Finance Job Interview Questions

1- You’ve either just graduated or are about to graduate with a degree pointing you toward an investment banking career. One of your first steps in that direction will be a series of interviews that will test your motivations for working in the industry, your financial sector know-how and your mental agility.

The best defense is to be prepared. To help you prep, we’ve picked four examples of the core types of interview questions that students tell us they have encountered this year at various investment banks, plus the answers they gave.

We then asked two independent experts to tell us what answers they should have given.

Barclays,Trading and Structuring

Question: There’s a revolver with two bullets in two chambers next to each other, and the remaining four chambers are empty. The policeman spins the revolver, points it at you and pulls the trigger, but nothing happens. Suppose that you don’t want to die, would you prefer the policeman to spin the revolver again before the next shooting or shoot again directly?

Question type: Brainteaser – how’s your math?

Student’s answer: “Spin again: the probability of getting a bullet is 2/6=1/3. Do not spin, just shoot: the probability of getting a bullet is 1/4. Hence do not spin.”

Expert view: “This is a correct and succinct answer; the candidate should say just this and nothing more,” says Peter Harrison, a former Goldman Sachs investment banker and now founder and CEO of Harrison Careers.

“I would give the candidate more brainteasers to test them further, to satisfy myself they are smart enough. Maybe they had prepared for the question or just got lucky. Or I might see if the candidate understood the conditional probability nature of the question: would they want a re-spin if offered before any shot had been fired?”

Credit Suisse, Investment Banking

Question: Why our bank?

Question type: Motivational – have you bothered to research the bank or the division you’re applying to?

Student’s answer: “Because it’s a multinational organization that operates in more than 50 countries and it has a very multicultural environment. That fits with my values.”

Expert view: “This is too vague and incomplete as an answer. It is only part of a good answer and it could apply to too many organizations,” says Guy Ballantine, RSM Tenon consultant and former investment banking graduate recruiter. “Banks want you to identify which division you want to work for, so it’s good to be specific, say M&A or capital markets. Mention a deal they have done recently, pick out a strength the bank has, like a number one ranking in the league tables. Definitely do not go for stock answers, demonstrate your knowledge and massage their egos – it is never a bad thing.”

Morgan Stanley, Investment Banking

Question: Why should we not give you the job?

Question type: ‘Fit’ question – you have little experience of finance, what else you can offer?

Student’s answer: “I don’t come from a business administration or finance background. However, I can learn quantitative skills. I believe that I have the aptitude.”

Expert view: “This answer is lightweight and not good enough,” says Harrison. “I would require an acknowledgement that the candidate understands this is a genuine weakness, along with specific steps they are taking to fix the problem. In my seven years at Goldman Sachs I interviewed around 1,300 candidates and I asked this question in 30% of interviews. I was looking for an honest character evaluation. I often rejected candidates because I either did not believe their answers or they were not talking from the heart, and it made me distrust them.”

BNP Paribas, Technology

Question: What do you think of bonuses?

Question type: Technical: What do you really know about the industry?

Student’s answer: “The media and therefore the public seem to take a very aggressive dislike to bonuses for bankers only. For example, no one seems to care about the excessive bonuses that some top lawyers, hedge fund managers, footballers, high-profile television presenters and others receive. Saying that, however, there do seem to be cases where the bonus is unjust and not really based on performance, which I think is wrong. In an ideal world, everyone should get rewarded, but they should only get a bonus if they performed exceptionally well during that period”.

Expert view: “This is a good answer, because it links performance and reward,” says Ballantine. “It can be expanded by making it more personal, by mentioning how good the bank is at incentivizing people. I always like it when people say what motivates them: I would like a bonus but I also want to be treated fairly and work in a good environment; often a big bonus is an excuse for not treating people very well. It also depends what division you are being interviewed for: if for a trading role, then it is good to say you are motivated by money, but in other divisions it may be less acceptable.”

