INTERVIEW QUESTIONS
This is a list of potential questions. Different firms will ask different questions and will put different emphases on your answers.
Be prepared for as much as you possibly can, but remember, you cannot prepare for every eventuality. Banks are always trying
to come up with new questions to throw you off.
Sample questions:
Your background - Tell me about yourself
Tell me about yourself? Walk me through your resume.
Why did you choose the college you attended? What other colleges did you consider? If you changed school, why did
you transfer?
Why did you choose the job you did after college? If you changed jobs, why?
What did you like and dislike most about your last job?
Why did you decide to come back to business school? Why did you choose SOM? What other B-schools did you
consider and/or apply? Where else did you get in? How did you make your choice?
If you knew you wanted to do finance, why did you come to SOM?
What do you dislike about SOM? What would you change?
Banking interest and knowledge
Why do you want to do investment banking? Why not sales and trading, PCS, or private equity?
What do you think investment bankers do? Specifically, what do you think investment banking associates do?
What three traits do you think make a good associate?
How do you feel about New York/Charlotte/San Francisco/(wherever you are applying if location specific)?
What group or product do you think you would be most interested in?
Academic and school-related
What is you GMAT? SATs? Undergraduate GPA?
What has been your favorite or least favorite class at SOM? Why?
What has been the toughest class at SOM? Why?
How kind of quantitative skills do you have? Prove it?
What would your teammates say about you? What would they say are your biggest strengths and weaknesses?
Technical/quantitative questions
How do you value a company? Describe different valuation methodologies?
Discounted cash flow models (WACC and APV). Lead me through a DCF valuation? What is Free Cash
Flow and how is it calculated? How does it differ from Cash from Operations?
Free Cash Flow:
Net income
Plus: depreciation and amortization
Add: after tax interest expense (shield)
Change in working capital
Less: capital expenditures
= Free cash flow
What would you use for a discount rate for a company? (Answer: WACC (weighted equity rate plus weighted after-tax
rate of debt), Risk adjusted rate (equity only for ventures))
How do you calculate WACC? (Answer: WACC = equity weight * re + debt weight * rd * (1-t))
Comparables/Multiples. What is the average P/E ratio of the S&P 500? Is Microsoft's P/E higher or lower? What is
it? Is Kellogg's P/E higher or lower? What is it? Why is that? Would the analysis be the same for Cisco?
Ford? United Airlines? (Note: company names can be anything, you may bring up some of your own.)
(Answers: For the S&P, about 27x, Microsoft, about 50x, Kellogg, about 16x, Internets, about infinity (no
earnings), Note: check these they change all the time.)
Microsoft is regarded as a growth stock and growth stocks are defined as those that have higher
prices relative to fundamentals such as earnings or EBITDA.
Growth stocks would have a higher P/E than the S*P500. Value stock would have a lower.
High P/E associated with stocks that are anticipated to have a higher growth in earnings.
What kind of multiples would you use to value a company? What are some reasonable ranges? (Answer:
Revenue/Total Market Cap ~1-3, EBIT or EBITDA/Total Market Cap ~6-20, Net income ~20, Price/Book
Value ~1-2)
Is EBITDA to total value a useful multiple? What about Net Income to total value? Why? (Answer: Enterprise value
should be used for any financial results above the interest line, after that, equity value should be used.)
Enterprise Value is divided by sales or EBITDA to ascertain the multiple.
Equity Value is divided by Net Income to ascertain the multiple.
Name a company that you know. What does the balance sheet look like? How is it different than a typical
manufacturing company? Internet company? (Answer: Pick any company)
How would you value a company without earnings, i.e., tech stocks?
What are all the differences among the methods (advantages, disadvantages, when would you use cash)?
Discuss the inter-relationships between the Balance Sheet, Income Statement, and Cash Flow Statement.
Where do I find Capital Expenditures on the Income Statement?
If Accounts Receivable goes up during the period, how does that impact cash? (Hint: is this a source or use of cash?)
