturities. Generally
speaking, it will have a shape similar to the yield curve. However, the IRS curve will generally be slightly
higher since it incorporates a counterparty risk. Remember, an IRS is an OTC derivative contract and you
are always exposed to the counterparty risk.

2. What is duration? Why is it important? How is duration affected by the convexity of the bond?
The important thing to tell here is that duration is an approximation of the change in bond price if interest
rate changes. The interviewer expects you to be fully familiar with the different durations (modified duration,
key rate duration, etc), how to use duration and how duration changes when the convexity of the bond is
greater. Thus, know very well why convexity exists, why large movements in interest rates can make a
hedge not perfectly suitable when there ir large convexity, etc. This two topics come out very often in
Markets interviews, thus pay special attention.

3. Can convexity ever be negative?

Yes, convexity can be negative for callable bonds. Know how to draw the chart to further explain why.

4. How do you extract the spot rate curve? What is bootstrapping?

The spot rate curve is extracted through “bootstrapping”. Bootstrapping is a simple technique to derive
yield curves when zero-coupon bonds are not available. This technique is covered in the Core Finance
course, so there are no excuses

5. How do you value a bond? And a bond with an embedded option?

In order to value a bond, the stream of cash flows (coupon and principal payments) are discounted at the
appropriate discount rate. If a bond trades at a discount the bond’s YTM is higher than the coupon rate,
while if the YTM is lower than the coupon rate, the bond trades at a premium.

An easy way to value a bond with an embedded option would be to build a binomial tree and work
backwards to compute the current price (see Corporate Finance material).

6. If interest rates drop 20 basis points, how much does a zero coupon 2yr bond's price
increase/decrease?
This is a fairly standard question which tests your knowledge of duration and how it can be used. First, as
interest rates are dropping, bond price will increase. Second, you should know that for a zero coupon bond
the duration is equal to the bond’s maturity. In this case, duration is 2 years. Now that you know this, you
can estimate the % change in bond’s price by multiplying bond’s duration by the change in interest rates.
By doing so, you can easily see that the bond price increases by 40 basis points.

7. Price me a 5 year zero-coupon yielding 5%. No calculators, you have 30 seconds to give me a price
This is a popular question at some banks. You should know the price formula by hearth, which in this case
will be 100/(1.05)^5. The problem is to compute 1.05^5 in your head. The trick is to know that 1.05^5 can
be approximated as 1.05*5 which equals to 1.25. Knowing this, you can give a price of 80, which is very
close to the actual price
.
8. Understanding duration and convexity for a callable bond. Explain why yield to price on a bond
isn't linear

9. Draw gamma and delta at different time maturities. Explain the graph.

10. Volatility smile, stochastic implications when comparing to a distribution. Skew and kurtosis.

11. We have invited 15 of your classmates for the final round. Why should we take you and not your
classmates?

[Link] FX-Money Markets

1. What drives exchange rates?

Don’t get lost in technicalities and do not start out by listing ten different items that may have an impact on
exchange rates. Even though exchange rates are driven by thousands of different variables, there are
three macroeconomic variables that are the main drivers of exchange rates.

 Interest rates differential and expectations – this broad category refers to how different rates and
future expectations about changes in rates may affect exchange rates. Note that there are several
factors affecting rates expectations, such as inflation, debt problems, poor economic performance
etc.
 Trade balance – very generally, countries with trade surpluses (exports greater than imports, think
of China) should expect currency appreciation. On the other hand, countries running trade deficits
(think of the US) should see their currency depreciating
 Purchasing Power Parity (PPP) adjustments – this is an economic factor which has impact in the
very long run. The Economist Big Mac index is the most popular PPP index and may give some
indications on disparities between countries. According to this PPP theory, exchange rates should
adjust to eliminate these differences.

These three factors play a role on exchange rates simultaneously. However, at any given point in time, one
of the three will have a major role in moving exchange rates pairs.

2. What is the difference between appreciation and revaluation of a currency?

The final effect on the currency is the same i.e. the currency will be more “valuable”. Appreciation refers to
an increase in currency value when the exchange rates are floating. Revaluation refers to the same
increase but for currencies that are fixed (e.g. China).

[Link] Options

1. How does a European option differ from an American option?

The main difference is that a European option can be exercised only at a specific date, while American
options can be exercised whenever you want before the expiry date. If you are really into mathematics, you
can also mention that there is no closed-formula for pricing American options.

2. What are delta and gamma? When is gamma greater (in the money, at the money or out of the
money?)
There is a fairly good chance that you will get some questions on the so-called “greeks”. Simply speaking,
Greeks are measures of option’s value sensitivity to changes in different factors. Delta refers to the change
in option value as the value of underlying security changes. Gamma is the change in Delta as the value of
underlying security changes. The highest Gammas are always found at-the-money levels.

3. You are long a call option on XYZ Inc. stock and you have delta hedged your position. You read on
the Internet that the CEO plunged from the roof of XYZ skyscraper in Canary Wharf. The stock
plunges £5. How do you adjust your hedge (qualitatively) ?
Other things being equal, the delta falls with a fall in stock price. However, you are long the call and short
the replicating portfolio. This means that the number of units of stock you are short has to fall. So, you must
buy back some stock.

8. INTERVIEW QUESTIONS
Sources used to create this guide:

 Adkins Matchett & Toy Midnight Manuals:

8.4 Brainteasers and Logic Questions

Brainteasers are a crucial part of any Sales & Trading interview. People think of brainteasers as unfair. Generally
speaking, it is true that it is hard to get them right the first time. Moreover, the stress during an interview makes
them even more difficult.

However, many interviewers ask the same brainteasers again and again. Hence, if you go through as many
brainteasers as possible, chances are that you will get asked something that you already know. Answering the
question will then become extremely easy.

Unfortunately, it may still be the case that you get one totally new. In these situations, it is extremely important to
stay calm and try to break down the problem. You can still make a good impression even if you do not get to the
right solution; interviewers are interested to see how you approach a problem under pressure.

What follows is a list of brainteasers. This is a starting list to get you familiar with the most popular questions you
can get. However, you should go beyond this list and practice as many brainteasers as you possibly can.

1. What is the expected value of a roll of a dice?

This is basic probability and the correct answer is 3.5.

2. If you look at a clock and the time is 3:15, what is the angle between the hour and the minute
hands?
The answer to this is not zero! The hour hand, remember, moves as well. The hour hand moves a quarter
of the way between three and four, so it moves a quarter of a twelfth (1/48) of 360 degrees. So the answer
is seven and a half degrees, to be exact.

