When it’s my turn to ask my interviewer questions, what should I ask?
Good question. This is a topic on which reasonable people can (and do) disagree.
Some insiders insist that you should always ask a question when offered
the opportunity, and that your question should prove to your interviewer how
much research you’ve done on the industry and the specific firm. We disagree
with both points, however well-intentioned the advice. If the sole purpose of
your question is to prove that you’ve checked out the firm’s website, read its
annual report, or read Investment Dealers’ Digest, chances are your interviewer can
tell a mile away. “I made that mistake,” says one insider, “I attended a dinner for
all of the candidates who had been invited to interview with a top-tier firm.
There was a moment of silence and I asked the recruiter across from me what
she thought of the recent article in The Economist about the banking industry. I
could actually tell by the expression on her face that she was breathing a deep
internal sigh of resignation. I wanted to crumple up in a ball under my chair. I’d
never do that again—even if I did read The Economist.”
As this insider learned the hard way, it’s probably best to err on the side of
caution with your questions. We advise that you stick to those questions that
you’d genuinely like answered, not to mention the questions that would be difficult
for you to answer without the benefit of insider insight. So if you really do
want to know why your interviewers chose to work at Firm XYZ, then ask
away. We didn’t speak to a single recruiter who dinged a candidate because their
questions weren’t insightful or penetrating enough. Of course, your questions
shouldn’t display blatant ignorance regarding the industry, the company, or the
specific position (i.e., don’t ask your M&A interviewer how long it will be
before you have your own accounts, or your Citigroup recruiter to explain the
Asking for Directions
firm’s commitment to remain a pure-play investment bank). You won’t win
points for playing it safe and asking your interviewer to describe the last project
he worked on, but you probably won’t lose any, either. If you’ve had a reasonably
good interview so far (and perhaps even more so if you haven’t), you may
not want to rock the boat with questions designed to demonstrate how very
clever you are.
However, if you’re determined to ask a highly nuanced question that you’ve
crafted from the bowels of the company’s annual report, you’d better keep a
few things in mind. First of all, botching the details is not an option; we were
surprised by the number of insiders who recalled (with some glee, we might
add, and no small degree of derision) candidates who got the name of the
CEO wrong when they asked a question designed to showcase their inquisitive
mind. It’s also not unheard of for a candidate to ask an interviewer about a
high-profile deal on which the recruiter’s bank was not hired as an advisor.
(Even if you’re sure the bank in question was involved, however, we wouldn’t
advise asking questions regarding a specific transaction. The chances that your
interviewer was involved directly in the deal—or even has a particularly welldeveloped
opinion on its significance—are slim, and your question won’t be
particularly enlightening for either you or the recruiter.)
Not only must you keep your facts straight if you decide to show off your
industry knowledge, but you’d better be ready to offer a credible reason for
your particular query. Perhaps to a greater extent than their counterparts in
other industries, bankers are notorious bluff-callers; if you are indeed bluffing,
the person on the other side of the desk will make you rue the day you even
looked at the annual report. And if it’s a question that’s so obscure they can’t
answer it, you’d really better hang onto your hat; you’ll most likely incur their
well-restrained, buttoned-up wrath, and they’ll derive a particular sense of
satisfaction from putting you back in your place.
If all of this advice has your head spinning, don’t worry! There are ways to jazz
up your standard-issue “What Questions Do You Have For Us?” queries. One
recruiter suggests that candidates reframe relatively broad questions by personalizing
them. For example, rather than asking your interviewer to describe the
firm’s culture, you may choose to put it this way: “I’ve talked to several analysts
representing a range of product and function areas, and a number of them
have mentioned that they’ve been surprised by how accessible the senior people
are at Bank XYZ. I wondered if this was consistent with what you’ve experienced,
and whether you feel that’s indicative of the culture throughout the
bank.” Provided that you actually have spoken to analysts (and don’t even think
about referring to fictitious conversations), this question allows you to establish
your sincere interest in the firm while remaining relatively safe.
Another insider tip: Pay attention when your interviewer introduces himself,
and make a mental note of the group he represents. When the spotlight turns
to you, give your question a group-specific slant. “You mentioned earlier that
you worked in the energy group. I know that group assignments play a big part
in determining analysts’ experience, and I wondered if you could describe the
ways in which the energy group maintains its own unique culture. I’d be interested
to know whether you’ve worked in other areas of the bank, and how your
experiences in other groups compare.” Again, this question isn’t so generic that
your interviewer’s eyes glaze over, but it doesn’t suggest that your primary
objective is proving your business acumen.
As with any other interviewer question, there are a few types of questions to
avoid like the plague, including the following:
Presumptuous questions. “I really want to spend my third year in the London
office. How can I improve my chances of getting my first-choice location?”
Well, let’s see: You could start by getting a job offer with this firm in the first place.
Interviewers typically dislike questions from candidates who prematurely
assume they’ll receive an offer, so be careful to avoid even the teensiest bit of
presumptuousness in your questions.
Questions with a tattle-tale tone. “I know that during the 1999–2000 recruiting
season, most banks on the Street significantly overestimated the number of
analysts and associates they’d need to hire, and then many of those same
people lost their jobs a year or two later. I’m curious whether your firm has
developed a better way of adjusting hiring activity to the market.” This is a
question that you may indeed want to ask, but use your better judgment. After
all, it’s a little early in the process to reveal your cynicism about the industry.
Questions that suggest you have underlying concerns about the job. “One of
the things I’ve heard over and over again is that the hours are really, really
brutal, and that it’s tough to take vacations or even long weekends. How many
weekends would you say you’ve had to work over the past year?” How many
times do we have to tell you that the job is demanding? Interviewers expect that
by the time you’ve gotten to this stage in the process, you know what you’re
getting into and that you’ve accepted it. If you’re still worried about evenings,
weekends, and vacations, you’re interviewing for the wrong job.
While you’re crafting questions to lob in your interviewer’s direction, keep one
last thing in mind: Most of your interviewers will be on a fairly tight timetable,
and they’ll be struggling to keep each interview to the 30- or 45-minute time
slot it’s been allotted. Learn to read your interviewer: If it’s clear that she is
trying desperately to wrap things up, don’t feel pressured to ask your questions
simply because you’ve prepared them. If you sense she’s trying to move things
along, a diplomatic response might be, “Thanks. I’m conscious of your time
restraints and know that the interview schedule is tight. Perhaps I could take
one of your cards and contact you later with any questions?” This way, you’ve
left it up to her—if she’s indeed at the end of her interview tether, she’ll take
you up on your offer. If she’s got plenty of time, she’ll invite you to ask away
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(and she’ll be impressed that you’ve respected her schedule—major
interpersonal aptitude points!).
If asked to name a group preference, should I provide a specific answer, or
should I say that I’m open to any industry or product group?
That depends. If a particular industry or product interests you, then by all means
mention this interest to your interviewer. As with any other interview question,
be prepared to provide solid reasons for your specific answer. If your unique
background is consistent with your choice (e.g., you completed a summer internship
at Procter & Gamble and cultivated a genuine interest in consumer products),
so much the better. However, you should refrain from expressing too narrow an
industry or product focus too early in the process or implying that your decision
to join a particular firm depends solely on whether it can accommodate your
stated interests. In early rounds, for example, it’s not appropriate to imply to
your interviewer that it’s either an offer in the firm’s health-care industry group
or no offer as far as you’re concerned. While firms often try to achieve a match
between candidates’ interest and their own staffing needs, several factors (almost
always beyond your interviewer’s control) determine where you’ll be placed.
If you’ve decided to indicate a group preference, make sure that the firm’s
organization allows for such a specialization; many firms have reshuffled their
industry and product groups significantly in the past few years, and it’s possible
that the group you have in mind has actually been lumped in with another one.
Not all firms have a consumer products or industrials group, for example, and
stating a keen interest in joining a group that does not exist may not advance
your candidacy. And even if you’re certain that your world would end if you
don’t land a spot in the mergers group, it’s probably best to say you’re openminded.
One possible answer to this question might be, “Well, as I mentioned earlier, I’m
a finance and accounting major, and so my academic interests and training have
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typically centered around the highly quantitative and strategic analysis driving
corporate finance. So far, I’ve gotten the sense that I might be a good fit in
either Mergers & Acquisitions or Leveraged Finance, but I’m flexible. Through
my conversations with current analysts, I’ve learned that a personality fit with a
given group makes a big difference in the analyst experience, so I’d be interested
to know your thoughts on which groups are likely to be a good match for me.”
As part of your preinterview research process, be sure to ask current bankers
whether analysts and associates are hired into particular groups, or whether
placement decisions are made once the training program begins. If you join a
firm that hires directly into groups, you may have little or no involvement in the
placement decision. On the other hand, firms that make placement decisions
once training begins allow you to meet with various groups before stating your
group preferences. Still others offer a rotation program in which incoming hires
work in multiple functions or products before a permanent placement occurs.
Each method offers its own advantages. If you’re hired directly into a product or
industry group, you may find yourself specializing earlier than you’d like.
Conversely, analysts who participate in a “matching” process once training
begins sometimes report a sense of competitiveness with classmates to snag
coveted spots in the most high-profile groups.
If you don’t have a decided placement preference, don’t feel pressured to name
a few groups or products for the sake of doing so. (In particular, don’t say
“M&A” unless you can offer a solid reason for it. It’s the default answer for
many candidates who just don’t know the names of any other functions or
products, or those captivated by the apparent glamour of Wall Street). While it’s
probably best to demonstrate that you’ve given the various functions and
products a thought (or—at the very least—that you know what they are), you
won’t lose points for being flexible in your response.
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Everyone says I’m expected to “do my homework.” What exactly does this
mean? How much will I be expected to know about each company with
which I interview?
First and foremost, “doing your homework” means that you genuinely understand
the role of an investment bank and can clearly articulate the distinct roles
of its various functions and that you have devoted some time to distinguishing
among the major players. It means you’ve considered all of this information
and shaped an idea of which firm you’d like to work for, and in which general
area. It means that you’ve developed reasonable job expectations, done some
good old-fashioned soul searching to decide whether or not the inherent
sacrifices are worth it to you, and determined the specific benefits you’d hope
to gain from the analyst or associate experience.
As we discussed earlier in this guide, the homework bar is higher at the MBA
level than it is at the undergraduate level. In general, interviewers are more
forgiving of analyst candidates for two primary reasons: First, no one expects a
22-year old interviewing for his first job to know for certain that his destiny lies
in investment banking. Second, investment banks typically hire analysts for a
2- to 3-year time horizon, after which they expect many will go on to business
school or other jobs. Nonetheless, firms will expect that both undergraduates
and MBA candidates alike can articulate solid reasons for pursuing a job in the
field, and they will expect to see evidence that you’ve invested some serious time
determining whether this career—and this firm in particular—is right for you.
Regardless of the specific position for which you are applying, “doing your
homework” has two primary components: understanding what distinguishes the
firm in its industry, and understanding what distinguishes the firm as a place to
work. The first of these relates to the firm’s position in the financial marketplace,
while the second has to do with its “employment brand”—the unique
way the firm positions itself to prospective employees.
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Our Seven-Step Homework Guide should help you to learn about both
distinctions:
1. Particularly if you’re an undergraduate with little prior exposure to investment
banking, make sure you understand what an investment bank
does and how the various functions of a securities firm fit together.
