Investment banking interview questions: the complete guide

In this article

1. Start here: the learning path
2. What investment banking interviews test
3. What are the three statements and how do they connect?
4. What is a DCF and how do you walk through one?
5. The topics to master
6. Questions interviewers ask on investment banking
7. All 10 guides in Investment banking
8. Follow-up questions
9. Sources

Start here: the learning path

Study the technical material in the order below, because each topic uses the one before. Fit questions run alongside, not after.

Investment banking

Investment banking is the business of advising companies on raising capital through debt or equity offerings and on mergers, acquisitions and restructurings, and of executing those transactions.

Three-statement model

A three-statement model is a forecast that links a company's income statement, cash flow statement and balance sheet so that a change in one flows through the other two and the balance sheet still balances.

Discounted cash flow

A discounted cash flow, or DCF, is a valuation method that forecasts a company's free cash flows, discounts each back to today at a required rate of return, and adds a terminal value for the years after the forecast.

Enterprise value

Enterprise value is the value of a company's operations to all of its capital providers, equal to the equity value plus net debt, preferred stock and minority interest, and is what a DCF of unlevered free cash flow, discounted at the cost of capital, produces.

Terminal value

Terminal value is the estimate of what a business is worth at the end of the explicit forecast period, commonly the final year's cash flow grown at a stable rate and divided by the discount rate minus that growth rate.

Text description of the diagram

• The path has five technical steps from accounting basics to deals.
• The three statements come before valuation because a DCF uses free cash flow.
• Fit questions run alongside the technical steps.

1. Accounting basics. The accounting equation and what each statement reports.
2. The three statements. How one change moves through all of them.
3. Valuation multiples. What each multiple measures and when it fails.
4. The DCF. Free cash flow, discount rate, terminal value.
5. Markets and deals. How offerings and acquisitions work.

Alongside all five: fit and your story, meaning why banking, why this team and your walk-through.

1. How do you answer three-statement walkthrough questions?
2. Investment banking technicals on accounting, valuation, WACC and a paper LBO
3. Walk me through a DCF: how to answer it step by step
4. Valuation multiples and when each fails
5. Financial analyst interview questions: the complete guide
6. Paper LBO interview questions, worked
7. Private equity interview questions: the complete guide
8. Accounting technicals for IB: what to know and say
9. How to answer markets & deals questions in investment banking interviews

What investment banking interviews test

Investment banking interviews test technical fluency and fit in the same conversation. Technical questions cover accounting, the three statements, valuation, the DCF and, for some roles, leveraged buyouts. Fit questions cover why banking, why this team, and your own story, told as a two-minute walk-through of your background; the behavioural interview guide shows how to structure those answers.

A public map of the knowledge is the licensing exam for investment banking representatives. The Financial Industry Regulatory Authority (FINRA) Series 79 page describes 75 multiple-choice questions in 2 hours 30 minutes, split into three functions: collection, analysis and evaluation of data (37 items), underwriting and new financing transactions (20 items), and mergers and acquisitions, tender offers and restructuring (18 items) (FINRA, read October 2026). The exam is a registration requirement, not an interview, but its weights show where the industry puts its attention: data analysis is about half.

What are the three statements and how do they connect?

The three statements report different things about the same company. The U.S. Securities and Exchange Commission (SEC) beginners' guide says a balance sheet shows assets, liabilities and shareholders' equity at one moment, an income statement shows revenue earned over a period down to the "bottom line", and a cash flow statement reports cash inflows and outflows across operating, investing and financing activities (SEC, reviewed February 2017). The accounting equation is assets equal liabilities plus shareholders' equity.

The classic interview question asks what happens when depreciation rises by 10 with a 30% tax rate. Work it in this order ¹:

1. Income statement. Pre-tax income falls by 10. Tax falls by 3, so net income falls by 7. Depreciation of 10 at a 30% tax rate lowers net income by 7.
2. Cash flow statement. Start from net income of minus 7 and add back the non-cash depreciation of 10, so cash rises by 3 (the tax saving).
3. Balance sheet. Property and equipment fall by 10 and cash rises by 3, so assets fall by 7. Retained earnings fall by 7, so equity falls by 7 and the sheet balances.

Text description of the diagram

• Depreciation of 10 at a 30% tax rate lowers net income by 7.
• Cash rises by 3 because depreciation is added back and tax falls by 3.
• Assets fall by 7 and equity falls by 7, so the balance sheet balances.

The numbers are illustrative, in abstract currency units. The pattern is what interviewers want: say the income statement effect, the cash flow adjustment, then the balance sheet, and check that assets equal liabilities plus equity.

What is a DCF and how do you walk through one?