3. You have a five-gallon jug and a three-gallon jug. You must obtain exactly four gallons of water.
How will you do it?
You should find this brainteaser fairly simple. If you were to think out loud, you might begin by examining
the ways in which combinations of five and three can come up to be four. For example: (5 - 3) + (5 - 3) = 4.
This path does not actually lead to the right answer, but it is a fruitful way to begin thinking about the
question. Here’s the solution: fill the three-gallon jug with water and pour it into the five-gallon jug. Repeat.
Because you can only put two more gallons into the five-gallon jug, one gallon will be left over in the three-
gallon jug. Empty out the five-gallon jug and pour in the one gallon. Now just fill the three-gallon jug again
and pour it into the five gallon jug. (Mathematically, this can be represented 3 + 3 - 5 + 3 = 4)

4. A company has 10 machines that produce gold coins. One of the machines is producing coins that
are a gram lighter. How do you tell which machine is making the defective coins with only one
weighing?
Think this through—clearly, every machine will have to produce a sample coin or coins, and you must
weigh all these coins together. How can you somehow indicate which coins came from which machine?
The best way to do it is to have every machine crank a different number of coins, so that machine 1 will
make one coin, machine 2 will make two coins, and so on.

Take all the coins, weigh them together, and consider their weight against the total theoretical weight. If
you’re four grams short, for example, you’ll know that machine 4 is defective.

5. What is the sum of the numbers from one to 50?

Easy question and fairly popular. Pair up the numbers into groups of 51 (1 + 50 = 51; 2 + 49 = 51; etc.).
Twenty-five pairs of 51 equal 1275.

6. If you have seven white socks and nine black socks in a drawer, how many do you have to pull out
blindly in order to ensure that you have a matching pair?
Three. Let’s see—if the first one is one colour, and the second one is the other colour, the third one, no
matter what the colour, will make a matching pair. Sometimes you’re not supposed to think that hard

7. If you invested $500 and it doubled in eight years, what was the interest rate?
This is a nice little application of the so called Rule of 72. When approaching this question: 72 divided by a
period of time where an investment has doubled (8 years in this case), equals your rate of return, or 9
percent. By extension, there is also something called the 7-10 rule. It takes 7 years to double money
invested at 10% and it takes 10 years to double money invested at 7%.

8. You are given nine balls, one of which weighs less than the rest. You are also given a traditional
two-sided scale. How many times do you need to weigh balls to determine which is the lightest
one?
Like the earlier weighing question, this one will challenge your process of elimination skills. Most people
immediately think three times, but the answer is actually two. First, you would put six balls on the scale—
three on each side. If the light one is in one of these two groups, you’d know. If not, you know it’s in the
final group. Whatever the case, you weigh two balls (one on each side) from this lighter grouping. If they
are equal, the light ball is the odd one out. If they aren’t, you already know the answer.

9. Picture a 10 x 1 0 x 10 "macro-cube" floating i n mid-air. The macro-cube is composed of 1 x 1 x 1

"micro-cubes," all glued together. The outermost layer falls to the ground. How many micro-cubes
are on the ground?
The answer is 488. The best way to get to the correct answer is to think of the cube that will remain after
the outermost layer falls. The remaining cube will have 8 micro cubes on each side. The number of micro
cubes in the remaining macro cube is then 512 (8*8*8). So the number of micro cubes on the ground will
be 1,000-512=488.

10. Give me the decimal equivalent of 13/16 and of 9/16?

First you should know how much 1/16 is. You should know this by heart (because this is how US
treasuries are still quoted) and the answer is 0.0625. Now, 13/16 is 1/16 + 3/4. So, it’s 0.0625 plus 0.75.
Hence, the answer is 0.8125. Applying the same reasoning, 9/16 is really 1/2 plus 1/16. Thus, the answer
would be 0.5625

11. You are dealt just two playing cards from a well-shuffled standard 52-card deck. The standard deck
contains exactly four Kings. What is the probability that both of your cards are Kings??
The correct answer is roughly 0.5%. There are four chances (out of a deck of 52) that the first card dealt is
a King. Conditional on the first card being a King, there are three chances (out of 51) that the second card
dealt to you is a King. Hence, the probability is 4/52 * 3/51 which is roughly 0.5%.

12. What is the standard deviation of (1, 2, 3, 4, 5)?

To solve this question, you should first compute the variance and then take the square root. You should
know that the variance equals the expected value of the squares minus the squared expected value. First
compute the expected value which is equal to 3, which squared is 9. Second, compute the expected value
of the squares, (ie 1, 4, 9, 16 and 25). This expected value is equal to 11. Hence, the variance of (1, 2, 3, 4
and 5) is equal to 2. Taking the square root you get the standard deviation, which is 1.414.

13. You hire a man to work in your yard for seven days. You wish to pay him in gold. You have one
gold bar with seven parts-like a chocolate bar . You wish to pay him one gold part per day, but you
may snap the bar in only two places. Where do you snap the bar so that you may pay him at the
end of each day, and so that on successive days he may use what you paid him previously to make
change??
Snap the bar into pieces that are one, two, and four parts long, respectively. On day one, give him one
part. On day two, exchange your two parts for his one. On day three, give him back the one part. On day
four, exchange four parts for his three. On day five, give him one more part. On day six, exchange your two
parts for his one. One day seven, give him back the one part.

9. AVAILABLE SUPPORT
There are a lot of resources available to you at LBS and we will discuss them briefly below. The key thing to
remember though is that you OWN your job search. No one can get the job for you. They can only advise and
guide and point you in the right direction. It is also advisable that when you seek support, you prepare in advance
to make the most of your sessions. You are a Masters degree student so do not expect to be spoon fed through
this process.

9.1 Career Services

Throughout your job search, it is strongly advisable that you connect with LBS’s Career Services. There are
various ways you can do this:

 Attend the numerous presentations, workshops, sessions organised by Career Services which start from
Orientation week all the way til the end of term
 Schedule Coaching Sessions with specific Career Coaches or Sector Managers (In Portal, you will find
profiles on the Coaching Team as well as the Sector Managers) – these sessions are ‘bookable’ and are
listed under Events in your Career Central system

th
Attend Drop In Sessions at Taunton 4 Floor. These are not bookable in advance but based on a ‘Sign-
Up’ Sheet that comes out 15 minutes before the sessions start. Schedules are published at the start of the
week and are listed on your Career Central Home page
 If none of the above work schedule-wise, drop an email to the specific person you want to see to come up
with a time that works for both of you

9.2 Clubs

It is strongly advisable that you join the relevant club for your job search – Finance Club, Investment Management
Club, Private Equity/VC Club, relevant sector or Geography Clubs.