We’d recommend that you start with WetFeet’s Insider Guide to Careers in
Investment Banking. Mariam Naficy’s book The Fast Track: The Insider’s Guide to
Winning Jobs in Management Consulting, Investment Banking, and Securities Trading
also provides an excellent overview. As the name implies, this book is a
particularly good resource for those candidates comparing potential
opportunities in multiple areas.
2. Once you’ve determined which firms you’ll be interviewing with,
check out any firm-specific literature you can find. This includes the
WetFeet Insider Guides to investment banking firms (see the list at the end
of this book), which provide insights into the firms’ areas of relative
strength and insiders’ perceptions of the companies’ culture. In addition,
be sure to review any recruiting literature on file at your campus career
center. This information is likely to be fairly general, but it will provide a
useful overview of each firm’s organizational structure and respective
recruiting processes. Also, these materials will give you a general sense of
the “employment brand” that the firm is trying to convey—in other words,
you’ll get a sense of how the firm distinguishes itself from other firms in
the marketplace that compete for talent.
3. Check out the website of each firm with which you’ll be interviewing.
This does not mean that you’ll be expected to memorize and regurgitate
either the company’s financials or its business principles in the course of
the interview. However, if you’re interviewing with a public company, you
should probably at least take a gander at the firm’s annual report (generally
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162
available through the Investor Relations section of the firm’s website). In
addition to providing detailed information on the company’s financials,
the annual report highlights the key transactions in which the bank was
involved over the course of the previous year and summarizes the relative
performance of each of its major revenue-generating areas. Also, check out
the most recent press releases for any noteworthy developments that have
taken place since the last annual report went to press.
4. Refine your industry-specific knowledge and review the major
transactions in which each firm is involved. Trade journals such as
Institutional Investor, Investment Dealers’ Digest, and The Daily Deal provide a
wealth of timely industry-specific information. For example, Investment
Dealers’ Digest (www.interactiddmagazine.com) offers an excellent online
database for subscribers, which includes league table information, recent
deal flow activity, and information on the biggest transactions in various
areas (M&A advisory, high-technology, energy, etc.). Unfortunately, an
annual subscription to this little gem costs a hefty $995, but full-text
articles from the print publication are available through Factiva, a comprehensive
online news database; if your business school library offers Factiva
access (and it’s worth checking into), you may want to take a look. If not,
Investment Dealers’ Digest occasionally offers trial subscriptions at little to no
cost. In all likelihood, you won’t ever be asked about a particular bank’s
league table standings, but it doesn’t hurt to develop a sense of who does
what on the Street.
5. Keep abreast of current events—those relating to the financial
markets and otherwise. Even if you’re not ordinarily a faithful Wall Street
Journal reader or subscriber, it may behoove you to become one, at least
during the recruiting season. The publication’s online edition is particularly
user-friendly and is available to students at a significant discount (as is the
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print version). The Financial Times (WSJ’s European equivalent) is another
excellent source of financial news and not surprisingly provides a more
pronounced international focus than the Wall Street Journal. At a minimum,
you should know the major developments and trends characterizing the
investment banking industry. In particular, the increasingly widespread
practice of “bundling” investment and commercial banking services and
the intense scrutiny over firms’ investment research franchises are two
trends you should feel comfortable discussing in an interview. Also, be sure
to have at least a general sense of movements in the major indices (investment
banking interviewers have been known to ask what the Dow closed
at the previous day) and the events that most directly affect the financial
markets.
6. Attend the on-campus information session. Trust us: The hour that
you spend at each firm’s on-campus meet-and-greet will be time well spent.
At the information session, the company will undoubtedly address the
topic of what sets it apart from its chief competitors—its competitors for
business and its competitors for talented people. Pay attention to what the
firm’s representatives stress as its key selling points: whether it’s the firm’s
untrammeled dominance of M&A activity, its unique rotation program for
incoming analysts or associates, or its unparalleled reputation as an employer
of choice. In addition, these information sessions provide an
opportunity for you to meet current analysts and associates and to hear
them answer the questions that you’ve been formulating throughout the
course of your research.
7. Take the time to speak with insiders! There’s really no substitute for
good old-fashioned informational networking (a process which should be
relatively easy for current MBA students, who have a considerable network
of b-school students, former analysts, summer associates, and alumni to
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consult). If you’re an undergrad with fewer industry contacts, check out
your career center’s alumni database for the names and contact details of
current firm employees (preferably within the division to which you’re
applying). At the very least, contact the individuals who represented their
firms at the on-campus information sessions (analysts and associates,
please—firms may send VPs and the occasional MD to information session,
but bankers at this level aren’t likely to return your call—remember
our discussion of the hierarchical structure earlier in the guide?). Not only
can these individuals generally answer your most pressing queries, they can
typically put you in touch with other people at the bank who can provide
you with a broader perspective on what it’s like to work there. Not only will
this help you learn about the specifics of each firm’s culture, but it will give
you some real-life insight into the life of an analyst or associate.
Make no mistake about it: Preparing for interviews is a time-intensive process.
If your schedule is already filled to capacity with academic and extracurricular
obligations, it’s particularly tempting to gloss over interview preparation in favor
of the more immediate demands on your time and attention. This is a dangerous
trap, and one that you should avoid at all costs. In this case, it’s better to
take a long-term view. As one recently hired insider advises, “Take a light
course load that semester if you can. The time you spend researching
companies and talking to insiders is time well spent, and definitely worth the
investment in the end.”
Showing posts with label apply for job. Show all posts
Showing posts with label apply for job. Show all posts
Saturday, June 23, 2007
EBITDA multiples | Morgan Stanley
So far, we’ve talked a lot about multiples: You’ve mentioned EBITDA
multiples in your discussion of the analysis you did at Morgan Stanley,
you’ve talked about P/E multiples in your analysis of a common stock. I
wondered if you could tell me what a multiple really is—to say that a
company is trading at “8x.” How would I make sense of that? How is that
meaningful to you? What does it tell you about the company?
One surefire way to separate the recruiting wheat from the chaff is to ask a candidate to take a
step back and translate technical lingo into good old-fashioned English. Our recruiting insiders
report that they’re often staggered by the number of candidates who expect that their deft use of
financial terminology will itself win them the job. Particularly among MBA candidates,
questions often enable interviewers to distinguish those who simply interview well from those who
are intellectually challenged by (and interested in) financial analysis.
Bad Answer
Candidate: Well, EBITDA multiples are more widely used in some industries,
and P/E multiples are more prevalent in others. They’re both pretty subjective,
and sometimes it just comes down to whether the research analysts who cover
the sector use one or the other as their primary metric. But if someone’s trading
at “8x,” it just means the total enterprise value of the company is eight
times its EBITDA, obviously. I think in general, 8x EBITDA is pretty cheap.
There are plenty of companies with P/Es of 20x or 30x or more—think about
the valuations during the Internet boom.
This answer misses the point. Valuation is all relative, and you need to understand what information
is being conveyed by a given multiple. Again, this is a quantitative question—don’t answer
with a qualitative allusion to research analysts and their ability to move markets with their
insight. The notion that some industries focus on EBITDA multiples and others on P/E is also
naïve—theoretically, the markets have good reasons for focusing on one metric or the other. If
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anything, you should look at both the EBITDA multiple and the P/E multiple together when
comparing the valuations of two businesses. This process will tell you more than either one in
isolation. In any case, there is no way you can make a blanket statement that “8x” represents a
low valuation. It may or may not, depending on the company and industry in question.
Mediocre Answer
Candidate: Well, if a company is trading at 8x EBITDA (for example), you
would want to look at where other similar companies trade to figure out which
companies are better-liked by the markets. Also, you might figure out whether
8x constitutes a higher or lower multiple than where this company has traded
over time. It might be that at 8x EBITDA, a company is undervalued because it
normally trades at over 10x EBITDA, which would represent a buying opportunity.
In terms of EBITDA versus P/E multiples, P/E tends to be used more
for companies that actually have net income. In some industries, particularly
younger or growing sectors like technology, companies are still losing money
and so P/E multiples aren’t relevant or meaningful. In that case, you’d want to
look at cash flow and thus EBITDA multiples would be the best metric.
This is a better answer, in that it points out that multiples only provide information on a
relative basis. Where is a company trading today versus yesterday? Where does it trade
relative to its peers? Multiples are useful in assessing relative—as opposed to absolute—value.
The candidate’s point about P/E multiples, however, leaves a little bit to be desired. It’s all
well and good to point out that if you have no earnings (the “E” in P/E), then it’s no use
looking at P/E multiples. However, there are some critical distinctions between EBITDA
and P/E multiples for those companies who do have positive earnings. Most importantly, two
businesses in an industry with the same EBITDA might have different earnings because one
has more debt and thus pays more interest expense. Taking on more debt is a financing
decision, not an operating decision, and so the fact that the companies’ bottom-line earnings
differ doesn’t necessarily imply that one business is performing better or generating more real
operating profit than the other.
Finding Your Way
Good Answer
Candidate: Fundamentally, a multiple is an indication of how an investor (or a
market) values the earning potential of a given enterprise. Mathematically, it’s a
ratio of a valuation metric (such as market capitalization or the purchase price
in an acquisition) divided by financial performance, whether measured by sales,
EBITDA, free cash flow, or net income. So breaking it down even further, the
ratio tells you that for every dollar of, say, earnings, an investor (or the public
markets) has assigned a particular value to that dollar of earnings.
Interviewer: That’s a good starting point, but what does that number tell you?
How do I make sense of that?
Candidate: In isolation, the multiple tells you very little. The multiple is most
useful when you are comparing the value of the company in question with the
value of similar businesses. As I mentioned earlier, a multiple gives you the
number of dollars an investor (or a public market, which is just a collection of
investors) would pay for a given unit of financial performance, however you’ve
chosen to define it. So when you compare two similar businesses in the same
industry, and one—we’ll call it Company A—trades for 10x earnings and the
other—Company B— trades for only 8x earnings, this tells you that the market
for whatever reason values each dollar of Company A’s earnings more than
Company B’s.
Interviewer: Okay, this is a good start, but to make it easier, why don’t we
discuss two specific companies rather than two hypothetical enterprises? Let’s
compare Lowe’s and Home Depot. These are both public companies, and they
operate in the same competitive space. However, Home Depot trades at 9x
EBITDA, and Lowe’s trades at 11x EBITDA. What does this tell you about
Lowe’s versus Home Depot?
Candidate: It tells you that the market values each dollar of Lowe’s earnings
more than Home Depot’s.
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Interviewer: Right—but we covered that when we talked about Company A
versus Company B. My question is why? Why might the market assign two
different values for these specific companies’ earnings, when they’re in the same
exact industry?
Candidate: Well, it should tell you something about the quality of those
earnings. The market may believe that Lowe’s is better positioned to grow its
earnings than Home Depot, or perhaps it believes that Lowe’s earnings are
likely to be less volatile or more predictable for some reason. In general, the
market will be willing to pay more for each dollar of a company’s earnings if it
believes that those earnings have either more growth potential or more stability
than those of its competitors.
Interviewer: So given that the markets value Lowe’s more highly today, which
stock represents the better buy? In other words, which would you choose if you
could buy either one?
