Thursday, February 7, 2008

**First Things First: The BIG 5**

There are five main questions that every candidate is sure to get in their interviews. In fact, from my experience, these questions or variations of these questions were the first 5 questions I received in the majority of my interviews. I call these the "Big 5". It is MANDATORY that you have these questions perfected. You don't have to know everything about the different topics or subjects and these descriptions are in no wise meant to be all-inclusive, but you have to know how to answer these questions throughly and accurately.

The Big 5 are:

  • 1. Walk me through your resume. Tell me about yourself. (They illicit the same response)

  • 2. Why do you want to be an investment banker? Why Investment Banking?

  • 3. Why our bank?

  • 4. What are some different ways to value a company?

  • 5. Walk me through a Discounted Cash Flow (DCF) valuation.


  • Investment Banking Interview Tips: Deutsche Bank




  1. Walk me through your resume. Tell me about yourself.

    • Impressions are made in the first 90 seconds! This is your chance to shine! When answering this inquiry you must tell a story that clearly illustrates how your core skill set and past experiences have each prepared you for this job.




    • I. Introduction: Make it unique and specific to you.

      • a. For example: “This is my third time out to New York on my own dime to meet and interview with different investment banks.”

    • II. Core Skill Set of Investment Bankers

      • a. Hard Workers: Analysts work 90 to 100 hours/week

      • b. Team Players: Deal teams are made up of analysts, associates, vice presidents and managing directors

      • c. Analytical: Assist/consult Fortune 500 companies on business strategy

      • d. Quantitative: Build financial models & review financial statements

    • III. Correlate how you have developed these same skills through your own experiences as you walk your interviewer through your resume

      • a. Know Your Resume! This means you have it memorized and can speak to everything listed.

    • IV. Your Core Skill Set

      • a. Hard Worker: Went to school full-time, worked part-time, internships, extracurricular activities, intercollegiate sports, and homework.

      • b. Team Player: Class assignments, sports, leadership positions, committees, councils, etc…

      • c. Analytical: Through work experience, internships, research, projects, etc…

      • d. Quantitative: Through work experience, internships, research, projects, etc…

    • V. When going through your resume just give HEADLINES for each job and correlate, if applicable how this built one of your core skills (hard worker, team player, analytical, quantitative).

      • a. If the interviewer is interested they will ask you more about specific items, points, or experiences from your resume.

      • b. When the interviewer asks you follow on questions, this is the time to give more detail.

    • VI. Conclusion: Have a strong conclusion!

      • a. For Example: “I know I will be a strong asset for “Bear Stearns” as a 2008 summer analyst”

    • VII. Practice saying your story out loud and telling it to others

      • a. Practice, Practice, Practice!!!

      • b. Mock interviews are a great way to accomplish this goal


    After your interview, the interviewer will fill out a sheet about your specific abilities and skill set. Check these boxes for them in the interview so they know what to mark when the interview is over and you have gone home.

  2. Why do you want to be an investment banker? Why Investment Banking?

  3. Also, be prepared for the question Why Investment Banking vs. Sales & Tradng? The wrong answer is to say you are interested in both. When answering this question you are only interested in investment banking. Next, reiterate what you already stated in your story about how and why you are truly interested in investment banking.

    1. Drive home your main points from your initial story. This shows you have done your homework, you know what you are getting into, you are prepared, committed, and ready to go.

      • Hard Worker
      • Team Player
      • Analytical
      • Quantitative

    2. Tell your story about why you REALLY want to do investment banking:

      • Growth opportunities right out of college
      • Structuring M&A deals
      • Strategic Advisory, etc...

    Emphasize the fact that you know this is what you want to do and you're ready! It is an Investment Banking or nothing attitude!

  4. Why Our Bank?

    1. Go to the company web page, go to the careers tab/section, and more times than not they will have a section titled "Why Company Name?". Why not use their own material, that they spent hundreds of thousands of dollars and hours upon hours creating, in your own answer?.

      • For example: If you go to www.bearstearns.com under their Careers section, you will find a section titled "Why Bear Stearns". They list that their company is:

        • Flexible (aka Bureaucracy)
        • Approachable (aka Meritocracy - access to senior managers)
        • Entrepreneurial

      These are three great points you should use in your answer about why you want to work at Bear Stearns when you interview with them.

    2. Other points you could use with discretion include:

      • The Bank's position globally
      • Their analyst training program
      • Like the people you know/have met at the frim
      • Their broad financial platform


  5. What are some different ways to value a company?

  6. The valuation methodologies you should be familiar with include:
    1. Discounted Cash Flow (DCF)
    2. Comparable Companies
    3. Precedent Transactions
    4. Multiples Method
    5. Market Valuation

    To be familiar with a valuation means:
    1. Be able to walk someone through the steps/process of performing this type of valuation
    2. Know and understand any and all related finance equations
    3. Know which method gives the highest or lowest valuation (ie. The Football Field of Valuation)
    4. Have a minimum of three pros and cons of each type of valuation


  7. Walk me through a Discounted Cash Flow (DCF) valuation.

    1. Project out the Free Cash Flows (FCF) for a given period of time

      • How long should your project out the FCFs?
        • Typically is 5 to 10 years

      • Why would you choose 5 years vs. 10 years?
        • 5 years for more volatile companies, such as technology companies
        • 10 years for less volatile companies, such as industrial companies

      • How do you derive FCF?
        • FCF =
        • EBIT x (1 – Tax Rate)
        • + Depreciation and Amortization
        • - Capital Expenditures
        • - Net Increase in Working Capital: (Current Assets – Current Liabilities)

    2. Use a Terminal Value (TV) calculation on your final year FCF 5 or 10

      • Gordon Growth Model (also known as the Perpetual Growth Model)
        • (FCF,year 5 or 10)(1+g)
          -----------------------------------
          (Discount rate (WACC) - g)

      • Multiples Method
        • (FCF, year 5 or 10) * Multiple
        • Multiple will vary based on each deal, industry, timing, etc...

    3. Discount the FCFs at some required rate of return

      • Weighted Average Cost of Capital (WACC)
        • WACC = [E /(D + E)]*CAPM + [D /(D + E)]*DebtInterestRate*(1 - T)
          • E = Equity Value
          • D = Debt Value
          • CAPM = Capital Asset Pricing Model
          • T = Tax Rate

      • Capital Asset Pricing Model (CAPM)
        • CAPM = rf + Beta*(rm - rf)
          • rf = Risk free interest rate (T-Bill rate)
          • Beta = stock volatility
          • rm - rf = excess market return

    4. Sum these discounted FCFs to get the Net Present Value (NPV)


Pros of DCF
  • Produces the closest thing to intrinsic stock value
  • Relies on FCF, which are trustworthy because FCF cut through reported earning "guesstimates" and tracks the money left over for investors
  • Identifies where companies value is coming from and if current stock price is justified

Cons of DCF
  • If assumptions are wrong/incorrect then the output will be inaccurate
  • Terminal Value calculation projects the FCF into the future at the same rate, which will clearly never happen
  • The debt to equity ratio is held constant in the WACC


These or variations of these questions are very likely to be the first 5 questions you face in your interview. Remember, that impressions are made in the first 90 seconds and the interviewer just took up 60 seconds telling you about themselves!!! You have to be sharp and know your story! Work on these 5 questions and you will see success!

19 comments:

Anonymous said...

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Deepanshi said...

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Lan Anh said...

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Unbreakable said...

This is great stuff,I have read it in its entirety and i have to say its very educating as a perspective Investment Banker i feel empowered by reading this.

Thanks man

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