 The clubs organise recruiting events with potential recruiters which provide you with invaluable networking
opportunities
 Having a leadership role or an active role in the clubs is a good thing to put on your CV to show your
commitment to the industry
 The clubs are also a good way Career Services and recruiters can send general messages, reminders, job
alerts, etc… even after you’ve graduated
 The clubs are a great way to get to know your fellow students within and outside of your own programme

9.3 Peer Leadership Programme (PLP)

Key Takeaways: The PLP sessions are a unique opportunity to get advice from second year students who interned
in some of the top banks. Attend sessions as soon as they become available, which is generally early October.

Strictly speaking, the PLP is not a component of the recruiting process. Still, it is a platform that gives students
continuous support from the Fall term till the end of the recruiting season. This support can be extremely valuable
and help you to successfully land a job in investment banking.

The PLP program is delivers by second year MBA students under the supervision and paid for by Career Services.
After undertaking Career Services training sessions, PLP students release time slots on Career Central to meet
with first year students. These slots are 30 minutes each and during this time students can seek advice on CV,
Cover Letter, Interviews, networking and everything else. PLP students are trained on all these areas and have
relevant experience in different fields.

Now that we have an understanding of what the PLP is, how can we get the most value out of it? The first thing to
do is to identify among the PLP students those who can match our needs. In doing so, you should consider where
they interned, what their background was and what their key skills are. Hopefully, you will have identified more than
one student that suits your needs.

During the sessions, it is important to have a clear goal in mind. This can be a CV review, advice on networking
email or just some soul searching. Many students find useful to spend most of their session practicing interviews.

It is important to remember that the PLP students are more than willing to help and will often go the extra mile. In
addition, chances are that they just finished their summer internship in one of the top banks. Thus, they have
unique insights on all the peculiarities of the recruiting process.

10. SIMPLE WORDS OF ADVICE

Key Takeaways: An elegant and conservative style is imperative. Be professional in the banking “way”. If in doubt,
observe the style of the bankers coming on campus or ask your classmates who have worked in the sector.
Remember, it’s easy to make the wrong impression.

10.1 Male Dress Code

Let’s start saying that we have seen students showing up at closed list events with very dirty shoes, and that’s
doesn’t really work with bankers. Therefore, be careful to shine your shoes and iron your shirts before interviews
and networking events.

 Suit: black business or medium-dark grey; go for a classic and elegant style. Avoid extravagant colours
such as maroon, green or light coloured suits.
 Conservative silk tie: We suggest silk because it makes a nicer knot. I would not go for the cheap solution
given the importance of the situation. Moreover, you want to dress as bankers do.
 Shirt: a conservative long-sleeve solid white or light blue should work well.
 Belt: a simple and elegant belt matching the colour of your suit and shoes.
 Socks: match the colour of your shoes and belt.
 Shoes: low-heeled and conservative (cap-toe or wingtip), black is safest.
 Aftershave: be moderate, you are not going on a date. The interview room is often small and you do not
want to fill it with your new scent. That would be awkward…
 About the beard. It’s usually uncommon for bankers. Clean-shaven is the best way to go.
 Haircut: needless to say that the bankers tend to have short and well-groomed hair. Long hair is a rarity
among bankers, most of whom are not particularly open minded.

10.2 Female Dress code (tricky since this was written by men but...)

 Skirtsuit or pantsuit is a very good choice. The Skirtsuit is probably considered the most prudent choice.
Also a navy-blue, black-medium grey business suit with white or light blue blouse with high neckline.
 Perfume: be moderate. The interview room is often small and you do not want to fill it with your perfume.
 Belt: as usual must be coordinated with your outfit. It’s imperative to wear one if your dress has belt loops.
 Shoes: low-heeled, conservative dress shoes colour coordinated with your dress. They should also be
closed.
 Hairstyle: I guess you don’t need advise on that. Elegant and tasteful. Don’t let it cover your face so, if long,
wear it up or back so as to avoid constantly flipping it out of the way. Too much movement is not ideal for
an interview.
 Earrings: moderate, elegant and discrete. One per ear in the traditional earlobe position.
 Handbags: usually perceived more professional to carry a briefcase or a portfolio.

10.3 Professionalism and Timing

Professionalism means adhering to the principles of courtesy, honesty, and responsibility in one's dealings with
clients and associates, indicating a level of excellence that goes over and above the commercial considerations.

Honesty is a necessary characteristic of recruiting. The banking world in London is a relatively small one and if a
student is caught lying, it will quickly get back to other recruiters. This doesn’t mean you can’t be commercially
savvy in selling yourself (that’s what bankers do all the time).

Being late is inexcusable. If you are afraid you might be late, then let them know in advance. Take note of the exact
location and the travel time before scheduling networking events/interviews. Allow yourself some extra time.

Professional manners: use courtesy and thank your interviewer for his time. If invited out for a dinner events/drinks
be aware of your alcohol tolerance. It wouldn’t be the first time that someone oversteps the line and doesn’t get to
the interview’s list (or worse, doesn’t get a full time offer in the summer).

10.4 The Interview Schedule

Key Takeaways: So much preparation will unfold in three-four weeks. Be confident and be prepared.

The recruiting process is long and intense but will at least will be concluded before many other sectors have even
started their process. Be confident and enthusiastic. First rounds commence two weeks after Corporate Partner
presentations and last just two weeks. Banks will call you within 1-2 days with their decision if you are through to
the next round. Second/Final rounds are usually at the recruiters’ offices.

Here are some words of wisdom:

 Sleep 8 hours per night. The interview period is intense and draining, and the mind works best after
sufficient rest.
 Be prepared for adverse weather conditions. If necessary, wear appropriate shoes and change prior to the
interview.
 Arrive early and ask HR the name of your interviewer(s). Take some time to memorise them, it is good to
address your interviewer(s) by name.
 Avoid bringing large bags into the interview room. Take a simple black folder/portfolio with notepaper, a
pen, spare copies of your resume and business cards. Hand your business card to the interviewer at the
beginning of the interview(s).
 Do not exceed your usual caffeine intake and always bring breath mints and energy bars.
 Do not take your cell phone in the interview room. Leave it in your coat outside the interview room. A
ringing phone is a bad mistake.
 Eat regularly and healthy, keep your energy at the right level throughout the interview period. Remember
that, because you may experience high levels of adrenaline, you may not feel the need to eat. While this is
understandable, don’t fall into that trap.
 At the end of the interview, thank your interviewer(s) for their time and the opportunity to interview with the
company, make again the point of how important was for you to have this opportunity. If you feel the
interview was a good one, it is advisable to send a thank you note on the same day.

Above all, keep your spirits up. It is a long and draining process and inevitably you’ll have both good and bad
interviews. If you’ve followed this guide you should get a number of interviews, therefore don’t wallow over the bad
interviews learn. The best approach post interview is to quickly review what went well and where you could have
improved, learn from this and forget about it. Similarly, banks often stagger their offers and, even second round
interviews, so don’t wallow if you don’t get called straight away along with some of your class mates.