Candidate: Wow, that’s a tough one. After all, if you believe in efficient
markets, then you would say both companies are valued fairly. In other words,
Lowe’s may be more expensive today, valued at 11x last year’s EBITDA, vs.
Home Depot at 9x last year’s EBITDA, but if both businesses grow as expected,
then today’s valuation might be exactly the same for both companies—as a
multiple of future EBITDA. So I don’t think the multiple differential today
necessarily tells you which company is a better value today.
But, if I had to answer your question, given that both companies are in the
same business fundamentally, I would question whether Lowe’s really will grow
measurably faster than Home Depot. In any event, that growth is completely
“on the come,” whereas last year’s (trailing) EBITDA is in the bag. I think
Home Depot is the market leader, and is a better value on actual trailing
EBITDA today, so I would probably go with them.
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The conclusion above is thoughtful and defensible, but the candidate could just have easily
defended selecting Lowe’s. You might conclude that Lowe’s is still building new stores and
expanding nationwide, and that you’d rather back a growing business, whereas a more mature
number-one player like Home Depot that already has stores everywhere might have a tougher
time finding ways to increase profits. If you really believe in efficient markets, there’s no right
answer to the question of which company is the better buy. The point is, have good reasons for
your point of view, and at a minimum, make sure to have a point of view!
Interviewer: But why EBITDA multiples? Is that the right metric for this
industry?
Candidate: Well, in this case I think it’s a safe bet that both businesses have
similar capital expenditure and working capital requirements, so EBITDA is
probably a fair back-of-the-envelope metric for comparing operating cash flow.
I don’t know whether one company has more debt (and thus more interest
expense) than the other, so I don’t know whether the P/E multiples are truly
comparable.
Interviewer: Can you think of a hypothetical scenario where EBITDA
wouldn’t be a good valuation metric for comparing two businesses in the same
industry?
Candidate: One example comes to mind. When I worked at Morgan Stanley, I
completed a comparable transaction analysis involving acquisitions in the food
industry. Two similarly sized companies that were equally profitable had been
purchased for 5x EBITDA. If you relied only on the EBITDA multiples, you’d
conclude that the two buyers paid similar purchase prices: after all, same
EBITDA, same purchase price multiple, same industry. But in this case, EBITDA
was misleading and not at all equivalent to cash flow. These were both food
companies, but one manufactured chilled dairy products—primarily milk and
ice cream—while the other company manufactured shelf-stable, canned foods.
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The first company required much higher annual capital expenditures because
chilled dairy products require more expensive equipment for their storage and
transportation. The canned food company had much lower capex because its
products could sit on a truck or in a warehouse for an eternity without spoiling.
The significant difference in capex wasn’t reflected in the EBITDA multiple.
Therefore, the buyer of the chilled dairy business paid a significantly higher
price than the buyer of the ambient food business, even though the EBITDA
multiples were the same.
It should be clear that this candidate clearly gets it. Multiples can be deceptive, and should not
be viewed in isolation, but they can provide a wealth of information about how the markets
value a business, and why. The key in the interview is to keep it quantitative—after all, a
multiple is a fraction!
multiples in your discussion of the analysis you did at Morgan Stanley,
you’ve talked about P/E multiples in your analysis of a common stock. I
wondered if you could tell me what a multiple really is—to say that a
company is trading at “8x.” How would I make sense of that? How is that
meaningful to you? What does it tell you about the company?
One surefire way to separate the recruiting wheat from the chaff is to ask a candidate to take a
step back and translate technical lingo into good old-fashioned English. Our recruiting insiders
report that they’re often staggered by the number of candidates who expect that their deft use of
financial terminology will itself win them the job. Particularly among MBA candidates,
questions often enable interviewers to distinguish those who simply interview well from those who
are intellectually challenged by (and interested in) financial analysis.
Bad Answer
Candidate: Well, EBITDA multiples are more widely used in some industries,
and P/E multiples are more prevalent in others. They’re both pretty subjective,
and sometimes it just comes down to whether the research analysts who cover
the sector use one or the other as their primary metric. But if someone’s trading
at “8x,” it just means the total enterprise value of the company is eight
times its EBITDA, obviously. I think in general, 8x EBITDA is pretty cheap.
There are plenty of companies with P/Es of 20x or 30x or more—think about
the valuations during the Internet boom.
This answer misses the point. Valuation is all relative, and you need to understand what information
is being conveyed by a given multiple. Again, this is a quantitative question—don’t answer
with a qualitative allusion to research analysts and their ability to move markets with their
insight. The notion that some industries focus on EBITDA multiples and others on P/E is also
naïve—theoretically, the markets have good reasons for focusing on one metric or the other. If
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anything, you should look at both the EBITDA multiple and the P/E multiple together when
comparing the valuations of two businesses. This process will tell you more than either one in
isolation. In any case, there is no way you can make a blanket statement that “8x” represents a
low valuation. It may or may not, depending on the company and industry in question.
Mediocre Answer
Candidate: Well, if a company is trading at 8x EBITDA (for example), you
would want to look at where other similar companies trade to figure out which
companies are better-liked by the markets. Also, you might figure out whether
8x constitutes a higher or lower multiple than where this company has traded
over time. It might be that at 8x EBITDA, a company is undervalued because it
normally trades at over 10x EBITDA, which would represent a buying opportunity.
In terms of EBITDA versus P/E multiples, P/E tends to be used more
for companies that actually have net income. In some industries, particularly
younger or growing sectors like technology, companies are still losing money
and so P/E multiples aren’t relevant or meaningful. In that case, you’d want to
look at cash flow and thus EBITDA multiples would be the best metric.
This is a better answer, in that it points out that multiples only provide information on a
relative basis. Where is a company trading today versus yesterday? Where does it trade
relative to its peers? Multiples are useful in assessing relative—as opposed to absolute—value.
The candidate’s point about P/E multiples, however, leaves a little bit to be desired. It’s all
well and good to point out that if you have no earnings (the “E” in P/E), then it’s no use
looking at P/E multiples. However, there are some critical distinctions between EBITDA
and P/E multiples for those companies who do have positive earnings. Most importantly, two
businesses in an industry with the same EBITDA might have different earnings because one
has more debt and thus pays more interest expense. Taking on more debt is a financing
decision, not an operating decision, and so the fact that the companies’ bottom-line earnings
differ doesn’t necessarily imply that one business is performing better or generating more real
operating profit than the other.
Finding Your Way
Good Answer
Candidate: Fundamentally, a multiple is an indication of how an investor (or a
market) values the earning potential of a given enterprise. Mathematically, it’s a
ratio of a valuation metric (such as market capitalization or the purchase price
in an acquisition) divided by financial performance, whether measured by sales,
EBITDA, free cash flow, or net income. So breaking it down even further, the
ratio tells you that for every dollar of, say, earnings, an investor (or the public
markets) has assigned a particular value to that dollar of earnings.
Interviewer: That’s a good starting point, but what does that number tell you?
How do I make sense of that?
Candidate: In isolation, the multiple tells you very little. The multiple is most
useful when you are comparing the value of the company in question with the
value of similar businesses. As I mentioned earlier, a multiple gives you the
number of dollars an investor (or a public market, which is just a collection of
investors) would pay for a given unit of financial performance, however you’ve
chosen to define it. So when you compare two similar businesses in the same
industry, and one—we’ll call it Company A—trades for 10x earnings and the
other—Company B— trades for only 8x earnings, this tells you that the market
for whatever reason values each dollar of Company A’s earnings more than
Company B’s.
Interviewer: Okay, this is a good start, but to make it easier, why don’t we
discuss two specific companies rather than two hypothetical enterprises? Let’s
compare Lowe’s and Home Depot. These are both public companies, and they
operate in the same competitive space. However, Home Depot trades at 9x
EBITDA, and Lowe’s trades at 11x EBITDA. What does this tell you about
Lowe’s versus Home Depot?
Candidate: It tells you that the market values each dollar of Lowe’s earnings
more than Home Depot’s.
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Interviewer: Right—but we covered that when we talked about Company A
versus Company B. My question is why? Why might the market assign two
different values for these specific companies’ earnings, when they’re in the same
exact industry?
Candidate: Well, it should tell you something about the quality of those
earnings. The market may believe that Lowe’s is better positioned to grow its
earnings than Home Depot, or perhaps it believes that Lowe’s earnings are
likely to be less volatile or more predictable for some reason. In general, the
market will be willing to pay more for each dollar of a company’s earnings if it
believes that those earnings have either more growth potential or more stability
than those of its competitors.
Interviewer: So given that the markets value Lowe’s more highly today, which
stock represents the better buy? In other words, which would you choose if you
could buy either one?
Candidate: Wow, that’s a tough one. After all, if you believe in efficient
markets, then you would say both companies are valued fairly. In other words,
Lowe’s may be more expensive today, valued at 11x last year’s EBITDA, vs.
Home Depot at 9x last year’s EBITDA, but if both businesses grow as expected,
then today’s valuation might be exactly the same for both companies—as a
multiple of future EBITDA. So I don’t think the multiple differential today
necessarily tells you which company is a better value today.
But, if I had to answer your question, given that both companies are in the
same business fundamentally, I would question whether Lowe’s really will grow
measurably faster than Home Depot. In any event, that growth is completely
“on the come,” whereas last year’s (trailing) EBITDA is in the bag. I think
Home Depot is the market leader, and is a better value on actual trailing
EBITDA today, so I would probably go with them.
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The conclusion above is thoughtful and defensible, but the candidate could just have easily
defended selecting Lowe’s. You might conclude that Lowe’s is still building new stores and
expanding nationwide, and that you’d rather back a growing business, whereas a more mature
number-one player like Home Depot that already has stores everywhere might have a tougher
time finding ways to increase profits. If you really believe in efficient markets, there’s no right
answer to the question of which company is the better buy. The point is, have good reasons for
your point of view, and at a minimum, make sure to have a point of view!
Interviewer: But why EBITDA multiples? Is that the right metric for this
industry?
Candidate: Well, in this case I think it’s a safe bet that both businesses have
similar capital expenditure and working capital requirements, so EBITDA is
probably a fair back-of-the-envelope metric for comparing operating cash flow.
I don’t know whether one company has more debt (and thus more interest
expense) than the other, so I don’t know whether the P/E multiples are truly
comparable.
Interviewer: Can you think of a hypothetical scenario where EBITDA
wouldn’t be a good valuation metric for comparing two businesses in the same
industry?
Candidate: One example comes to mind. When I worked at Morgan Stanley, I
completed a comparable transaction analysis involving acquisitions in the food
industry. Two similarly sized companies that were equally profitable had been
purchased for 5x EBITDA. If you relied only on the EBITDA multiples, you’d
conclude that the two buyers paid similar purchase prices: after all, same
EBITDA, same purchase price multiple, same industry. But in this case, EBITDA
was misleading and not at all equivalent to cash flow. These were both food
companies, but one manufactured chilled dairy products—primarily milk and
ice cream—while the other company manufactured shelf-stable, canned foods.
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The first company required much higher annual capital expenditures because
chilled dairy products require more expensive equipment for their storage and
transportation. The canned food company had much lower capex because its
products could sit on a truck or in a warehouse for an eternity without spoiling.
