Investment Banking Interview Questions
Real investment banking interview questions, organized the way the interviews actually run: accounting first, then valuation, DCF, LBO, M&A, and markets. Every question comes with the context interviewers are listening for and the mistakes that sink most answers. All of it comes from the IB Atlas curriculum, free to read.
125 questions
across the curriculum
8 topics
accounting to markets
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These are general educational practice prompts. They are not actual, confidential, leaked, or firm-provided interview questions, and the explanations should be checked against original learning materials before you rely on them.
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- Maintenance vs Incurrence Covenants, Explained
- What is the difference between Term Loan A and Term Loan B in terms of buyer base, amortization, and covenant package?
- Define control premium and write the formula. Against which share price should it be measured, and why?
- Interest Coverage vs Fixed Charge Ratio (FCCR), Explained
- Walk me through a debt schedule from free cash flow to ending debt balances. Name each step in order.
- What happens to the target's existing goodwill and its historical equity accounts on the pro forma balance sheet, and why?
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Reading for this topic: Accounting terms study guide
- Walk me through the three financial statements: what does each one measure, and over what time frame?
- What is the difference between COGS and SG&A? Give two examples of costs that belong in each for a manufacturing company.
- Walk me through the balance sheet: what are the major sections and how are line items ordered within each?
- Walk me through the cash flow statement: what does each of the three sections capture, and what's the overall purpose of the statement?
- Explain the three hard linkages between the three financial statements.
- Why does cash increase, not decrease, when depreciation increases, assuming a positive tax rate?
- What is the cash conversion cycle, and how is it calculated from DSO, DIO, and DPO?
- What is deferred revenue, which side of the balance sheet does it sit on, and why?
- Explain FIFO and LIFO. In a period of rising prices, which method produces higher reported net income, and why?
- What is PP&E, and why must its cost be spread over time via depreciation rather than expensed immediately?
- Is goodwill amortized under current US GAAP/IFRS? How is it tested and adjusted over time?
- Timing, Consumption, and Write-Downs, Explained
Reading for this topic: the full IB Atlas guides library
- Cash Subtracted From Enterprise Value, Explained
- Why is minority interest added to enterprise value? Anchor your answer in consolidation accounting and the consistency of EV/EBITDA.
- Why is EV/EBITDA considered capital-structure neutral, while P/E is not?
- Why do you normalize a peer's EBITDA for one-time items before computing its multiple? Give two specific examples of items you'd adjust for.
- Define control premium and write the formula. Against which share price should it be measured, and why?
- Why is Equity Value/EBITDA never a valid multiple? Use the claimholder-matching logic to explain, not just 'it's not done.'
- Trading Comps vs Precedent Transactions, Explained
Reading for this topic: the full IB Atlas guides library
- Walk me through a DCF from start to finish in under two minutes.
- Interest Expense and Unlevered FCF, Explained
- Explain why beta measures only systematic risk and not total risk. Why is that the economically correct thing for CAPM to price?
- Explain why the cost of debt is tax-affected but the cost of equity is not.
- Gordon Growth vs Exit Multiple, Explained
- Why does cash flow actually arrive throughout the year rather than as a lump sum, and how does mid-year convention approximate that reality?
- Explain why an LBO ability-to-pay analysis typically forms the floor of a football field. What two constraints cap the sponsor's price?
Reading for this topic: Leveraged finance terms study guide
- Explain why debt paydown is a real source of equity value creation even when it requires no operational improvement to the business at all.
- Why must total sources equal total uses in an LBO, and is this an accounting identity or a real economic constraint? Explain the difference.
- What is the difference between Term Loan A and Term Loan B in terms of buyer base, amortization, and covenant package?
- Describe the mechanical flow of an LBO operating model from revenue down to levered free cash flow, naming each line item in order.
- Walk me through a debt schedule from free cash flow to ending debt balances. Name each step in order.
- Define IRR and MoIC. Which is time-weighted, and why does a fund need to look at both?
- Using the MoIC-to-IRR approximation, roughly what IRR corresponds to a 2.5x MoIC over 5 years? A 2.0x MoIC over 3 years?
- Interest Coverage vs Fixed Charge Ratio (FCCR), Explained
- Management Rollover as a Funding Source, Explained
- LBO Returns: Organic Growth vs Arbitrage, Explained
- Explain why debt paydown increases equity value even though enterprise value is unchanged by it.
- Why is an LBO analysis described as the 'floor' of a valuation football field, and what does the analysis actually solve for?
- Why does IRR rise for the same MoIC when the hold period shortens? Use the 2.0x/5-year and 2.0x/3-year benchmarks in your answer.
- Credit Stats as Forward-Looking LBO Tools, Explained
Reading for this topic: M&A terms study guide
- Bolt-On Acquisitions, Explained
- Why is 'this deal is accretive' not the same statement as 'this is a good deal'? Give a one-sentence explanation an MD would accept.
- Financing Mix and Pro Forma EPS, Explained
- Costs to Achieve in M&A, Explained
- What happens to the target's existing goodwill and its historical equity accounts on the pro forma balance sheet, and why?
- DTL Creation in a Stock Deal, Explained
- Explain why the target's historical equity accounts are eliminated on the pro forma balance sheet rather than combined with the acquirer's.
- The P/E Arbitrage Rule, Explained
- Walk me through a two-stage sell-side auction process from engagement to closing, naming the key documents at each stage.
- The Poison Pill Defense, Explained
- The Accretion/Dilution Formula, Explained
- Explain why signing and closing are separate events, and name at least three things that can change in a model's assumptions between them.
Reading for this topic: Breaking into debt capital markets
- Explain the difference between a normal, flat, and inverted yield curve, and what each shape typically implies about market expectations.
- Explain why higher interest rates compress valuations not just for leveraged buyers but for strategic acquirers and public equities as well.
- Maintenance vs Incurrence Covenants, Explained
- Walk me through the IPO process from mandate to first trade, naming each major milestone in order and the purpose of each.
- IG Bonds vs Term Loans vs Equity, Explained
- Chapter 7 vs Chapter 11, Explained
- Valuation Multiples by Sector, Explained
- Pitching a Short Thesis, Explained
- The Two-Minute Deal Pitch, Explained
- Why does the equity of a deeply distressed company still trade above zero even when the firm's debt clearly exceeds the value of its assets?
- EBITDA From Net Income, Explained
- Earn-Outs in M&A, Explained
- Levered vs Unlevered Beta, Explained
- Inverted Yield Curves and Recessions, Explained
- Walk me through the three financial statements and, in one sentence each, how they connect.
- Walk me through an LBO in under a minute: what happens, why leverage amplifies returns, and the three drivers of the sponsor's return.
- The Critical Path of a Timed LBO, Explained
- Tax-Affecting Synergies in Accretion Math, Explained
- Boutique vs Bulge Bracket, Explained
- Recognition vs Recall in Interview Prep, Explained
- Why must you use market-value D/E rather than book D/E when re-levering beta?
- The 10-year Treasury yield rises from 4% to 5%. In one causal chain, connect that move to M&A and LBO deal volume.
- 'Why our boutique specifically, and not a bulge bracket?' What are the substantive, non-generic points a strong answer hits?
Reading for this topic: Breaking into restructuring investment banking
Interviewers also ask about real transactions: the deal case studies cover the landmark deals with the answer you would actually give.