11. READING MATERIALS AND ADDITIONAL RESOURCES

11.1 Investment Banking Division

Below is a list of suggested reading materials and resources to help you with your research and preparation.

News
• Financial Times
• [Link]
• [Link]

Blogs
• [Link]
• [Link]

Training Materials
• [Link]
• [Link]
• [Link]

Guide
• [Link] (can be accessed via LBS library)

Books
• Investment Valuation: Tools and Techniques for Determining the Value of Any Asset (Wiley Finance)
by Damodaran
• Valuation: Measuring and Managing the Value of Companies (Wiley Finance) by McKinsey
• Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions (Wiley Finance) by
Joshua Pearl and Joshua Rosenbaum

Library Resources
• ThomsonOne
• Bloomberg
• Factiva
• Factset

11.2 Markets Division (Also found in Markets Interviews Section 8.3)

 LBS Clubs: it is essential that you join the relevant clubs like: the Finance Club, Investment Management
Club, PE/VC Club, and Energy Club (particularly useful re. commodities – see commodity trading training).
Also join the relevant geographic clubs depending on what geography you are targeting.

 Some Recommended Guides:

o Hull: “Options, Futures, and Other Derivatives” textbook by John C. Hull. This is the most important
textbook and a key reference for preparation for interviews.
o Vault Guides (two available on Portal via “Library Services”): not great for markets, but worth
reading. The IBD stuff is also worth reading if you have time, if only because it’s actually a good
way of consolidating the corporate finance class
o Wall Street Oasis: stronger on Markets than the others and you can download

o Mergers & Inquisitions: has some interesting stuff

o Heard on the Street: for Brainteasers

 Finance in Practice Series: Practical educational workshops organised by Career Services where actual
bankers come on campus to present various topics. This is also a good opportunity to compare banks

 External Providers:
o Come in various guises, but almost all are really useful. Anything by a hedge fund manager/trader
is essential for trade ideas and market knowledge.
o Presentations by banks’ economists (sometimes advertised through Emerging Markets club or the
IMC) are usually poorly attended but often really, really useful.
o Interview prep and modelling courses by Wall Street Prep, Training the Street etc. – go to all of this
stuff. Even if you are pretty comfortable with the material you can still supplement your knowledge
by coming prepared with good questions.

 [Link] (subscription available on portal)

o Most important and common advice is “read the FT every day!”
o If you aren’t going to read the FT every day, at least be conscious that there are three-five things
you really do want to read:
o 6am Cut: email every morning, summarises news from the last 24hrs, updates you on equities,
LIBOR, treasuries, gold, oil, FX (2 minutes of reading time on the Circle line and you already know
a lot...)
o In today’s FT: email every morning with the key headlines in the UK, US, Europe, Asia, World,
Companies, Markets, etc. Worth having a look.
o Lex: Lex commentary tends to be really good. In Markets, you have to have “a view”, and if you
don’t, this will give you some direction
o Videos: useful resource for key Markets and macroeconomics facts and opinions, as well as
different views from well-known asset managers, bankers, etc.
o Archive (via the Library)
o Reading the FT is important because:
 By knowing key stories in the Markets space to the point where you can reference precise
details, demonstrates your passion about the industry
 Banks have a view on various events, and regularly comment on those views in the FT. If
you are interviewing with a bank, it helps to know the “house view”, and it’s also impressive
if you can cite the source of that view (i.e. the trader or analyst who gave the comment).

 Thomson One
o T1: You have access to Thomson One on Portal via “Library Services” > “A-Z of Library
Databases” (you may need to register; note that T1 only works with Internet Explorer, not Chrome)
o Banks coverage: T1 gives you access to analyst research covering the stocks of the banks that
you are applying to (the big “Initiating Coverage” reports are probably the best way to get to know a
bank)
o Macro Research Reports: T1 also gives you access to research published by the banks on most
key issues. In December each bank publishes a 100 page “Year Ahead” piece, covering all main
asset classes. This is essential reading.
o Finance Guides: T1 also has some of the guides published by the banks on FX, Commodities etc.
o In-House Research: Finally, T1 gives you access to some of the research that the people
interviewing you likely read on a daily basis (e.g. “Early Morning Reid”, by Jim Reid at DB)
o Finding non-company specific research: within T1, go to “Screening and Analysis”, “Research” and
then (within “More Options”) search for key words or search by contributor

12. ADVICE FROM PREVIOUS YEAR STUDENTS

12.1 MIM2014 Student - UBS IBD Summer Intern

Background:

Germany, MiM2014

2010 – 2013: University of Munich, [Link]. Business Administration, Major Accounting & Finance

Internships with Leonardo & Co. in M&A and Rockpoint Group in PE. Further internships in a start-up, portfolio
management and hotel & entertainment.

IBD Recruiting Experience:

I applied to around 30 banks throughout the month of October. I got interviews with Morgan Stanley, Barclays and
Nomura for summer internships, as well as with UBS, Societe Generale and Bank of Montreal for full-time.

The single most important factor in getting the first round interview was knowing someone at the bank who could
recommend me or whom I could at least mention in my cover letter. You would be surprised how even firms that
are perceived as smaller and maybe less prestigious do not get back to you, unless you have spoken to someone
at the firm. Of course you will probably also get some interviews at places you do not know anyone at, but it is a
key factor. Read the networking part that is talked about above and go ahead in a structured way, it is easier than
you think. The most helpful events in my opinion were the events held at the banks’ offices, which can be found
through their websites.

I used almost exclusively this guide for interview preparation and felt it was more than enough. Preferences are
different however and you should have a look into the various resources you can use.

In interviews, do keep in mind to go in there with a smile and confidence but not arrogance. If the interviewer likes
you, this is a huge benefit. Do not stress too much. Go in there trying to give your best performance on the day and
see how far it takes you. As much as you will hate to hear it, luck plays a big part, but if you are well prepared and
connect with the interviewer your chances are good. Good luck!