The significant difference in capex wasn’t reflected in the EBITDA multiple.
Therefore, the buyer of the chilled dairy business paid a significantly higher
price than the buyer of the ambient food business, even though the EBITDA
multiples were the same.
It should be clear that this candidate clearly gets it. Multiples can be deceptive, and should not
be viewed in isolation, but they can provide a wealth of information about how the markets
value a business, and why. The key in the interview is to keep it quantitative—after all, a
multiple is a fraction!
If you had $10,000 to invest ? Which stock ?
If you had $10,000 to invest—but you had to invest the money in a single
common stock—which company’s stock would you choose, and why?
While equity research analysts and equity sales professionals recommend specific stocks on a
daily basis, professionals in other areas of the bank—including corporate finance and
M&A—do not. Nonetheless, recruiters report that this question helps them evaluate
candidates on a number of criteria: the candidate’s general level of interest in the financial
markets, grasp of basic valuation concepts, and ability to speak intelligently on fundamental
investing principles. MBA associate candidates in particular will be expected to have a pretty
good answer for this question.
Bad Answers
Candidate 1: Probably Microsoft—they’re just completely dominant. Can you
seriously imagine every business in the country switching to a new operating
system? Bill Gates is the richest man in the world for a reason: huge barriers to
entry. The company has a complete monopoly on software that no one could
ever hope to replicate. They totally don’t seem to be hurt by all of the lawsuits
either, and in any case they have something like $100 billion in cash on the
books for a rainy day. I wish I had gotten in on that company from the
beginning.
It’s not necessarily the company you choose, but the rationale and detail that substantiate your
answer. In this case, Microsoft may be a perfectly legitimate investment choice, but the
candidate’s reasoning is almost wholly qualitative, and general and anecdotal at that. This
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candidate doesn’t know the first thing about how Microsoft is valued today, and this will be
painfully obvious to the interviewer.
Candidate 2: I would never invest $10,000 in a single common stock today.
Maybe someday, when I’m a managing director at this firm and I have $10,000
to just throw around, maybe then I would. The key to successful investing is
diversification! I would take the $10,000 and invest in a collection of mutual
funds—you can’t put all of your eggs in one basket. Right now, I don’t have the
time to do the research necessary to get comfortable with just one stock.
This candidate takes the approach of candor. She demonstrates that she understands a bit
about personal investing and isn’t a gambler. While diversification is an important investing
principle, this candidate has chosen the wrong opportunity to demonstrate her mastery of the
concept. Though you may certainly acknowledge that single-stock investing may not be your
preferred strategy, don’t evade the question that the interviewer asks. You can always lead with
this, but then answer the question.
Good Answer
Candidate: Well, I must admit that I don’t have a lot of practice choosing
single stocks to invest in. I’m still a novice investor, and so far, I’ve stuck with a
diversified portfolio of mutual funds that limit my risk exposure and provide a
decent return. But if I were fortunate enough to have $10,000 to invest in one
company, I would choose Target Corporation.
Here, the candidate takes a moment to acknowledge that single-stock investing is not an area
of expertise for the everyday investor. But by mentioning his own investing experience, he
demonstrates a basic level of interest in (and experience with) the fundamentals of investing
and the tradeoff between risk and return. He also offers an answer at the very beginning,
providing the interviewer an opportunity to shape the dialogue.
Interviewer: Fine. Why Target?
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Candidate: Well, you hear a lot about Wal-Mart, and it is a great company. But
as I see it, Target has largely the same business model but comes at a lower
valuation. But let’s start at the beginning: First thing’s first, I like the business. I
believe Wal-Mart and Target will continue to succeed because they offer the
customer a significant price savings on both everyday goods and smaller-ticket
consumer luxuries. I think specialty, niche retailers may be able to succeed selling
at a higher price point, but for the basics, I think the customer will continue to
gravitate toward the savings. Wal-Mart and Target have a sustainable competitive
advantage over smaller retailers and grocers through sheer scale; they’re able to
procure their inventory at a significant discount to competitors and can pass
much of this directly onto the consumer. This will translate into earnings growth
potential; I see the existing stores gaining market share and new stores opening
up across the country—and perhaps internationally, although I’m not that close to
their business model.
Interviewer: Let’s say that your assumptions about growth prospects are fairly
accurate. You mentioned valuation—how do you put a value on that growth?
Candidate: Well, first I would look at where Target trades today, relative to
Wal-Mart as well as the market as a whole. Target’s trading at 20x trailing
earnings today versus Wal-Mart at 24x. So on actual, “in the bag” earnings,
Target trades at more than a 15 percent discount to Wal-Mart today. But getting
back to growth, and looking forward, Target’s trading at 16x forward earnings,
versus Wal-Mart at 19x to 20x forward earnings—again, at a 20 percent
discount. Moreover, Target is actually projected to grow faster than Wal-Mart: 15
percent annual growth over the next 5 years, versus 14 percent for Wal-Mart
and 10 to 11 percent for the S&P 500. So when you asked about valuing
growth, you can look at the P/E multiples relative to the growth rate—the
PEG ratio—and see that Target’s trading at just over 1x its expected growth
rate, versus Wal-Mart at 1.4x and the S&P at 1.6x. So, for that money, you’re
getting growth at a good price.
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Interviewer: Warren Buffett has made a career of that. What else would you
consider before investing your money, other than the price/earnings multiple
and the growth rate, and the basic company strategy?
Candidate: Well, I would look at the company’s management.
Interviewer: What about management? As a small investor, how can you
accurately assess whether Target’s management is effective?
Candidate: Well, one measure would be the extent to which the company has
consistently hit its earnings estimates. I imagine Wall Street research analysts
base their earnings estimates on their discussions with top management at the
companies they cover; if management isn’t realistic about the sustainability of its
business plan or its future growth prospects, or if management doesn’t make
effective decisions, it’s not likely to meet its quarterly earnings. If there had been
a lot of change in the executive ranks recently, or if the company announced
that significant leadership changes were imminent, I might be concerned about
management’s ability to meet estimates. To be totally honest, I don’t know how
Target’s done relative to its earnings projections. If they’ve underperformed, I
guess that could be one reason they’re trading at a discount to Wal-Mart. If I
actually had $10,000 to invest, I’d probably want to look into that!
This candidate has clearly taken the time to develop a well-researched, well-articulated investment
thesis for a single stock. Our guess is that you may never have thought in any great
detail about PEG ratios, or where any one company traded versus the S&P 500. But as you
consider how to prepare for interviews, keep in mind that after all, this is Wall Street. Think
about how much better this candidate sounds (if a bit too bookish) than the loosey-goosey
would-be Microsoft buyer above. There are numerous free financial and investing websites out
there offering all the quantitative and qualitative information you’d need to develop a viewpoint
on any publicly traded stock. Regardless of your background, you can certainly learn
enough to be dangerous in an interview (and by dangerous, we mean armed with actual
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valuation metrics and numbers to back up your great stock picking idea). As a general rule,
when confronted with quantitative questions, try to ground your response in numbers and
analysis, and let the qualitative data add in color around the edges.
common stock—which company’s stock would you choose, and why?
While equity research analysts and equity sales professionals recommend specific stocks on a
daily basis, professionals in other areas of the bank—including corporate finance and
M&A—do not. Nonetheless, recruiters report that this question helps them evaluate
candidates on a number of criteria: the candidate’s general level of interest in the financial
markets, grasp of basic valuation concepts, and ability to speak intelligently on fundamental
investing principles. MBA associate candidates in particular will be expected to have a pretty
good answer for this question.
Bad Answers
Candidate 1: Probably Microsoft—they’re just completely dominant. Can you
seriously imagine every business in the country switching to a new operating
system? Bill Gates is the richest man in the world for a reason: huge barriers to
entry. The company has a complete monopoly on software that no one could
ever hope to replicate. They totally don’t seem to be hurt by all of the lawsuits
either, and in any case they have something like $100 billion in cash on the
books for a rainy day. I wish I had gotten in on that company from the
beginning.
It’s not necessarily the company you choose, but the rationale and detail that substantiate your
answer. In this case, Microsoft may be a perfectly legitimate investment choice, but the
candidate’s reasoning is almost wholly qualitative, and general and anecdotal at that. This
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candidate doesn’t know the first thing about how Microsoft is valued today, and this will be
painfully obvious to the interviewer.
Candidate 2: I would never invest $10,000 in a single common stock today.
Maybe someday, when I’m a managing director at this firm and I have $10,000
to just throw around, maybe then I would. The key to successful investing is
diversification! I would take the $10,000 and invest in a collection of mutual
funds—you can’t put all of your eggs in one basket. Right now, I don’t have the
time to do the research necessary to get comfortable with just one stock.
This candidate takes the approach of candor. She demonstrates that she understands a bit
about personal investing and isn’t a gambler. While diversification is an important investing
principle, this candidate has chosen the wrong opportunity to demonstrate her mastery of the
concept. Though you may certainly acknowledge that single-stock investing may not be your
preferred strategy, don’t evade the question that the interviewer asks. You can always lead with
this, but then answer the question.
Good Answer
Candidate: Well, I must admit that I don’t have a lot of practice choosing
single stocks to invest in. I’m still a novice investor, and so far, I’ve stuck with a
diversified portfolio of mutual funds that limit my risk exposure and provide a
decent return. But if I were fortunate enough to have $10,000 to invest in one
company, I would choose Target Corporation.
Here, the candidate takes a moment to acknowledge that single-stock investing is not an area
of expertise for the everyday investor. But by mentioning his own investing experience, he
demonstrates a basic level of interest in (and experience with) the fundamentals of investing
and the tradeoff between risk and return. He also offers an answer at the very beginning,
providing the interviewer an opportunity to shape the dialogue.
Interviewer: Fine. Why Target?
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Candidate: Well, you hear a lot about Wal-Mart, and it is a great company. But
as I see it, Target has largely the same business model but comes at a lower
valuation. But let’s start at the beginning: First thing’s first, I like the business. I
believe Wal-Mart and Target will continue to succeed because they offer the
customer a significant price savings on both everyday goods and smaller-ticket
consumer luxuries. I think specialty, niche retailers may be able to succeed selling
at a higher price point, but for the basics, I think the customer will continue to
gravitate toward the savings. Wal-Mart and Target have a sustainable competitive
advantage over smaller retailers and grocers through sheer scale; they’re able to
procure their inventory at a significant discount to competitors and can pass
much of this directly onto the consumer. This will translate into earnings growth
potential; I see the existing stores gaining market share and new stores opening
up across the country—and perhaps internationally, although I’m not that close to
their business model.
Interviewer: Let’s say that your assumptions about growth prospects are fairly
accurate. You mentioned valuation—how do you put a value on that growth?
Candidate: Well, first I would look at where Target trades today, relative to
Wal-Mart as well as the market as a whole. Target’s trading at 20x trailing
earnings today versus Wal-Mart at 24x. So on actual, “in the bag” earnings,
Target trades at more than a 15 percent discount to Wal-Mart today. But getting
back to growth, and looking forward, Target’s trading at 16x forward earnings,
versus Wal-Mart at 19x to 20x forward earnings—again, at a 20 percent
discount. Moreover, Target is actually projected to grow faster than Wal-Mart: 15
percent annual growth over the next 5 years, versus 14 percent for Wal-Mart
and 10 to 11 percent for the S&P 500. So when you asked about valuing
growth, you can look at the P/E multiples relative to the growth rate—the
PEG ratio—and see that Target’s trading at just over 1x its expected growth
rate, versus Wal-Mart at 1.4x and the S&P at 1.6x. So, for that money, you’re
getting growth at a good price.