A DCF values a business as the present value of the cash it will produce, in four steps: forecast free cash flow, choose a discount rate, estimate a terminal value, and discount everything to today. Free cash flow here means the cash a business generates after the investment it needs to sustain and grow, available to all capital providers.

Which discount rate, and why does levered versus unlevered matter?

The discount rate is usually the weighted average cost of capital (WACC), the blended return that the company's lenders and shareholders require, weighted by how much each supplies. One distinction decides what the answer means. Unlevered free cash flow is cash before interest payments, so it belongs to lenders and shareholders together; discounted at WACC it gives enterprise value. Levered free cash flow is cash after interest, so it belongs to shareholders only; discounted at the cost of equity it gives equity value directly. Mixing the two, for example discounting levered cash at WACC, is a common error. The example below uses the unlevered form.

A worked five-year DCF

Worked example, illustrative ¹: free cash flow of 100 today, growing 10%, 8%, 6%, 4% and 3% over five years, gives 110.0, 118.8, 125.93, 130.97 and 134.89. At a 10% discount rate the present values sum to 466.0. The terminal value uses a stable growth rate of 2.5%: 134.89 times 1.025, divided by the 7.5% difference between the rates, is 1,843.55, which discounts to 1,144.7. Enterprise value is 466.0 plus 1,144.7, or 1,610.7. To get equity value, subtract net debt. Dividing equity value by the diluted share count gives the implied share price, which an interviewer will then compare with the market price.

Why does the terminal value carry most of the value?

The terminal value is 71.1% of enterprise value in this example ¹, because it capitalises every year after the forecast and divides by the small gap between the discount rate and growth. Damodaran's slides state that the stable growth rate cannot exceed the growth rate of the economy, though it can be lower (New York University (NYU) Stern, Session 9 slides). Changing the discount rate from 9% to 11% and growth from 2.0% to 3.0% moves enterprise value between 1,361.2 and 1,983.6 in this example ¹, so say that a DCF gives a range, not a point.

Text description of the diagram

• Present values of the five yearly cash flows sum to 466.0.
• The present value of the terminal value is 1,144.7.
• Enterprise value is 1,610.7 and the terminal value is 71.1% of it.

What is the exit multiple method?

The exit multiple method estimates terminal value by applying a multiple, such as enterprise value to earnings before interest, taxes, depreciation and amortisation (EBITDA), to the final forecast year's metric, using multiples at which comparable companies trade. Damodaran's slides cover both the stable-growth formula and the multiple-based approach (New York University (NYU) Stern, Session 9 slides 3-4). A good answer states both and cross-checks them: the growth rate implied by an exit multiple should look sensible, and the multiple implied by a growth rate should resemble what comparable companies trade at.

The topics to master

Each topic below comes with its usual question, its mechanism and its trap.

Three-statement walkthrough questions

The walk-through question asks what happens to the three statements when one thing changes, and the answer is always told in the same order: income statement, cash flow statement, balance sheet. Depreciation is the standard first case, but interviewers also use inventory build-up, a debt repayment and an acquisition. Each case has a different trap. For inventory, profit does not move but cash falls.

For a debt repayment, cash and liabilities fall together and net income is unchanged apart from lower interest. For an acquisition, goodwill appears on the balance sheet. The trap in every case is forgetting that net income starts the cash flow statement, so a non-cash charge must be added back. Practise saying the check aloud: assets equal liabilities plus equity.

Valuation multiples and when each fails

A multiple compares a value to a metric, and the interview question is rarely "what is it" but "when would you not use it". Enterprise value to EBITDA suits comparing companies with different debt, because both sides ignore financing. Price to earnings fails when earnings are negative or when debt levels differ, since earnings are measured after interest. Enterprise value to revenue is used for unprofitable growth businesses, with caution, because revenue says nothing about margins. The trap is quoting a multiple without naming the comparable companies and the date, since a multiple is only as good as the peer set behind it.

Accounting technicals

Accounting technicals are the short, rapid-fire questions that test whether the basics are automatic: where a payment appears on each statement, what goodwill is, how deferred revenue behaves, and why a company can show a profit and still run out of cash. The last one has a clean mechanism: profit is recorded when earned, cash arrives when collected, so fast growth that is paid for late consumes cash before it returns. Give the one-line answer, then a small number, then the statement it appears on. The usual trap is answering with a definition and no example. Interviewers use these questions to filter quickly, so speed and accuracy count more than depth here.