12.2 MIM 2014 Student - Morgan Stanley IBD Summer Intern

Background:

Russia, MiM2014

2009-2013 Higher School of Economics + LSE (double degree diploma), BSc Economics and Finance

Internship at Citi, DCM - 6 months; Mars, Finance - 3 months

Recruiting Experience:

I made around 20 applications for summer internships where possible and full-time where not and finished most of
them by the end of October. I got interviews and assessments with UBS, Morgan Stanley, JPM, Citi, Credit Suisse
and RBS. In my opinion it is crucial to talk to someone who is working or interned with the firm to write a good cover
letter and to show you prepared yourself for the interview. It doesn't need to be a senior person; even a former
intern can tell you a lot about the culture of the company beyond the things written on the website. It is also useful
to talk to more senior people. You can reach out to these people through the LBS directory or meet them at banks'
presentations. To show yourself in the best possible way you need to practice and this is only possible if you go to
many interviews. Thus, really pay attention to your applications/CVs/CLs. Even if you do not like the firm, the
interview experience can make it worth applying. Be sure about technical questions, they are all pretty standard.
Talk to you friends and classmates and share the information. All banks ask more or less same questions all the
time. Remember that you and your friends are not competing against each other, rather you are competing with
everyone else and you would be all much better prepared if helping each other. If you will have any specific
questions, feel free to drop me an email ibabakhanova@[Link] Good luck!

12.3 From Consulting to US Investment Bank

Background:

UK – MBA2015
5 years’ experience working for various sized consultancies

Approach and learnings:

 Story: develop your 1-minute escalator pitch/story before you begin networking. Having your story defined
early will help make you stand out to the Alumni and bankers you meet as a candidate who is prepared and
serious about the process.
 Networking: don’t try and show of your technical knowledge during coffee chats. If the interviewer is a
Junior Banker (Associate and even VP) they are very busy and will want to have a relaxed conversation
about the bank, their experience during the interview process and now at the bank rather than a complex
discussion on different valuation methods; if they are a Senior Banker they will ask you technical questions
if they want. In addition, look to network with people where you have a natural fit: people from similar pre-
MBA careers (ex-engineers if you are an engineer) and people from similar backgrounds (e.g. nationality,
education systems). Finally, understand with whom you have built rapport and whom you haven’t. If you
truly build rapport with someone they can be very helpful.
 Treks: attending treks (Finance treks to Asia and New York)can be hugely beneficial even if you don’t want
to work in these jurisdictions as it gives you a safer place to practice your story, ask questions and learn
what makes each bank unique. It also ensures that you get your story and CV sorted early
 Expertise: you don’t need to have chosen what sector you want to join at each bank, however, if the
opportunity arises do build rapport with certain teams and don’t worry overly if it wasn’t the team you were
initially interested in, once you have an offer you can always change.

12.4 From KPMG to Morgan Stanley IBD

Background:

UK, MBA 2012

2008 – 2010: KPMG, Corporate Finance Senior Associate, lead advisor on mid-market M&A deals and
restructurings
2004 – 2008: PricewaterhouseCoopers, Forensic Accountancy and Audit Associate
2002: Merrill Lynch, Intern, Prime Brokerage and Stock Loan trading desks

IBD Recruiting Experience:

Although there are a number of different ways of getting into IBD, in my experience most successful candidates
follow the standard recruitment path from September to January. For me, the most important element in securing a
position was preparation for every interaction with a banker. This really matters. Whilst clearly a poor interaction
can harm your chances of being selected for interview, having strong, effective interactions with bankers through
being prepared will differentiate you across the process.

My hints and tips for preparing for the various stages in the process are shown below:

Networking after bank presentations: The purpose of the networking is for you to find out about the bank and for
the bank to find out about you (and hopefully identify you as a high calibre candidate). Hence before the
presentation, make sure that you have spoken to LBS students who interned at the firm in IBD the previous year.
They will be able to provide a briefing on the firm and its internship structure. If the LBS student received a full-time
offer, then I would tend to mention their name in conversation with bankers at the event to show that you were pro-
active ahead of the session. Knowing deals that the bank has worked on and recent news on the firm will also
help.

Crucially you need to have practised your pitch before the session on your background and why you want to move
into banking. At the event you should then introduce yourself and your background to the bankers. The formal
pitch may not always be appropriate however the key elements of it should be communicated. This sounds
obvious but a lot of people don’t do this and are not remembered by the bankers!

Coffee chats with bankers: Generally you will do these by yourself. Remember that you asked for the meeting,
and so you should plan and outline at the start of the session what you want to cover with the banker. This sounds
like a small task, though this logical organisation and structure will show the banker that you have thought about
the meeting. They will typically like this approach – this logical style is used on the job, and so you are also showing
that you can operate in this manner immediately.

In terms of content I would look to introduce yourself to the banker (do your pitch) first, and then cover the other
topics of interest to you (particular team, part of the bank, market trends etc). Do not be afraid about asking for
other contacts at the end of the meeting if appropriate – if you have made a good impression then the banker may
be willing to introduce you to their colleagues, or other members of the recruiting team.

Other admin points: Take a copy of your CV to the meeting when you are happy with it and it has been reviewed.
Some bankers will ask to see this and again shows preparation.

Interviews: Preparation and practice is the key to success in interviews. I met up with 2 LBS colleagues and
completed a mock interview almost every day from the end of December through to the start of February. There
was absolute honesty on how well people had performed and areas for development. After that amount of time we
had all been exposed to most types of questions. We also held “round table” sessions where we asked each
person in turn a question - we covered technical, competency, and commercial awareness areas in a lot of depth.
Almost every interviewer asked the following key questions. Walk me through your CV, why banking, why our firm.
You need to nail these. If you do though, then that is great as these questions normally come first and so the
interviewer may decide at that time that you are a strong candidate. Most interviewers then covered standard
technical, commercial and competency areas. Hence it is worth spending most of your time on those general
areas, and then spending a smaller amount of time looking into more advanced areas.

If you have a finance background and put a deal on your CV then really, really know the deal. I worked in
Corporate Finance pre LBS and was asked what the expected IRR of a PE investment was. The interviewer then
passed a pen and paper and asked me to prove it through working through the numbers in detail. I was asked if it
was a good deal, what other investments the PE house had made, what the condition of the sector was, likely exit
valuation, likely buyers, considerations for investing in the sector etc. This could have been replicated for any of
the 5/6 deals on my CV so be careful.

You can also direct the interview quite a lot with your responses to open questions. If you have a topic that you
want to talk about in the interview, then consider incorporating this into your answers. Often the bankers will drill
down into the detail you have provided, and so this can be an effective method of directing the conversation.
Similarly do not mention detail that you do not want to talk about – e.g. if you mention that bank

X has worked on 8 out of the top 10 deals in 2010, then it is not unreasonable for the interviewer to ask what those
8 deals were (or at least some of them).

Conclusion
IBD recruiting is tough. There is immense competition and a large number of highly qualified applicants for each
position. Planning for each stage of the process takes a lot of time and effort, however will allow you to differentiate
yourself by interacting with the bankers in a manner which replicates that found on the job.

12.5 From M&A Lawyer to US Top Investment Bank

Background:

European, MBA 2012

M&A Lawyer

Investment Banking interviews for MBA’s with a law background:

Having a law background may be an advantage if you want to pursue a career in investment banking, especially if
you were an M&A or finance lawyer.