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Interviewer: Warren Buffett has made a career of that. What else would you
consider before investing your money, other than the price/earnings multiple
and the growth rate, and the basic company strategy?
Candidate: Well, I would look at the company’s management.
Interviewer: What about management? As a small investor, how can you
accurately assess whether Target’s management is effective?
Candidate: Well, one measure would be the extent to which the company has
consistently hit its earnings estimates. I imagine Wall Street research analysts
base their earnings estimates on their discussions with top management at the
companies they cover; if management isn’t realistic about the sustainability of its
business plan or its future growth prospects, or if management doesn’t make
effective decisions, it’s not likely to meet its quarterly earnings. If there had been
a lot of change in the executive ranks recently, or if the company announced
that significant leadership changes were imminent, I might be concerned about
management’s ability to meet estimates. To be totally honest, I don’t know how
Target’s done relative to its earnings projections. If they’ve underperformed, I
guess that could be one reason they’re trading at a discount to Wal-Mart. If I
actually had $10,000 to invest, I’d probably want to look into that!
This candidate has clearly taken the time to develop a well-researched, well-articulated investment
thesis for a single stock. Our guess is that you may never have thought in any great
detail about PEG ratios, or where any one company traded versus the S&P 500. But as you
consider how to prepare for interviews, keep in mind that after all, this is Wall Street. Think
about how much better this candidate sounds (if a bit too bookish) than the loosey-goosey
would-be Microsoft buyer above. There are numerous free financial and investing websites out
there offering all the quantitative and qualitative information you’d need to develop a viewpoint
on any publicly traded stock. Regardless of your background, you can certainly learn
enough to be dangerous in an interview (and by dangerous, we mean armed with actual
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valuation metrics and numbers to back up your great stock picking idea). As a general rule,
when confronted with quantitative questions, try to ground your response in numbers and
analysis, and let the qualitative data add in color around the edges.
How to answer in an Interview
I see that before business school, you worked at Fix My Business Consulting
for 3 years. Since consulting firms are so focused on developing
their analysts and associates, I’m sure you participated in a fair number
of performance reviews during your tenure. What did your last performance
review say?
Associate candidates in MBA programs are almost sure to confront questions about their
performance reviews in their previous full-time jobs. At the undergraduate level, a likely
variation on this question would be, “If I were to call up your summer internship supervisor,
what do you think she would tell me about you?” Before your interviews, give some serious
thought to what your reviews said and whether your areas of improvement will be red flags to
an investment banker. As always, it’s best to be honest, but introduce a positive spin wherever
you can.
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Bad Answers
Candidate 1: It basically said that I just needed to keep doing what I was
doing—that I was a real asset to all of my teams and to the firm in general and
that they didn’t want to lose me. The only real area of improvement was that I
tended to work a little bit too hard and that I should try to spend more time
out of the office.
This answer doesn’t really tell your interviewer anything, other than that you’re determined to
evade the question. Even if you really were a consulting deity, you should at least be specific
and thoughtful about your particular areas of perceived strength.
Candidate 2: In my last review, my manager pointed out that my performance
was always exceptional, but they questioned my enthusiasm and my commitment
to the job. Candidly, my heart wasn’t really in consulting. I didn’t like the
fact that I never really got to see the results of my work. Once I spent a year on
the job, I knew that I’d be better suited to a career in investment banking. I prefer
the faster-paced environment, the collaboration and camaraderie with my
colleagues, and the transaction-oriented nature of the work.
This candidate is not only evasive, but is using one question as an opportunity to answer another
one. In addition, a response like this will leave your interviewer wondering whether you’re likely
to jump ship after a year of banking. There’s nothing wrong with having your sights set on a
career change, but address your reasons for pursuing it when you’re asked, not when you’re asked
to describe your last performance review.
Good Answer
Candidate: Let’s see. Well, at FMB, performance reviews centered around several
different competency areas. There were probably seven or eight competency
areas, and I’m not sure that I can remember them all, but the primary areas of
focus were insight generation, product creation, teamwork, project management,
and client engagement. I was a business analyst, so for me, those areas measured
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the quality of my analysis, research, and deliverables, as well as my ability to work
with each of my project teams, juggle several simultaneous projects, and interact
effectively with clients.
Well done! This candidate outlines exactly which metrics her performance assessments depended
on. Even if you can’t provide as detailed an overview as this candidate, try to give your
interviewer some sense of what constituted exceptional performance at your previous employer,
especially if your previous employer wasn’t an investment bank.
Candidate: In terms of my last performance review, it said that my strengths
were content mastery and work product quality. It also mentioned my strengths in
new analyst coaching and mentoring, which I was particularly pleased with.
So far, so good. She’s outlined her response in “bullets”—her response is pithy, concise, and
lets her interviewer know where she’s going. In addition, she starts by discussing her strengths—
remember that the question was not, “What constructive criticism did you receive on your last
performance review?” Take the opportunity to highlight your strengths as well as your areas of
improvement.
Candidate: I was fairly comfortable changing gears and moving from one
industry to the next—basically, I could immediately get smart on the company
and industry that each new project involved. By the end of each project, I
would generally feel as though I was an “expert” in that space, and my team
leader would often call on me to share that content expertise with teams on
subsequent engagements.
On the product side, my team leaders were typically pleased with the clientreadiness
of the analysis and written work I produced. I was intensely detailfocused,
which I think served me well in consulting. Senior consultants want
junior people to focus on the “micro” issues without a lot of guidance so that
they could focus on the more strategic, “macro” issues.
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Amen! Senior bankers do, too! Attention to detail and self-sufficiency are important
“capacity” data points to mention as areas of proven strength.
Interviewer: You mentioned that you were particularly happy with the positive
feedback you received on your coaching and mentoring efforts. Tell me more
about that.
Candidate: Well, everyone says it, but the learning curve is pretty steep when you
go to a top consulting firm right after college, especially if you have little prior
experience with the work. There’s just so much new material to learn, and you’re
expected to learn it quickly if you want to add value to your client teams. The
first couple of months on the job were pretty difficult for me—I was hearing a
lot of this material for the first time, and I had never really built an Excel model
before or used PowerPoint. During those first couple of months, I felt like I was
just trying to keep my head above water. I was always asking questions, and I
couldn’t really envision that I’d ever be the person answering them. By the time I
was a second year, though (and to an even greater extent during my third year), I
had a pretty good sense of what I was doing, and I was asked to do a lot more
coaching and mentoring. It was satisfying for two reasons: Being asked to mentor
or coach affirmed that I had navigated the learning curve fairly well and could be
entrusted with coaching responsibility. Second, I just liked the process of coaching
and mentoring. It was satisfying for me to help new consultants though their
first year, especially since I could relate to what they were going through.
Remember that particularly for associate candidates, interviewers are looking for people who have
demonstrated managerial aptitude and who are likely to be exceptional mentors and coaches. It’s
one of the key distinctions between associates and analysts. Associates are expected to manage
teams of analysts and provide coaching and mentoring (official and unofficial) when necessary.
Interviewer: Well, it sounds like in the end, you were able to add substantial
value to both teams and clients, even if those first few months were a little bit
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Finding Your Way
rough. But in addition to the areas of strength that you described, did your
performance review describe any “areas for opportunity”?
Candidate: The big “development area” for me was team leadership—my
manager thought that I could be more assertive and proactive sharing my
thoughts in internal and external meetings. I think this was a result of those first
few months on the job that I described. Because I was trying to find my footing
during the first half of my first year, I wouldn’t really speak up in internal client
teams and meetings. I was basically trying to learn by observing and absorbing,
and also trying not to make some sort of obvious rookie mistake. And then I
guess it became difficult to break the pattern; even though I was developing
content expertise and getting better at the technical and analytical parts of the
job, I had gotten into the habit of not taking as much of an explicit leadership
role in team meetings.
Interviewer: That’s understandable to some extent. I can understand how team
leadership might come up on your first performance review, but why do you
think it came up on your last performance review, after you had been at the
company for a few years and developed more technical expertise? What steps did
you take to address the feedback the first time you got it? What steps are you
taking now?
Investment bankers expect that you’re not only conscious of your development areas, but that
you’ll continually work to improve them. If you’ve gotten constructive criticism more than once,
be sure that you’re ready to provide a credible reason why and provide evidence that you’re
working on it.
Candidate: I think that in any profession, there will be elements of each job that
come naturally to some people and not to others. For me, I loved the process of
learning about companies and industries that I didn’t know a lot about—I really
enjoyed the research component, and I loved all of the interviews that I did with
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Finding Your Way
companies’ management. That’s probably part of the reason why my performance
reviews emphasized my ability to develop real expertise within a given company.
On the other hand, team leadership takes a little more effort for me. First of all,
I’m the type of person who learns by watching and observing and asking questions—
I tend not to speak up proactively unless I’m confident that I can add value.
Plus, it’s hard to remind yourself to speak up in a consulting scenario when you’re
an analyst—you’re the junior-most person, and your job involves so many details;
sometimes, the discussion is so “big picture” that you tend to speak up only when
asked.
for 3 years. Since consulting firms are so focused on developing
their analysts and associates, I’m sure you participated in a fair number
of performance reviews during your tenure. What did your last performance
review say?
Associate candidates in MBA programs are almost sure to confront questions about their
performance reviews in their previous full-time jobs. At the undergraduate level, a likely
variation on this question would be, “If I were to call up your summer internship supervisor,
what do you think she would tell me about you?” Before your interviews, give some serious
thought to what your reviews said and whether your areas of improvement will be red flags to
an investment banker. As always, it’s best to be honest, but introduce a positive spin wherever
you can.
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Finding Your Way
Bad Answers
Candidate 1: It basically said that I just needed to keep doing what I was
doing—that I was a real asset to all of my teams and to the firm in general and
that they didn’t want to lose me. The only real area of improvement was that I
tended to work a little bit too hard and that I should try to spend more time
out of the office.
This answer doesn’t really tell your interviewer anything, other than that you’re determined to
evade the question. Even if you really were a consulting deity, you should at least be specific
and thoughtful about your particular areas of perceived strength.
Candidate 2: In my last review, my manager pointed out that my performance
was always exceptional, but they questioned my enthusiasm and my commitment
to the job. Candidly, my heart wasn’t really in consulting. I didn’t like the
fact that I never really got to see the results of my work. Once I spent a year on
the job, I knew that I’d be better suited to a career in investment banking. I prefer
the faster-paced environment, the collaboration and camaraderie with my
colleagues, and the transaction-oriented nature of the work.
This candidate is not only evasive, but is using one question as an opportunity to answer another
one. In addition, a response like this will leave your interviewer wondering whether you’re likely
to jump ship after a year of banking. There’s nothing wrong with having your sights set on a
career change, but address your reasons for pursuing it when you’re asked, not when you’re asked
to describe your last performance review.