2- Getting a job offer after graduating from business school in no easy task, particularly for prospective investment bankers hoping to enter an industry that’s trimming headcount. Interviews are often comprised of funky behavioral queries aimed at capturing your personality and commitment, along with quantitative questions that test your analytical skills.


Below are a handful of the latter, recently asked of students at the University of Pennsylvania’s Wharton School by Goldman Sachs, Deutsche Bank, Merrill Lynch, J.P. Morgan and Morgan Stanley. The answers are also included. 


*Deutsche Bank: What kind of multiples should I use to do a comparable company analysis on ABC company? How would I calculate them?

Common ratios used to compare equity performance:

•   Price / EPS

•   Market Value / Net Income

•   Market Value / Book Value

•   Price to Earnings / Growth Rate (“PEG Ratio”)

Common ratios used to compare enterprise performance:

•   Enterprise Value (EV) / EBITDA

•   EV / EBIT

•   EV / Sales (generally only appropriate for volume driven businesses or those with negative earnings)

*Goldman Sachs: How would you evaluate the credit worthiness of a company if you were a bank?

A creditor’s measure of an individual’s or company’s ability to meet debt obligations. Lenders will trade off the cost/benefits of a loan according to its risks and the interest charged. But interest rates are not the only method to compensate for risk. Protective covenants are written into loan agreements that allow the lender some controls. These covenants may:

•   Limit the borrower’s ability to weaken their balance sheet voluntarily e.g., by buying back shares, or paying dividends, or borrowing further.

•   Allow for monitoring the debt requiring audits and monthly reports

•   Allow the lender to decide when he can recall the loan based on specific events or when financial ratios like debt/equity, or interest coverage deteriorate.

Credit scoring models also form part of the framework used by banks or lending institutions to grant credit to clients. For corporate and commercial borrowers, these models generally have qualitative and quantitative sections outlining various aspects of the risk including, but not limited to, operating experience, management expertise, asset quality, and leverage and liquidity ratios, respectively.

*Merrill Lynch: Visualize the income statement of any company you have audited. Take me through its key line items.Revenues: Source of income that arises from the sale of goods and/or services and isrecorded when it is earned.

•   Expenses: Costs incurred by a business over a specified period of time to generate therevenues earned during that same period of time. Commonly includes COGS and SG&A.

•   Net Income: Revenue minus expenses.

*J.P. Morgan: How do you value companies in emerging markets other than DCF?

There are three major ways to valuation:

•   Comparable Companies

•   Precedent Transactions

•   DCF Analysis

Other methodologies:

•   Liquidation Valuation – valuing company’s assets assuming they are sold off then subtracting liabilities to determine how much capital an equity investor receives.

•   Replacement Value – based on cost of replacing assets.

•   LBO Analysis – determine how much a PE firm could pay for a company to hit a target IRR in the range of 20‐25%.

*J.P. Morgan: If your client has excess cash, what advice would you give him? What are the benefits of each one?

As a general rule, managers should do one of two things with excess cash:

Invest them in positive NPV projects (including acquisitions, capital expenditures, and research and development); or return the money to stakeholders in the form of share repurchases, dividends, and debt repayments. Considerations include the cost of debt, the cost of equity, deviation from optimal WACC levels, and tax considerations.

*Morgan Stanley: Valuations in emerging markets. How would you value a bond issued by a company in an emerging market?

•   Comparable companies and their bonds

•   Study economic trends – inflation, GDP growth

•   Determine risk and associated risk premium bond purchasers willing to pay in that market

*J.P. Morgan: Advise a client how to expand into the consumer market in Mexico. (Valuation issues, whose WACC would you use etc.).

•   Use acquirer’s WACC

•   Study economic trends – inflation, GDP growth – and government involvement

•   Review different industries within the consumer market

•   Determine which company/industry has the lowest risk

•   Company comparables

•   Review debt possibilities

•   DCF issues – difficult to project over 10-year period

Source:  www.news.efinancialcareers.com