As with other career changers, you will have to come up with a convincing story as to why you are willing to leave a
successful career in your law firm for an uncertain career in investment banking.

In interviews, you can emphasise that you love to work on transactions but feel limited by only advising on the legal
side of deals. By getting exposed to M&A or capital markets transactions in your firm, you learnt that Investment
Bankers are the ones who are actually driving these deals. This is what you would like to do as well, as opposed to
writing down whatever the parties agree on, negotiating the nitty-gritty clauses and not being involved in the major
decisions.

Investment Bankers will generally appreciate the fact that you already have transaction experience, know how to
deal with clients and that you are used to the hours. However, they will thoroughly test your quantitative skills. They
know that you are good with words, but there is a widespread prejudice that lawyers are poor when it comes to
numbers. You may therefore get some brainteasers during the interviews.

What they are also looking for is whether you get the basics of corporate finance. Almost all interviews will
therefore involve standard questions about different types of valuations, “walk me through a DCF”, accounting etc.
Some interviewers will want to test you some more on the financial side and will ask detailed valuation questions.
Questions about deal structures are rare, as they will expect you to know this already.

As you do not have a finance background, they really want to test how much you’ve learned about Corporate
Finance, Valuations and Accounting during your MBA. They will not expect you to be a corporate finance expert. It
is however important to get the basics right. In addition, Investment Bankers will try to verify whether you have the
drive to learn more about these topics.

On your CV, make sure that you list some of the most important and high profile deals that you have been working
on as a lawyer. However, expect questions from your interviewer regarding these deals, especially if the bank that
you are interviewing with has been involved in those deals. As Investment Bankers have a different focus than
lawyers, such questions are likely to be about the financials of the deal. Make sure that you know the respective
multiples and have a detailed understanding of the financial structure.

Many lawyers have successfully transferred into Investment Banking. As one interviewer said: “Ex-lawyers make
both the very best and the worst investment bankers. The difference is whether they know how to count”.

12.6 From Natural Resources Corporate to US Top Investment Bank

Background – Australia - MBA 2012:

As a career switcher looking to move into IBD, it was essential that I developed strong financial knowledge and
networked well if I was to gain a summer internship. Even though I had previously worked for 5yrs as an engineer
in oil and gas, having studied finance during my undergrad was helpful in allowing me to converse with bankers
initially.

How you approached the process, from networking to interviews prep:

My early focus was primarily on building my knowledge and technical skills in finance such that I could have more
meaningful conversations with those that I met with over coffee. Although my first contacts within the industry were
of various backgrounds, I asked for referrals to colleagues with similar backgrounds, i.e. nationality / sector, as I
would naturally have more to discuss with them and be able to build a better rapport.

My own background was in natural resources (NR) so to support my strategy I focused my daily reviews of the
Financial Times on NR or similar subject matter, and also kept abreast of developments within financial services.
Tools such as the school library’s Thomsom Reuters database, where I could access deal summaries, were also
helpful in complimenting what I read in the news.

Over time my relatively narrow sector knowledge was re-enforced by what I read and learned from bankers working
in this area, and, relatively quickly I was able to build some expertise and a city wide network in NR.

How your particular background influenced the process (questions you were asked)

My approach was relatively successful and I gained interviews at most banks. Interviews with bankers in NR were
particularly fruitful, but I should have prepared more in terms of general knowledge of different bank departments.

Some particularly challenging interviews included in-depth discussion of wide-ranging subject matter including,
private-equity and FIG, and I could have been better prepared for such instances.

Fit questions were relatively easy once a number of interviews had passed as the repetition made it easy to
remember and tweak your story, i.e. tell me about yourself  why banking  and why us, in a nutshell. I therefore
suggest you form a ‘gorilla group’ to practice with from day 1.

Technical questions within the general finance / valuation context were relatively routine, but again the idea is to
know these cold such that you come across as strong in basic finance and can move on to more challenging
material.

Additionally, throughout the interview stage I took the fairly abnormal step of continuing to meet with people for
coffee chats. If you know your finance material well these chats can be very valuable as they are like interviews
and help to keep you up to date, relaxed and ‘front of mind’ with firms.

Conclusion: Key success factors

I think everyone’s strategy should vary to exploit personal strengths. In my case a sector focus was useful in
developing my finance knowledge and network. It also helped to differentiate myself from other applicants. In
summary some key success factors that I learned through the process were:

 Be sure to start meeting people by mid-September to ensure you are on firm radars early (some make a
decision on who they want very quickly, plus getting started early shows you are committed to the industry)
 Leverage your background and continue to develop areas of expertise / strength that will set you apart from
the competition, and use this to facilitate networking
 Although I pursued a sector ‘expertise’ strategy it is important to remain ‘focused but flexible’ in terms of
which department you would like to join at a firm (especially when speaking to HR or people from other
departments and remembering that some firms may just not be hiring in your sector)
 Work hard early to turn your technical knowledge of finance into an asset (you will need this for your
interviews anyway so learn it early to come across knowledgeable whilst networking)

12.7 From Marketing to GS IBD

Background:

UK - MBA 2012
Three years non-financial experience at a leading marketing strategy and advertising advisory firm.
Pre-MBA internship at large multi-strategy hedge fund.

Approach to the process + learnings:

Approaching the preparation and interview process in a small group is extremely beneficial. If you work with
a few similarly committed people you trust well, you can work closely and learn from each other, ultimately
making each of you stronger. There are enough IBD jobs available that you can be comfortable sharing your
insights with your study group.

Focus on addressing your weaknesses when you are preparing and revising. What are your 'red flags', the
parts (or gaps) of your background and experiences that investment bankers will worry about? Early on, spend time
considering how to best reposition your 'story' to overcome your weaknesses and emphasise the key skills
investment bankers looks for in candidates.

Identify and work on the core concepts and questions that you need to know perfectly as a base level of
knowledge (eg. 'why investment banking?'; 'walk me through a DCF'; 'why this bank?').

Practice mock questions. Repeatedly. Challenge each other with a wide range of difficult questions to make the
real interviews feel easy.

Make sure to focus your efforts efficiently. In general, I experienced a lot more questions on conceptual
corporate finance topics than accounting.

Network intelligently. Always make sure you are extremely pleasant, thankful and succinct when contacting
alumni or other students. You need their help, not the other way around.

Common questions

Knowing your personal story or pitch is crucial as it helps attract the interest of recruiters by driving the conversation in interviews and networking. It enhances your credibility in selling your skills and experiences, making you more believable and capable in selling ideas or projects. This story also demonstrates thoughtfulness in your career choices and illustrates how your background and experiences align with the roles in banking, differentiating you from other candidates .