Good Answer
Candidate: Let’s see. Well, at FMB, performance reviews centered around several
different competency areas. There were probably seven or eight competency
areas, and I’m not sure that I can remember them all, but the primary areas of
focus were insight generation, product creation, teamwork, project management,
and client engagement. I was a business analyst, so for me, those areas measured
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Finding Your Way
the quality of my analysis, research, and deliverables, as well as my ability to work
with each of my project teams, juggle several simultaneous projects, and interact
effectively with clients.
Well done! This candidate outlines exactly which metrics her performance assessments depended
on. Even if you can’t provide as detailed an overview as this candidate, try to give your
interviewer some sense of what constituted exceptional performance at your previous employer,
especially if your previous employer wasn’t an investment bank.
Candidate: In terms of my last performance review, it said that my strengths
were content mastery and work product quality. It also mentioned my strengths in
new analyst coaching and mentoring, which I was particularly pleased with.
So far, so good. She’s outlined her response in “bullets”—her response is pithy, concise, and
lets her interviewer know where she’s going. In addition, she starts by discussing her strengths—
remember that the question was not, “What constructive criticism did you receive on your last
performance review?” Take the opportunity to highlight your strengths as well as your areas of
improvement.
Candidate: I was fairly comfortable changing gears and moving from one
industry to the next—basically, I could immediately get smart on the company
and industry that each new project involved. By the end of each project, I
would generally feel as though I was an “expert” in that space, and my team
leader would often call on me to share that content expertise with teams on
subsequent engagements.
On the product side, my team leaders were typically pleased with the clientreadiness
of the analysis and written work I produced. I was intensely detailfocused,
which I think served me well in consulting. Senior consultants want
junior people to focus on the “micro” issues without a lot of guidance so that
they could focus on the more strategic, “macro” issues.
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Finding Your Way
Amen! Senior bankers do, too! Attention to detail and self-sufficiency are important
“capacity” data points to mention as areas of proven strength.
Interviewer: You mentioned that you were particularly happy with the positive
feedback you received on your coaching and mentoring efforts. Tell me more
about that.
Candidate: Well, everyone says it, but the learning curve is pretty steep when you
go to a top consulting firm right after college, especially if you have little prior
experience with the work. There’s just so much new material to learn, and you’re
expected to learn it quickly if you want to add value to your client teams. The
first couple of months on the job were pretty difficult for me—I was hearing a
lot of this material for the first time, and I had never really built an Excel model
before or used PowerPoint. During those first couple of months, I felt like I was
just trying to keep my head above water. I was always asking questions, and I
couldn’t really envision that I’d ever be the person answering them. By the time I
was a second year, though (and to an even greater extent during my third year), I
had a pretty good sense of what I was doing, and I was asked to do a lot more
coaching and mentoring. It was satisfying for two reasons: Being asked to mentor
or coach affirmed that I had navigated the learning curve fairly well and could be
entrusted with coaching responsibility. Second, I just liked the process of coaching
and mentoring. It was satisfying for me to help new consultants though their
first year, especially since I could relate to what they were going through.
Remember that particularly for associate candidates, interviewers are looking for people who have
demonstrated managerial aptitude and who are likely to be exceptional mentors and coaches. It’s
one of the key distinctions between associates and analysts. Associates are expected to manage
teams of analysts and provide coaching and mentoring (official and unofficial) when necessary.
Interviewer: Well, it sounds like in the end, you were able to add substantial
value to both teams and clients, even if those first few months were a little bit
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Finding Your Way
rough. But in addition to the areas of strength that you described, did your
performance review describe any “areas for opportunity”?
Candidate: The big “development area” for me was team leadership—my
manager thought that I could be more assertive and proactive sharing my
thoughts in internal and external meetings. I think this was a result of those first
few months on the job that I described. Because I was trying to find my footing
during the first half of my first year, I wouldn’t really speak up in internal client
teams and meetings. I was basically trying to learn by observing and absorbing,
and also trying not to make some sort of obvious rookie mistake. And then I
guess it became difficult to break the pattern; even though I was developing
content expertise and getting better at the technical and analytical parts of the
job, I had gotten into the habit of not taking as much of an explicit leadership
role in team meetings.
Interviewer: That’s understandable to some extent. I can understand how team
leadership might come up on your first performance review, but why do you
think it came up on your last performance review, after you had been at the
company for a few years and developed more technical expertise? What steps did
you take to address the feedback the first time you got it? What steps are you
taking now?
Investment bankers expect that you’re not only conscious of your development areas, but that
you’ll continually work to improve them. If you’ve gotten constructive criticism more than once,
be sure that you’re ready to provide a credible reason why and provide evidence that you’re
working on it.
Candidate: I think that in any profession, there will be elements of each job that
come naturally to some people and not to others. For me, I loved the process of
learning about companies and industries that I didn’t know a lot about—I really
enjoyed the research component, and I loved all of the interviews that I did with
79
Finding Your Way
companies’ management. That’s probably part of the reason why my performance
reviews emphasized my ability to develop real expertise within a given company.
On the other hand, team leadership takes a little more effort for me. First of all,
I’m the type of person who learns by watching and observing and asking questions—
I tend not to speak up proactively unless I’m confident that I can add value.
Plus, it’s hard to remind yourself to speak up in a consulting scenario when you’re
an analyst—you’re the junior-most person, and your job involves so many details;
sometimes, the discussion is so “big picture” that you tend to speak up only when
asked.
Example of Interview Questions
Remember the rules for self-awareness questions:
1. Predict, prepare, and practice.
2. Be honest, but emphasize the positive.
3. Keep your audience in mind.
As you prepare for self-awareness questions, ask yourself the following:
• What were the motivations and decision-making processes behind each of
the experiences summarized on my resume?
• What personal qualities do I possess that would make me a particularly
strong candidate for an investment banking analyst or associate role?
• How would other people (friends, colleagues, classmates) describe me?
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Hitting the Road
• What are my personal and professional weaknesses, limitations, and
vulnerabilities, and how might they impede my success in an investment
banking role?
• What have been my most significant failures and mistakes? What have I
learned from each of them, and how have I applied these lessons to other
endeavors?
Question 1
Why did you choose ABC University (or XYZ Business School)?
Question 2
I see that before business school, you worked at Fix My Business
Consulting for 3 years. Since consulting firms are so focused on
developing their analysts and associates, I’m sure you participated in a
fair number of performance reviews during your tenure. What did your
last performance review say?
Question 3
Tell me about a time that you had to overcome a weakness to achieve a
personal or professional goal.
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Hitting the Road
Capacity Questions
Remember the rules for capacity questions:
1. Be prepared for confrontation.
2. Imply—but don’t state directly—that your previous achievements prove
that you’re highly capable of doing the work.
3. Remember that capacity refers to more than just intellectual horsepower.
As you prepare for capacity questions, think of specific instances in which you
have demonstrated the following characteristics:
• Exceptionally high performance standards
• Considerable intellectual curiosity, quantitative aptitude, and analytical ability
• Willingness to work extraordinarily long (and often unpredictable) hours
• Willingness to do unglamorous and tedious grunt work
• Abilities to learn quickly and work efficiently
• Consistent attention to details, even under significant time constraints
• Ability to stay calm and productive under pressure
• Capacity for juggling several complex projects (at various stages of
development) simultaneously
Question 4
Of the academic and work experiences listed on your resume, I wondered
if you could discuss the role that required the most juggling or
multitasking of complex projects?
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Hitting the Road
Question 5
Describe a time when something that you worked on—whether in an
academic, extracurricular, or professional setting—required considerable
personal sacrifice. How did you stay motivated to achieve your goal
despite the sacrifices it required?
Interpersonal Aptitude
Questions
Remember the rules for interpersonal aptitude questions:
1. Where possible, highlight the team-based components of the pursuits
listed on your resume.
2. No bragging, blabbering, or bluffing.
3. Get comfortable, but not too comfortable.
As you prepare for interpersonal questions, think of specific anecdotes or
experiences that will help your interviewer assess the following:
• Whether you are extroverted, social, affable, and likely to thrive in a dynamic,
team-based environment
• Whether you are likely to be a consistently positive contributor to the teams,
especially in high-pressure, time-sensitive situations
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Hitting the Road
• Whether your communication skills will inspire confidence among colleagues
and clients (this includes both effective speaking and active listening)
• Whether you take direction and criticism well, that is, without taking things
personally and creating conflict (i.e., whether you have a “thick skin”)
• Whether you can successfully navigate intraoffice personality conflicts
(especially avoiding them in the first place!)
• Your ability to manage difficult and demanding personalities effectively,
particularly when faced with competing priorities from different deal teams
Question 6
Have you ever had to work with someone that you didn’t particularly like
or get along with? How did you overcome personality differences to get
your job done?
Question 7
I noticed that here at Stanford Business School, you currently serve as
the co-president of the student association. I wondered if you could
describe your role in this group, focusing on the people management
(rather than the project management) component of your job. If I spent
some time here on campus and spoke to the students who worked with
you in this organization, what would they say that they liked (and
perhaps disliked) about working with you? Do you think that you were
an effective manager?
Question 8
Have you ever worked on a team that didn’t achieve its objectives? Why
do you think the team wasn’t effective?
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Hitting the Road
Commitment Questions
Remember the rules for commitment questions:
1. Know exactly why you want to be an investment banker.
2. Examine your resume and transcript for anything your interviewer might
perceive as a gap or inconsistency.
3. Remember that investment banks love to be loved, just like the rest of us.
As you prepare for commitment questions, make sure you’ve given some
thought to the following questions:
• Why am I pursuing a job in this industry; specifically, why am I pursuing a
job at this firm, in this specific function?
• How will I walk my interviewer through my resume in a way that suggests a
logical progression to a career in investment banking?
• Are my reasons for pursuing the analyst/associate track thoughtful and
credible?
• How will this job advance my own personal and professional goals?
• Can I provide a realistic outline of the roles and responsibilities of an
analyst/associate? What does an analyst/associate do every day? What is
appealing to me about assuming those responsibilities?
• Do I understand the extent to which the profession requires personal
sacrifice? How can I convince my interviewer that I have thought this
through?
• If I secure an offer at this particular bank, will I accept it? Why? What makes
an offer from this bank more appealing than an offer from another?
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Hitting the Road
Question 9
Describe what you think the role of an investment bank is.
Question 10
Why do you want to be an investment banker? Explain how you arrived
at the decision to pursue an analyst position in investment banking.
Question 11
So I know why you want to be a banker, but why here specifically? I
mean, if we at ABC Bank give you an offer, are you going to accept it
over your other offers?
Question 12
Aside from the hours, what do you think you’ll like the least about
investment banking?
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Hitting the Road
Technical Questions
Remember the rules for technical questions:
1. Keep your answers short and sweet.
2. Think concepts, not formulas.
3. If you don’t know, then just say that you don’t know.
As you prepare for technical questions, keep the following things in mind:
• For finance, accounting, and economics majors: What was the most
complex or difficult concept you encountered in your quantitative studies?
Would you be able to explain this concept to your grandmother so that she
would understand it (or at least so that she wouldn’t lapse into a coma)?
• For nonquantitative majors: Can you use your common sense, analytical
reasoning, and business intuition to walk through a case-style interview
question on valuation? If faced with a technical question regarding valuation,
what top-line concepts will you draw on to craft an effective answer?
