How to crack your first investment banking interview in 2022

Investment advisory professionals enjoy an intriguing reputation. 

They are viewed as quick-thinking, sharp-minded individuals with an affinity for creating incredible money-making opportunities. While that assessment is accurate, people don’t see the hard work, intensive training and the constant hustle to seal every deal. 

Investment services play a significant role in India’s economic development. They help raise capital for corporations, enable individuals to increase their net worth and support monetary growth in the country. It is a rewarding profession with high salary packages and incredible perks. 

If this is your calling in life, you might need some advice to get started. The first step is to register for an investment banking certification (a PGCM course is recommended). Second, apply for entry-level job openings. Next, ace your interview round. 

Once you’ve accomplished the above, you are ready to embark on your professional journey as a professional in investment banking. Here are some tips and tricks to help you adequately prepare for your first interview. 

Commonly asked investment banking interview questions

Here are some potential Questions a recruiter could ask you. It always helps to prepare some answers in advance to present yourself as knowledgeable and articulate.

How would you arrive at a valuation for a company? 

There are three popular methods:

  • Comparable company analysis: you use the valuation of other similarly sized organizations to derive an estimate for the company.
  • Precedent transaction analysis: you look at the previous examples of mergers & acquisitions to arrive at an accurate value for the organization. 
  • Discounted cash flow analysis: you appraise the company’s worth based on future cash flow projections.

How would you describe monetary policy?

Monetary policy is a procedure where the government-controlled bank regulates the nation’s money reserves to enable a faster-growing economy. It controls interest rates, cash supply and other factors that affect the country. 

How does it help a company to get listed on the stock exchange? 

There are many benefits. The listing helps the company get an accurate valuation. It also helps to raise capital by selling stocks. Some investors prefer to work with listed corporations. Going public also helps the corporation raise its brand profile to become more credible. 

Define ‘PEG ratio’ 

PEG is short for ‘Price/Earning: growth’. It is a ratio that explains how fast an EPS (earning per share) grows. High-value stocks will get elevated PEG ratios and vice versa. 

What are the three types of synergies in mergers and acquisitions?

Revenue synergy: 

When two companies merge, their combined revenue is higher than their previous, separate revenues. This happens because the opportunity to sell more products or services increases exponentially.

Cost synergy:

A merger or an acquisition helps a company cut costs by combining infrastructure and expenses. It leads to other cost reduction measures such as downsizing staff and closing non-profitable branches. 

Financial synergy:

In some cases, after a merger, a firm can be entitled to various funding sources and lower interest rates as its new net worth is higher than before. 

How would you work on a mergers & acquisitions project?

  • Research the companies shortlisted for acquisition and then narrow them down based on the data
  • Hold multiple meetings to gauge the mindset of the company
  • Derive an offer price based on the research findings
  • Begin a round of negotiations that culminate in a final purchase 

What are the three financial statements used in investment banking?

The three statements are:

Balance sheet: an overview of the assets and liabilities 

Income statement: a summary of the profits over a duration of time

Cash flow statement: tracks the flow of cash in various departments

What formula would you use to calculate the cost of equity?

The most popular approach to calculating equity cost is to use the ‘capital asset pricing model’ as it is more reliable than other methods.

The CAPM formula is:

The cost of equity = Risk – free rate + betas × market-risk premium

Can you explain the meaning of a ‘fairness opinion’?

An independent third party provides an unbiased appraisal of an M&A deal to ensure the ongoing transaction is fair and ethical. 

Why is the cost of debt lower than the cost of equity?

With the cost of debt, you are eligible to receive tax deductions. Debt is cheaper because the payment of the interest is considered an expense. The interest rates are also less expensive than with equity. Debt is preferred to equity, especially in dire cases as debt holders stand to recover their money before the equity holders. 

2022 trends that will impact capital markets, investment banking, etc

(In case they come up in your interview)

AI applications

Investment banks are incorporating artificial intelligence to enhance their day-to-day operations. The benefits include upgraded customer service, automated risk calculations and cost reductions.

SaaS models

Software as a service (SaaS) is the next emerging trend in the finance industry. By using the cloud infrastructure, data is accessed across different devices and locations. More and more investment companies will adopt these high-tech methods to run their businesses seamlessly and efficiently. 

Data analytics 

Big data plays a key role in investment advisory services, as financial companies use AI applications and cloud-based technology. The future of investment banking will be shaped by analytics. The findings help govern the decisions and predictions made in the financial markets. 

Sustainable finance 

The investment industry is gearing toward funding environmentally conscious businesses that use renewable resources. 

Governments are issuing new regulations to protect social and ecological conditions. The financial markets will follow suit and adjust standard investment criteria accordingly.

5 skills that will enhance your investment career 

An ability to work under pressure

Investment bankers can see the calm in the chaos. They have tunnel vision as their eyes are always on the target, even if challenges obstruct their viewpoint. If you can keep your cool in a fast-paced environment and still make good decisions, congratulations, you are hired.

Excellent networking skills 

Your ability to build connections and close relationships will play an instrumental role in your success as an investment banker. Can you walk into a room and convince potential clients to make the right investment choices? Are you able to forge strong associations with other industry professionals? If yes, you’ll go far in your career.

Strong analytical skills

Qualified investment advisors know a good deal when they see one. Their training and expertise allow them to scrutinise every possible avenue with a critical eye and arrive at conclusions that will benefit their clients. 

Awareness of industry trends 

Can you keep your pulse on the market and one ear on the latest developments? Successfully professionals are always one step ahead of the crowd. They can make thoughtful predictions based on emerging industry trends. 

Technical knowledge and skills 

Certified professionals have a firm grasp of investment concepts, industry knowledge and real-world financial skills. They will be able to convert their expertise into results. 

Proschool’s PGCM in investment banking & capital markets 

This innovative and meticulously designed course is perfect for bright students keen on joining the investment industry. Most MBA programs focus on general management in the first year and job-centric subjects in the second. However, with PGCM, you learn the relevant and detailed information directly in year one. The syllabus contains a well-balanced mix of in-depth theoretical concepts and real-world practical applications. 

Here are some of the features: 

  • The course duration is one year
  • You must be a graduate with an average passing grade of 50 percent or more
  • You will receive an AICTE-approved PG certificate on completion 
  • You also have a five-year window to get your post-graduate diploma course which is the equivalent of an MBA in investment banking 
  • The curriculum includes industry-required tools such as financial modelling and data analytics 
  • Some of the subjects are: 
    • Business statistics 
    • Financial markets
    • Business economics & industry analysis 
    • Project finance & equity modeling 
  • You can attend a live classroom or study online
  • You’ll receive personalised attention from experienced and trained faculty members
  • You are also eligible to receive an NSDC certification with your PGCM 

The bottom line 

There are many entry-level investment banking jobs in the market, and one of them could be yours. All you need is a qualification from one of the reputed investment banking courses. You also need to prepare yourself for the interview by practicing possible answers to questions on concepts about capital markets, investment banking and other relevant subjects. 

Once you have done the required planning, you are ready to start your career.