Knowing the 'house view' of a bank is vital as it shows your awareness of the bank's stance on major market issues, reflecting your understanding and interest in the field. You can obtain this information by reading reports published by the bank, articles in the Financial Times, or research papers available in resources like T1. Being able to reference these views during interviews demonstrates your preparedness and ability to align with the bank's strategic outlook .

The WACC method assumes that the capital structure of the firm remains constant, which is restrictive and does not hold during an LBO when leverage changes. Additionally, it assumes the firm will continue to benefit from tax savings, implying it will be profitable enough to pay taxes. The method also includes the debt tax shield effect but neglects the cost of financial distress, which arises from higher leverage and thus an increased risk of default. Lastly, for conglomerates, calculating a unique WACC is flawed as risks and leverage differ across divisions .

Candidates should ask intelligent, thoughtful questions such as inquiring about the interviewer's background, reasons for choosing their group, or advice for excelling in the role. These questions demonstrate curiosity, preparation, and genuine interest in the position. It's an opportunity to gain insights and reinforce the fit between the candidate and the firm's culture, thus differentiating themselves from other candidates .

Enterprise Value (EV) reflects the total value of a firm, accounting for the present value of all future cash flows generated by its assets, whereas Equity Value only represents shareholders' interest. EV is preferred in valuation because it provides a holistic view of both debt and equity interests, making it particularly relevant when considering mergers, acquisitions, and other scenarios where both sets of claims must be taken into account .

Understanding macroeconomic issues is vital because they directly affect market dynamics and financial instruments, which are core to investment banking operations. Prospective bankers must be able to articulate informed views on these issues, such as equities, interest rates, and different asset classes. Staying informed requires regularly consulting resources like the Financial Times, macro research reports, and analyst assessments to sharpen analytical and evaluative skills .

Tax shields incentivize companies to increase leverage, as they can reduce taxable income and enhance after-tax cash flows. However, more leverage increases financial distress costs, including higher chances of default and bankruptcy, which can outweigh the benefits of tax savings. Therefore, companies must balance the benefits of tax shields with potential distress costs; failing to account for these can jeopardize firm stability .

Challenges include finding committed and diverse teammates, which is essential for gaining various perspectives and enhancing preparedness. Additionally, the recruitment process is lengthy and can be likened to a marathon, requiring sustained effort and focus. Practice through study groups and mock interviews is crucial to developing confidence and effectiveness in interviews, yet coordinating these activities demands significant time and organizational effort .

Demonstrating leadership and initiative is critical because bankers act as independent professionals competing for clients. Associates must have the business judgment to lead analysts without constant supervision from VPs and MDs. Evidencing these qualities, often through anecdotes, shows that a candidate can manage teams and projects effectively, which is important for their future responsibilities as Associates or Analysts .

Interviewers might create a hostile environment to test your confidence, interpersonal skills, and performance under stress. This approach helps them assess how well you can maintain composure, handle pressure, and respond to challenges or adversities, which are crucial traits in the high-pressure environment of investment banking. Handling such situations requires staying calm, composed, and demonstrating your ability to think on your feet .