• For MBA candidates with banking experience: Do you know the deals
cited on your resume inside and out? Can you answer detailed questions
about the financial projections, transaction structure, and valuation behind
each transaction?
• For MBA candidates without banking experience: Have you reviewed
your graduate-level finance and accounting courses so that you know the
material cold? Can you demonstrate a strong enough foundation from these
classes to hit the ground running as an associate?
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Hitting the Road
Question 13
If you had $10,000 to invest—but you had to invest the money in a single
common stock—which company’s stock would you choose, and why?
Question 14
I see on your resume that you worked on the acquisition of Company B
by Company A. I wondered if you could tell how the buyer arrived at a
value for the seller, and tell us whether you think it was a good deal.
Question 15
So far, we’ve talked a lot about multiples: You’ve mentioned EBITDA
multiples in your discussion of the analysis you did at Morgan Stanley,
you’ve talked about P/E multiples in your analysis of a common stock. I
wondered if you could tell me what a multiple really is—to say that a
company is trading at “eight times.” How would I make sense of that?
How is that meaningful to you? What does it tell you about the
company?
Question 16
If I asked you to tell me what a skyscraper in Manhattan was worth—
let’s say the one we’re sitting in right now—how would you go about
valuing that skyscraper?
1. Predict, prepare, and practice.
2. Be honest, but emphasize the positive.
3. Keep your audience in mind.
As you prepare for self-awareness questions, ask yourself the following:
• What were the motivations and decision-making processes behind each of
the experiences summarized on my resume?
• What personal qualities do I possess that would make me a particularly
strong candidate for an investment banking analyst or associate role?
• How would other people (friends, colleagues, classmates) describe me?
58
Hitting the Road
• What are my personal and professional weaknesses, limitations, and
vulnerabilities, and how might they impede my success in an investment
banking role?
• What have been my most significant failures and mistakes? What have I
learned from each of them, and how have I applied these lessons to other
endeavors?
Question 1
Why did you choose ABC University (or XYZ Business School)?
Question 2
I see that before business school, you worked at Fix My Business
Consulting for 3 years. Since consulting firms are so focused on
developing their analysts and associates, I’m sure you participated in a
fair number of performance reviews during your tenure. What did your
last performance review say?
Question 3
Tell me about a time that you had to overcome a weakness to achieve a
personal or professional goal.
59
Hitting the Road
Capacity Questions
Remember the rules for capacity questions:
1. Be prepared for confrontation.
2. Imply—but don’t state directly—that your previous achievements prove
that you’re highly capable of doing the work.
3. Remember that capacity refers to more than just intellectual horsepower.
As you prepare for capacity questions, think of specific instances in which you
have demonstrated the following characteristics:
• Exceptionally high performance standards
• Considerable intellectual curiosity, quantitative aptitude, and analytical ability
• Willingness to work extraordinarily long (and often unpredictable) hours
• Willingness to do unglamorous and tedious grunt work
• Abilities to learn quickly and work efficiently
• Consistent attention to details, even under significant time constraints
• Ability to stay calm and productive under pressure
• Capacity for juggling several complex projects (at various stages of
development) simultaneously
Question 4
Of the academic and work experiences listed on your resume, I wondered
if you could discuss the role that required the most juggling or
multitasking of complex projects?
60
Hitting the Road
Question 5
Describe a time when something that you worked on—whether in an
academic, extracurricular, or professional setting—required considerable
personal sacrifice. How did you stay motivated to achieve your goal
despite the sacrifices it required?
Interpersonal Aptitude
Questions
Remember the rules for interpersonal aptitude questions:
1. Where possible, highlight the team-based components of the pursuits
listed on your resume.
2. No bragging, blabbering, or bluffing.
3. Get comfortable, but not too comfortable.
As you prepare for interpersonal questions, think of specific anecdotes or
experiences that will help your interviewer assess the following:
• Whether you are extroverted, social, affable, and likely to thrive in a dynamic,
team-based environment
• Whether you are likely to be a consistently positive contributor to the teams,
especially in high-pressure, time-sensitive situations
61
Hitting the Road
• Whether your communication skills will inspire confidence among colleagues
and clients (this includes both effective speaking and active listening)
• Whether you take direction and criticism well, that is, without taking things
personally and creating conflict (i.e., whether you have a “thick skin”)
• Whether you can successfully navigate intraoffice personality conflicts
(especially avoiding them in the first place!)
• Your ability to manage difficult and demanding personalities effectively,
particularly when faced with competing priorities from different deal teams
Question 6
Have you ever had to work with someone that you didn’t particularly like
or get along with? How did you overcome personality differences to get
your job done?
Question 7
I noticed that here at Stanford Business School, you currently serve as
the co-president of the student association. I wondered if you could
describe your role in this group, focusing on the people management
(rather than the project management) component of your job. If I spent
some time here on campus and spoke to the students who worked with
you in this organization, what would they say that they liked (and
perhaps disliked) about working with you? Do you think that you were
an effective manager?
Question 8
Have you ever worked on a team that didn’t achieve its objectives? Why
do you think the team wasn’t effective?
62
Hitting the Road
Commitment Questions
Remember the rules for commitment questions:
1. Know exactly why you want to be an investment banker.
2. Examine your resume and transcript for anything your interviewer might
perceive as a gap or inconsistency.
3. Remember that investment banks love to be loved, just like the rest of us.
As you prepare for commitment questions, make sure you’ve given some
thought to the following questions:
• Why am I pursuing a job in this industry; specifically, why am I pursuing a
job at this firm, in this specific function?
• How will I walk my interviewer through my resume in a way that suggests a
logical progression to a career in investment banking?
• Are my reasons for pursuing the analyst/associate track thoughtful and
credible?
• How will this job advance my own personal and professional goals?
• Can I provide a realistic outline of the roles and responsibilities of an
analyst/associate? What does an analyst/associate do every day? What is
appealing to me about assuming those responsibilities?
• Do I understand the extent to which the profession requires personal
sacrifice? How can I convince my interviewer that I have thought this
through?
• If I secure an offer at this particular bank, will I accept it? Why? What makes
an offer from this bank more appealing than an offer from another?
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Hitting the Road
Question 9
Describe what you think the role of an investment bank is.
Question 10
Why do you want to be an investment banker? Explain how you arrived
at the decision to pursue an analyst position in investment banking.
Question 11
So I know why you want to be a banker, but why here specifically? I
mean, if we at ABC Bank give you an offer, are you going to accept it
over your other offers?
Question 12
Aside from the hours, what do you think you’ll like the least about
investment banking?
64
Hitting the Road
Technical Questions
Remember the rules for technical questions:
1. Keep your answers short and sweet.
2. Think concepts, not formulas.
3. If you don’t know, then just say that you don’t know.
As you prepare for technical questions, keep the following things in mind:
• For finance, accounting, and economics majors: What was the most
complex or difficult concept you encountered in your quantitative studies?
Would you be able to explain this concept to your grandmother so that she
would understand it (or at least so that she wouldn’t lapse into a coma)?
• For nonquantitative majors: Can you use your common sense, analytical
reasoning, and business intuition to walk through a case-style interview
question on valuation? If faced with a technical question regarding valuation,
what top-line concepts will you draw on to craft an effective answer?
• For MBA candidates with banking experience: Do you know the deals
cited on your resume inside and out? Can you answer detailed questions
about the financial projections, transaction structure, and valuation behind
each transaction?
• For MBA candidates without banking experience: Have you reviewed
your graduate-level finance and accounting courses so that you know the
material cold? Can you demonstrate a strong enough foundation from these
classes to hit the ground running as an associate?
65
Hitting the Road
Question 13
If you had $10,000 to invest—but you had to invest the money in a single
common stock—which company’s stock would you choose, and why?
Question 14
I see on your resume that you worked on the acquisition of Company B
by Company A. I wondered if you could tell how the buyer arrived at a
value for the seller, and tell us whether you think it was a good deal.
Question 15
So far, we’ve talked a lot about multiples: You’ve mentioned EBITDA
multiples in your discussion of the analysis you did at Morgan Stanley,
you’ve talked about P/E multiples in your analysis of a common stock. I
wondered if you could tell me what a multiple really is—to say that a
company is trading at “eight times.” How would I make sense of that?
How is that meaningful to you? What does it tell you about the
company?
Question 16
If I asked you to tell me what a skyscraper in Manhattan was worth—
let’s say the one we’re sitting in right now—how would you go about
valuing that skyscraper?
Capacity Questions in an interview
Capacity questions seek to answer the question, “Can you do the work?” As a
general rule, recruiters ask fewer of these questions of associate candidates
who have already excelled in investment banking analyst programs before
business school. If this describes your background, interviewers will typically
assume that there is little need to probe your ability to do the job, and they’ll
instead focus on the areas of demonstrated strength (as well as opportunities
for professional development) that characterized your analyst performance
reviews.
If you don’t offer prior banking experience, however (and this is the case for
the vast majority of analyst candidates), be prepared to convince every prospective
employer that your achievements outside the world of investment banking
will translate into success within it.
Examples
The following are examples of capacity questions:
• Tell me about a time when you worked on a highly quantitative or analytical
project. Describe the context, the project, and the outcome.
• What is the greatest challenge you’ve faced to date? How did you overcome it?
• Describe a typical day for you.
• Describe a time when you achieved a goal that required significant personal
sacrifice. How did you stay motivated to achieve the goal, despite the
hardships that it involved?
• Judging from your resume, you must be extraordinarily busy. What do you
think is the key to successfully juggling so many different activities, all while
maintaining your high GPA?
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Popular Destinations
• I’m looking at your transcript, and I’m noticing that your two lowest grades
were in introductory accounting and intermediate economics. Why should I
be comfortable with your quantitative aptitude given your relatively low
grades in these classes?
• I noticed that you haven’t taken a single class involving numbers during your
first 3 years of college. How can you convince me that you’re good with
numbers?
• Give me an example of a project (either academic or work-related) that
required significant attention to detail. Do you consider yourself a detailoriented
person?
What They Tell Your Interviewer
With enough preparation and forethought, your answers will convince your
interviewers that you’re a good corporate athlete who can consistently produce
a quality work product regardless of the level of complexity or time pressure
involved. Whether you focus on the hundreds of statistical analyses you performed
while working at the Federal Reserve, or whether you spend more time
discussing your experience on your university’s rowing team, recruiters will
hone in on the extent to which you have demonstrated the following:
• Exceptionally high performance standards
• Considerable intellectual curiosity, quantitative aptitude, and analytical ability
• Willingness to work extraordinarily long (and often unpredictable) hours
• Willingness to do unglamorous and tedious grunt work
• Ability to learn quickly and work efficiently
• Consistent attention to details, even under significant time constraints
• Ability to stay calm and productive under pressure
• Capacity for juggling several complex projects (at various stages of
development) simultaneously
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Popular Destinations
Why They Matter
When we asked insiders what attributes make a successful banker, one phrase
came up again and again: a willingness to “run through walls.” There’s a reason
that this expression arises so frequently; it’s the sensation that most closely
approximates investment banking at its worst—unnecessarily harsh, physically
painful, seemingly impossible, and simply not worth it. Unfortunately for
recruiters (and fortunately for job-seekers), there is still no reliable way to
simulate the challenges that a junior banker faces in the context of a 30-minute
interview. There’s no good proxy for determining whether a prospective analyst
can consistently crunch perfect numbers regardless of the number of consecutive
sleepless nights he endured the previous week. To make recruiters’ jobs
especially difficult, relatively few candidates (particularly at the analyst level)
have extensive prior experience in investment banking when they apply.