Walk me through the major items on a Statement of Cash Flows. What are the first three items on a Statement of Cash
Flows? (Answer: Net income, depreciation and amortization, add backs)
Why doe cash flow matter? (Answer: Changes in accruals.)
What is the difference between cash and accrual accounting? (Answer: Cash only includes cash that comes in or out,
accrual includes payables and receivables (the matching principal).)
What are the first three lines of an Income Statement?
Is depreciation an expense? Is depreciation a source or use of cash? Why do you add back depreciation expense?
What is book value? (Answer: Assets minus liabilities)
What are the different profit margins? What is the difference between gross profit and gross profit margin? (Answer:
Value versus percentage.)
Would I offer to buy a company at its current stock price? (Answer: Usually not, because there is usually a control
premium above and beyond the current value of the stock.)
How would you value a stock you were about to buy? What sources of information would you use to analyze a
company or comparable company?
I am looking at two companies - an oil/gas company and a consumer products company - how do I look at them
differently in terms of debt capacity?
What is the difference between enterprise and equity value? (Answer: Enterprise value is the value available to both
the equity and debt holders (equity value plus net debt) - use with revenue, EBITDA, EBIT, Equity value is the value
of the company available to the equity holders (equity market value) - use with net income, book value (which is
equity value on the books))
What is the current market risk premium? Risk free? (Answer: Risk free rate - benchmark treasury...@ 6%, Market
risk premium - @ 7.5%)
Who is Alan Greenspan? What does he do? (Answer: Chairman of the Federal Reserve. Sets monetary policy (ie:
discount lending rate).
Where did the Dow or NASDAQ close recently? (Answer: Look this up before you interview.)
What is a 10K? What is a 10Q?
What is the formula for CAPM? (Answer: Re = risk free rate + beta * market risk premium)
What is a Beta? How do you unlever it? (Answer: Beta is a measure of variability between a stock and the market -
actually the covariance of a security with the market divided by the variance of the market.) Assume a debt beta of
zero, use the debt/equity relationship to derive the equity beta using the asset beta.
If a company with a P/E of 20 acquires a company with a P/E of 15 with stock, is the transaction accretive or dilutive?
Explain.
The transaction is accretive to the buyer because its cost of equity is lower. See attached spreadsheet.
What are some characteristics of an LBO?
What is the lifecycle of an IPO?
What is EBITDA? Why is it important?
What are some major differences between pooling and purchase accounting?
| Purchase: |
Pooling: |
| Assets are written up |
Combination of balance sheets |
| Goodwill is usually not tax deductible |
No goodwill |
|
Must meet 12 criteria |
|
Assumes companies have always been together |
What is the difference between a stock purchase and an asset purchase?
| Asset Purchase: |
Stock Purchase: |
| More favorable to the BUYER (goodwill is deduct.) |
More favorable to SELLER |
| BUYER can choose assets and liabilities to assume |
Goodwill to buyer is not tax deductible |
| Seller must pay taxes on gains when sold |
All liabilities are passed on to buyer |
What do you think of the economy and interest rates?
How does the government raise interest rates? (You may get a macro question like this.)
Lets say that I have a bond with a 5% coupon, what happens to the market price when the prevailing interest rates rise
to 8%? How are the coupons affected? (Answer: Price in the market of the bonds will fall to make up for the lower
coupon. The actual coupons do not change at all.)
Which corporate bond would have a higher coupon, a AAA or a BBB? What are the annual payments received by the
owner of a five year zero coupon bond? (Answers: BBB would have the higher coupon. There are no annual payments
on a zero.)
Would you rather have $____ today or $1 a day for the rest of your life? How would you go about valuing this
amount. (Basically, a time value of money question.)
Consulting-like brain teasers, i.e.:
How many ping pong balls can you fit in a 747?
If it is 3:15, what is the angle measurement between the hour and minute hand?
The painted cube.
Holly's driving question.