Investment Banking Resume Guide
100% (1)
Investment Banking Resume Guide
5 pages
Investment Banking Interview Success
No ratings yet
Investment Banking Interview Success
1 page
No. 7 Investment Banking Spring Weeks PDF
No ratings yet
No. 7 Investment Banking Spring Weeks PDF
7 pages
Investment Banking Resume Crafting Guide
100% (1)
Investment Banking Resume Crafting Guide
8 pages
Career Path in Investment Banking
No ratings yet
Career Path in Investment Banking
11 pages
Aditum Venture Capital Fund Overview
No ratings yet
Aditum Venture Capital Fund Overview
2 pages
Family Offices List for 2025
No ratings yet
Family Offices List for 2025
65 pages
SEO London Application Guide for BCC
No ratings yet
SEO London Application Guide for BCC
4 pages
2009-10 Erb Institute Résumé Book
No ratings yet
2009-10 Erb Institute Résumé Book
87 pages
HireVue Insights for Finance Interviews
0% (1)
HireVue Insights for Finance Interviews
18 pages
Investment Banking Cover Letter Guide
No ratings yet
Investment Banking Cover Letter Guide
2 pages
2024 Summer Internship Opportunities
No ratings yet
2024 Summer Internship Opportunities
61 pages
Wall Street Prep Accounting Crash Course
No ratings yet
Wall Street Prep Accounting Crash Course
5 pages
Harshal Badgujar: Finance & Analytics Expert
No ratings yet
Harshal Badgujar: Finance & Analytics Expert
2 pages
IB Interview Guide for Liberal Arts Graduates
No ratings yet
IB Interview Guide for Liberal Arts Graduates
3 pages
Understanding ERC Dividends in Equity
No ratings yet
Understanding ERC Dividends in Equity
62 pages
Investment Banking Networking Guide
No ratings yet
Investment Banking Networking Guide
25 pages
Hedge Fund Dynamics: Pomy vs Yank
No ratings yet
Hedge Fund Dynamics: Pomy vs Yank
3 pages
Crafting a Winning Search Fund PPM
No ratings yet
Crafting a Winning Search Fund PPM
3 pages
MUTIS Finance Society Career Guide
No ratings yet
MUTIS Finance Society Career Guide
18 pages
Comprehensive Investment Banks Directory
No ratings yet
Comprehensive Investment Banks Directory
10 pages
Bank of America Interview Prep Guide
No ratings yet
Bank of America Interview Prep Guide
2 pages
Family Offices: Trends & Forecasts 2025
No ratings yet
Family Offices: Trends & Forecasts 2025
6 pages
McKinsey Meat Processing Case Study
No ratings yet
McKinsey Meat Processing Case Study
14 pages
Kevin Cullen: Senior Banking Executive
No ratings yet
Kevin Cullen: Senior Banking Executive
2 pages
Why Clients Retain Financial Advisors
No ratings yet
Why Clients Retain Financial Advisors
9 pages
London Boutique Investment Banks List
No ratings yet
London Boutique Investment Banks List
4 pages
M&A Analyst Internship Application
No ratings yet
M&A Analyst Internship Application
1 page
Top Hedge Funds Ranked 2023
No ratings yet
Top Hedge Funds Ranked 2023
31 pages
Understanding Placement Agents' Roles
No ratings yet
Understanding Placement Agents' Roles
6 pages
Goldman Sachs Cover Letter Guide
100% (1)
Goldman Sachs Cover Letter Guide
5 pages
White Oak Capital Internship 2025
No ratings yet
White Oak Capital Internship 2025
2 pages
Global Macro PMs and Traders List
No ratings yet
Global Macro PMs and Traders List
3 pages
Office of Career Development CAREER PATH: Investment Banking / Private Wealth
No ratings yet
Office of Career Development CAREER PATH: Investment Banking / Private Wealth
31 pages
Equity Research Internship Guide
No ratings yet
Equity Research Internship Guide
8 pages
Mif FT Class Directory
No ratings yet
Mif FT Class Directory
9 pages
2025 Family Office Investment Insights
No ratings yet
2025 Family Office Investment Insights
25 pages
2022 Investment Banking Work Survey Results
No ratings yet
2022 Investment Banking Work Survey Results
42 pages
Private Equity Recruiting Timeline Guide
No ratings yet
Private Equity Recruiting Timeline Guide
7 pages
Wharton MBA Resume of Cooper Abbott
No ratings yet
Wharton MBA Resume of Cooper Abbott
2 pages
Bajaj Finserv Summer Internship Overview
No ratings yet
Bajaj Finserv Summer Internship Overview
3 pages
Chris Warley's Finance Resume
No ratings yet
Chris Warley's Finance Resume
1 page
Trish O'Donnell: Leading Women 2018
No ratings yet
Trish O'Donnell: Leading Women 2018
29 pages
Investment Banking Career Insights Guide
100% (1)
Investment Banking Career Insights Guide
16 pages
W&M Investment Banking Career Roadmap
No ratings yet
W&M Investment Banking Career Roadmap
7 pages
Finance Resume for Wall Street Oasis
No ratings yet
Finance Resume for Wall Street Oasis
1 page
Investment Banking Pitch for Rocking TechCo
No ratings yet
Investment Banking Pitch for Rocking TechCo
1 page
Key Documents in Hedge Fund Accounting
No ratings yet
Key Documents in Hedge Fund Accounting
4 pages
Transaction Services Manager Resume Example (KPMG) - New York, New York
No ratings yet
Transaction Services Manager Resume Example (KPMG) - New York, New York
5 pages
Internship Report on IPO Process Analysis
100% (1)
Internship Report on IPO Process Analysis
41 pages
Global Infrastructure Partners IV Overview
No ratings yet
Global Infrastructure Partners IV Overview
31 pages
Top Investment Banking Interview Questions
No ratings yet
Top Investment Banking Interview Questions
4 pages
Latin American VC Specialist Proposal
No ratings yet
Latin American VC Specialist Proposal
1 page
Investment Banking Analyst Guide
No ratings yet
Investment Banking Analyst Guide
96 pages
LBS Interview Guide
No ratings yet
LBS Interview Guide
169 pages
Investment Banking Interview Questions and Answers Prep Guide (200 Q&As) Ace Your Technical Questions and Tell Your Unique Story That Will Intrigue The ... Your Background. (Entrepreneur Pursuits)
100% (1)
Investment Banking Interview Questions and Answers Prep Guide (200 Q&As) Ace Your Technical Questions and Tell Your Unique Story That Will Intrigue The ... Your Background. (Entrepreneur Pursuits)
44 pages
Career Paths at UBS Investment Bank
No ratings yet
Career Paths at UBS Investment Bank
47 pages
UBS Investment Banking Overview Guide
100% (2)
UBS Investment Banking Overview Guide
47 pages
Investment Banking 101 How To Break in SAMPLE 1
No ratings yet
Investment Banking 101 How To Break in SAMPLE 1
43 pages
Zimbabwe Tax System: Source of Income
No ratings yet
Zimbabwe Tax System: Source of Income
1 page
Financiamiento y Recursos Públicos
No ratings yet
Financiamiento y Recursos Públicos
7 pages
Dispute Form 1
No ratings yet
Dispute Form 1
1 page
June 2025 Ledger for Nimbus IT Services
No ratings yet
June 2025 Ledger for Nimbus IT Services
2 pages
Mobile Phone Trading Transactions Record
No ratings yet
Mobile Phone Trading Transactions Record
2 pages
Merchant Agreement for E-Payment Services
No ratings yet
Merchant Agreement for E-Payment Services
9 pages
Banking and Finance Professional Resume
No ratings yet
Banking and Finance Professional Resume
2 pages
English Vocabulary with Definitions
No ratings yet
English Vocabulary with Definitions
26 pages
Audit Report Addendum Guidelines
No ratings yet
Audit Report Addendum Guidelines
19 pages
E-Banking Systems and Models Overview
No ratings yet
E-Banking Systems and Models Overview
53 pages
BOI StarConnect Terms and Conditions
No ratings yet
BOI StarConnect Terms and Conditions
10 pages
Recent Current Affairs Quiz Answers
No ratings yet
Recent Current Affairs Quiz Answers
5 pages
Semester Fee Payment Notice 2025
No ratings yet
Semester Fee Payment Notice 2025
1 page
Cloud Lending Solutions Overview - Lending Innovation Starts Here™
No ratings yet
Cloud Lending Solutions Overview - Lending Innovation Starts Here™
16 pages
JIBAR Rate Overview: Dec 2024
No ratings yet
JIBAR Rate Overview: Dec 2024
2 pages
Banking Principles and Practices Overview
No ratings yet
Banking Principles and Practices Overview
75 pages
UCBL Financial Performance Analysis 2025
No ratings yet
UCBL Financial Performance Analysis 2025
78 pages
Filing BIR Form 1707 for Capital Gains
No ratings yet
Filing BIR Form 1707 for Capital Gains
3 pages
Wise Transfer Confirmation for Zain Asim
No ratings yet
Wise Transfer Confirmation for Zain Asim
2 pages
Postal Services Ready Reckoner 2021
No ratings yet
Postal Services Ready Reckoner 2021
162 pages
HDFC Ac Plan
No ratings yet
HDFC Ac Plan
32 pages
Liste des entreprises CFC 2016
100% (1)
Liste des entreprises CFC 2016
4 pages
Banking Sector Analysis Report
No ratings yet
Banking Sector Analysis Report
27 pages
Kiavi Broker Program Overview
No ratings yet
Kiavi Broker Program Overview
2 pages
Partnership Admission and Retirement Guide
No ratings yet
Partnership Admission and Retirement Guide
8 pages
RBI Guidelines and Regulations Overview
No ratings yet
RBI Guidelines and Regulations Overview
50 pages
NPA Study of State Bank of India
No ratings yet
NPA Study of State Bank of India
74 pages
Payment and Settlement Systems in India
No ratings yet
Payment and Settlement Systems in India
3 pages
BajajPay Transactions Statement
No ratings yet
BajajPay Transactions Statement
1 page
Term Debt Analysis of Everest Bank Ltd
No ratings yet
Term Debt Analysis of Everest Bank Ltd
39 pages