With relatively few data points available to accurately predict your on-the-job
success, recruiters are left to infer your tolerance for hard work based on your
other endeavors. As a candidate, your job is to convince your interviewer that
you’ve demonstrated the same skills before—either in an investment banking
context or in other pursuits. Former athletes are particularly effective at
positioning themselves in this way, since they can credibly say that they’ve
devoted a considerable amount of time to a single endeavor, made significant
personal sacrifices to succeed, and endured substantial physical discomfort
along the way. Further, former athletes typically possess a competitive spirit and
a determination to excel, both of which translate well into investment banking.
Capacity questions test not only your willingness to work hard, but also your
ability to learn quickly. Although investment banks devote substantial resources
to training their incoming analysts and associates, training programs cover a
considerable amount of material in a relatively short period. Deal teams are
lean relative to the volume of work to be done, time frames are often tight, and
38
Popular Destinations
there is little tolerance for missing deadlines. To add value to the transaction
team, junior bankers must learn quickly and work efficiently, often with little
supervision. Since senior bankers’ time is both valuable and limited, they
appreciate analysts and associates who only need things explained once.
Rules of the Road
Rule 1: Be prepared for confrontation.
Because your interviewers are assessing your fundamental ability to do the
work, questions in this category (along with commitment questions) tend to be
the most confrontational. Be prepared to discuss your C-plus in macroeconomics
or accounting, the curious absence of anything financial or quantitative
on your resume, or the three consecutive summers you spent lounging in the
Caribbean. (Even if you don’t have any low grades or low-key summers to
worry about, don’t be complacent: One of our insiders was asked about the
single A-minus among the sea of straight A’s on her transcript). Regardless of
your background, you may encounter a series of rapid-fire multiplication
questions or a wacky brainteaser designed to rattle your cage and test for an
allergic reaction to numbers. Come prepared and stay calm—the wrong answers
won’t disqualify you, but tears most certainly will.
Rule 2: Imply—but don’t state directly—that your previous achievements
prove that you’re highly capable of doing the work.
Recall our discussion above: The more directly comparable experience you
have, the more comfortable recruiters will be in your ability to do the analytical
heavy lifting on each of your teams. As you prepare for your interviews, keep
the profile of an analyst or associate’s responsibilities in mind. If you’ve worked
as a summer analyst for an investment bank, written highly analytical papers in
college, crunched numbers for a government agency during a high-profile
39
Popular Destinations
internship, or excelled in athletic endeavors, be sure to discuss these topics
(enthusiastically) during your interview.
Conversely, don’t belabor the point for less relevant pursuits. Trying to convince
your interviewer—through excruciating detail—that the summer you spent
working on a Montana dude ranch is highly applicable to investment banking
may not achieve the desired outcome. Particularly in the case of seemingly
unrelated pursuits, it’s best to let your interviewer draw conclusions about your
capability (unless, of course, you’re asked). If you make this leap yourself, it’s
likely to come across as forced, canned, and presumptuous.
Rule 3: Remember that “capacity” refers to more
than just raw intellectual horsepower.
Particularly at the junior levels, a “can-do” attitude counts for as much as
analytical aptitude. Regardless of your academic training or work experience,
don’t forget to highlight experiences that suggest you can learn quickly (perhaps
you taught yourself Italian in your spare time and are now fully conversational),
work well under pressure (don’t forget the summer you worked as a short order
cook in Cape Cod), and have a healthy attitude toward grunt work. One insider
describes her interview with a senior VP and business unit manager at a leading
Wall Street firm: “This guy had the final say as to who was hired into the group,
and he had this thing about hiring people who had waited tables. He’d ask
everyone he interviewed —analysts, MBAs, lateral hires—whether they had ever
waited tables. If you hadn’t (and I hadn’t), you’d better be able to describe
something you had done that proved you weren’t opposed to doing tedious,
unglamorous work.” Investment banking may be a white-shoe kind of
profession, but as a group, bankers like people who aren’t afraid to get their
hands a little bit dirty.
general rule, recruiters ask fewer of these questions of associate candidates
who have already excelled in investment banking analyst programs before
business school. If this describes your background, interviewers will typically
assume that there is little need to probe your ability to do the job, and they’ll
instead focus on the areas of demonstrated strength (as well as opportunities
for professional development) that characterized your analyst performance
reviews.
If you don’t offer prior banking experience, however (and this is the case for
the vast majority of analyst candidates), be prepared to convince every prospective
employer that your achievements outside the world of investment banking
will translate into success within it.
Examples
The following are examples of capacity questions:
• Tell me about a time when you worked on a highly quantitative or analytical
project. Describe the context, the project, and the outcome.
• What is the greatest challenge you’ve faced to date? How did you overcome it?
• Describe a typical day for you.
• Describe a time when you achieved a goal that required significant personal
sacrifice. How did you stay motivated to achieve the goal, despite the
hardships that it involved?
• Judging from your resume, you must be extraordinarily busy. What do you
think is the key to successfully juggling so many different activities, all while
maintaining your high GPA?
36
Popular Destinations
• I’m looking at your transcript, and I’m noticing that your two lowest grades
were in introductory accounting and intermediate economics. Why should I
be comfortable with your quantitative aptitude given your relatively low
grades in these classes?
• I noticed that you haven’t taken a single class involving numbers during your
first 3 years of college. How can you convince me that you’re good with
numbers?
• Give me an example of a project (either academic or work-related) that
required significant attention to detail. Do you consider yourself a detailoriented
person?
What They Tell Your Interviewer
With enough preparation and forethought, your answers will convince your
interviewers that you’re a good corporate athlete who can consistently produce
a quality work product regardless of the level of complexity or time pressure
involved. Whether you focus on the hundreds of statistical analyses you performed
while working at the Federal Reserve, or whether you spend more time
discussing your experience on your university’s rowing team, recruiters will
hone in on the extent to which you have demonstrated the following:
• Exceptionally high performance standards
• Considerable intellectual curiosity, quantitative aptitude, and analytical ability
• Willingness to work extraordinarily long (and often unpredictable) hours
• Willingness to do unglamorous and tedious grunt work
• Ability to learn quickly and work efficiently
• Consistent attention to details, even under significant time constraints
• Ability to stay calm and productive under pressure
• Capacity for juggling several complex projects (at various stages of
development) simultaneously
37
Popular Destinations
Why They Matter
When we asked insiders what attributes make a successful banker, one phrase
came up again and again: a willingness to “run through walls.” There’s a reason
that this expression arises so frequently; it’s the sensation that most closely
approximates investment banking at its worst—unnecessarily harsh, physically
painful, seemingly impossible, and simply not worth it. Unfortunately for
recruiters (and fortunately for job-seekers), there is still no reliable way to
simulate the challenges that a junior banker faces in the context of a 30-minute
interview. There’s no good proxy for determining whether a prospective analyst
can consistently crunch perfect numbers regardless of the number of consecutive
sleepless nights he endured the previous week. To make recruiters’ jobs
especially difficult, relatively few candidates (particularly at the analyst level)
have extensive prior experience in investment banking when they apply.
With relatively few data points available to accurately predict your on-the-job
success, recruiters are left to infer your tolerance for hard work based on your
other endeavors. As a candidate, your job is to convince your interviewer that
you’ve demonstrated the same skills before—either in an investment banking
context or in other pursuits. Former athletes are particularly effective at
positioning themselves in this way, since they can credibly say that they’ve
devoted a considerable amount of time to a single endeavor, made significant
personal sacrifices to succeed, and endured substantial physical discomfort
along the way. Further, former athletes typically possess a competitive spirit and
a determination to excel, both of which translate well into investment banking.
Capacity questions test not only your willingness to work hard, but also your
ability to learn quickly. Although investment banks devote substantial resources
to training their incoming analysts and associates, training programs cover a
considerable amount of material in a relatively short period. Deal teams are
lean relative to the volume of work to be done, time frames are often tight, and
38
Popular Destinations
there is little tolerance for missing deadlines. To add value to the transaction
team, junior bankers must learn quickly and work efficiently, often with little
supervision. Since senior bankers’ time is both valuable and limited, they
appreciate analysts and associates who only need things explained once.
Rules of the Road
Rule 1: Be prepared for confrontation.
Because your interviewers are assessing your fundamental ability to do the
work, questions in this category (along with commitment questions) tend to be
the most confrontational. Be prepared to discuss your C-plus in macroeconomics
or accounting, the curious absence of anything financial or quantitative
on your resume, or the three consecutive summers you spent lounging in the
Caribbean. (Even if you don’t have any low grades or low-key summers to
worry about, don’t be complacent: One of our insiders was asked about the
single A-minus among the sea of straight A’s on her transcript). Regardless of
your background, you may encounter a series of rapid-fire multiplication
questions or a wacky brainteaser designed to rattle your cage and test for an
allergic reaction to numbers. Come prepared and stay calm—the wrong answers
won’t disqualify you, but tears most certainly will.
Rule 2: Imply—but don’t state directly—that your previous achievements
prove that you’re highly capable of doing the work.
Recall our discussion above: The more directly comparable experience you
have, the more comfortable recruiters will be in your ability to do the analytical
heavy lifting on each of your teams. As you prepare for your interviews, keep
the profile of an analyst or associate’s responsibilities in mind. If you’ve worked
as a summer analyst for an investment bank, written highly analytical papers in
college, crunched numbers for a government agency during a high-profile
39
Popular Destinations
internship, or excelled in athletic endeavors, be sure to discuss these topics
(enthusiastically) during your interview.
Conversely, don’t belabor the point for less relevant pursuits. Trying to convince
your interviewer—through excruciating detail—that the summer you spent
working on a Montana dude ranch is highly applicable to investment banking
may not achieve the desired outcome. Particularly in the case of seemingly
unrelated pursuits, it’s best to let your interviewer draw conclusions about your
capability (unless, of course, you’re asked). If you make this leap yourself, it’s
likely to come across as forced, canned, and presumptuous.
Rule 3: Remember that “capacity” refers to more
than just raw intellectual horsepower.
Particularly at the junior levels, a “can-do” attitude counts for as much as
analytical aptitude. Regardless of your academic training or work experience,
don’t forget to highlight experiences that suggest you can learn quickly (perhaps
you taught yourself Italian in your spare time and are now fully conversational),
work well under pressure (don’t forget the summer you worked as a short order
cook in Cape Cod), and have a healthy attitude toward grunt work. One insider
describes her interview with a senior VP and business unit manager at a leading
Wall Street firm: “This guy had the final say as to who was hired into the group,
and he had this thing about hiring people who had waited tables. He’d ask
everyone he interviewed —analysts, MBAs, lateral hires—whether they had ever
waited tables. If you hadn’t (and I hadn’t), you’d better be able to describe
something you had done that proved you weren’t opposed to doing tedious,
unglamorous work.” Investment banking may be a white-shoe kind of
profession, but as a group, bankers like people who aren’t afraid to get their
hands a little bit dirty.
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