Walk me through a DCF

Walk me through a DCF is a very common valuation question, and it calls for a spoken answer of about two minutes: forecast unlevered free cash flow, discount at the weighted average cost of capital (WACC), add a terminal value, sum to enterprise value, subtract net debt for equity value, and divide by shares for a price. A strong answer adds the sanity checks interviewers expect: is the growth rate below the economy's, does the terminal value share look reasonable, and does the implied exit multiple match comparable companies. The trap is reciting steps without naming what each assumption does to value, so practise stating the sensitivity as well.

Markets and deals questions

Markets and deals questions cover how an equity offering is priced and sold, how a merger changes ownership and earnings per share, and what a restructuring is, which maps to the second and third FINRA functions. The mechanism for accretion and dilution is the usual centrepiece: compare the acquirer's earnings per share before and after, given how the purchase is paid for, in new shares, cash or debt. A deal paid with cheaper financing than the target's earnings yield adds to earnings per share; a costlier one reduces it. The trap is ignoring the financing, so always state how the deal is paid for before giving a verdict.

Leveraged buyout and paper-LBO questions

A leveraged buyout (LBO) is an acquisition financed mostly with debt. A paper LBO is a mental-maths exercise: assume a purchase price, a debt share and a growth rate, then estimate the investor's return in five years without a spreadsheet, using the same compound-growth arithmetic as the case math drills. The trap is jumping to the return before laying out sources and uses of funds, which is the table that shows how the purchase is financed.

Questions interviewers ask on investment banking

Questions come in four families: accounting and statements, valuation, deal mechanics, and fit. These are frequent ones, each with a one-line answer in our own words.

Accounting and statements

1. Walk me through the three statements. The income statement shows profit over a period, the cash flow statement shows cash in and out, and the balance sheet shows assets, liabilities and equity at one date; net income links the first two, and cash links the last two.
2. What happens if depreciation rises by 10? Net income falls by 7 at a 30% tax rate, cash rises by 3, assets fall by 7, and equity falls by 7.
3. Why can a profitable company run out of cash? Profit is recorded when earned, cash when collected, so growth funded by late-paying customers or inventory consumes cash.

Valuation

1. Walk me through a DCF. Forecast unlevered free cash flow, discount at the cost of capital, add a terminal value, and subtract net debt from enterprise value to reach equity value.
2. How do you choose the discount rate? Use the weighted average cost of capital, built from the after-tax cost of debt and the cost of equity weighted by their shares of funding.
3. Why is terminal value so large? It capitalises every year after the forecast, and the formula divides by a small number, the discount rate minus growth.
4. What is the difference between enterprise value and equity value? Enterprise value is the operating business; equity value is what remains for shareholders after net debt.
5. Which multiple would you use and when does it fail? Pick the multiple whose metric matches the business, and say that it fails when the metric is negative or the peers differ.

Deals

1. How does an acquisition affect earnings per share? It depends on the financing: cheaper funding than the target's earnings yield adds to earnings per share, costlier funding reduces it.
2. What is a leveraged buyout? An acquisition financed mostly with debt, where the investor's return comes from paying the debt down and growing the business.

Fit

1. Why investment banking? Give a specific reason tied to your own experience, then link it to this team.
2. Walk me through your resume. Tell a two-minute story that ends at why you are in this room.

Prepare a two-minute story, and use the questions to ask the interviewer page for the end of the round. The interview loops guide shows how rounds are structured in general, and the quantitative finance interview guide covers the probability and expected-value maths behind the brainteasers some firms use.

Follow-up questions

How do I answer investment banking interview questions?

Answer in three steps: the one-line answer, the mechanism with a small number, and the caveat. Say the numbers aloud and check that the balance sheet balances.

How do I prepare for an investment banking interview?

Learn the accounting equation, drill the three-statement walk-through until it is automatic, build one DCF by hand, and prepare your story and your reasons for banking.

What questions should I ask in an investment banking interview?

Ask about recent announced or closed deals, how analysts are trained, and what the first six months involve. Avoid questions the firm's website answers.

What is the difference between levered and unlevered free cash flow?

Unlevered free cash flow is cash before interest, so it belongs to lenders and shareholders together and, discounted at the weighted average cost of capital, gives enterprise value. Levered free cash flow is cash after interest, belongs to shareholders only and, discounted at the cost of equity, gives equity value.

What happens to the three statements when depreciation rises?

Net income falls by the depreciation times one minus the tax rate, cash rises by the tax saving, assets fall by the after-tax amount, and equity falls by the same. The sheet still balances.

Sources

1. Beginners' Guide to Financial Statements — U.S. Securities and Exchange Commission, 6 Feb 2017
2. Series 79 - Investment Banking Representative Exam — FINRA, 24 Oct 2026
3. Session 9: Terminal Value (Getting Closure in Valuation), course slides — NYU Stern (Aswath Damodaran), 12 Dec 2013