Investment Banking Technical Interview Questions: Accounting, Valuation and DCF

Prepare technical interview answers by explaining the logic, stating assumptions and checking the result. Memorised formulas help only when you understand which financial claim and accounting convention they describe. The questions below are practice examples, not a verified list from any employer, and the numerical tax assumptions are synthetic teaching inputs.

Explain how the statements connect

A common practice question asks what happens when depreciation increases by ₹10. Under an illustrative 25% tax rate, with cash tax responding immediately and everything else unchanged, EBIT and pre-tax profit fall ₹10 while net profit falls ₹7.50.

In a simplified indirect cash-flow statement, add back the extra ₹10 depreciation, so operating cash rises ₹2.50 from the tax saving. Net fixed assets fall ₹10 and cash rises ₹2.50, reducing total assets ₹7.50. Retained earnings also fall ₹7.50, so the balance sheet remains consistent.

State the assumptions rather than declaring the answer universal. Tax losses, deferred tax, different accounting and a distinction between book and tax depreciation can change the cash effect. IAS 7's overview supports the distinction between profit, non-cash adjustments and cash flows.

A second practice question asks why cash can fall while sales rise. Explain receivables, inventory and capital expenditure. A credit sale increases revenue before cash arrives; it does not mean the business has already received spendable money.

Keep enterprise and equity valuation aligned

If enterprise value is ₹500 crore, debt ₹150 crore and cash ₹30 crore, simplified equity value is ₹380 crore, assuming no preferred capital, minority interests or other adjustments. Explain each omitted item rather than presenting the shortcut as a universal transaction price.

For valuation multiples, EV/EBITDA compares operating enterprise value with pre-financing earnings. P/E relates the equity claim to earnings left for shareholders. Do not pair enterprise value with ordinary-shareholder net income and call it P/E.

If asked whether a 10× multiple is expensive, answer with the missing context: growth, risk, margins, capital needs, accounting and comparable periods. A number without business economics cannot establish value. Negative or cyclically inflated earnings also complicate apparently simple ratios.

Walk through a DCF in plain language

Forecast free cash flow to the firm from operating earnings after tax and reinvestment. Discount at a consistent WACC, add discounted terminal value and adjust operating value for cash, debt and other claims to estimate equity. Damodaran's valuation lecture lays out that framework.

A synthetic FCFF example uses EBIT ₹100, tax 25%, depreciation ₹20, capital expenditure ₹30 and additional working capital ₹10. FCFF is 100*(1-25%)+20-30-10, or ₹55. Interest is not deducted in this FCFF calculation because financing is reflected through the WACC framework.

For terminal value, explain FCFF_next/(WACC-g) and why WACC must exceed perpetual growth in the standard formula. If WACC rises with cash flows unchanged, present value falls. If growth rises, check the reinvestment needed to support it rather than assuming an unlimited free benefit.

Practise follow-ups and presentation

For each answer, use a short conclusion, the calculation and one important limitation. A longer answer is useful only if the interviewer asks for depth. Write the units and sign convention before calculating; confusing ₹ lakh and ₹ crore can undermine otherwise correct reasoning.

Practise explaining why an answer changes under a different assumption. For example, debt-funded acquisition returns differ from unlevered business returns, and book debt may differ from market debt. The ability to identify the framework is more useful than reciting every possible exception without prioritising.

Build a small three-statement model and one valuation using public or synthetic data, then trace the effect of changing revenue, collection days and debt. Do not claim hands-on work you did not do. The examples in this guide were checked as educational arithmetic, not administered as interviews or executed in Excel.

Finally, acknowledge uncertainty honestly. If you do not know a specific regulatory or accounting detail, explain the principle and what you would verify. Technical accuracy includes knowing when a general classroom answer is insufficient for an actual transaction.

Quick questions, clear answers

Should I memorise every formula?

Know core relationships, but practise deriving them from the claim being valued or the accounting movement. Memorisation without understanding fails when the interviewer changes one assumption. Be able to explain why the numerator, denominator, period and sign belong together.

What if I make a calculation error?

Correct it clearly and show the check that identified it. Reconstruct the balance-sheet movement or reverse the valuation bridge rather than defending an inconsistent number. A transparent correction demonstrates better judgement than allowing a simple arithmetic mistake to contaminate the full answer.

Are these questions guaranteed to appear?

No. They are original practice prompts covering foundational concepts, not employer interview leaks or a measured frequency ranking. Use the actual job description to prioritise preparation, including sector knowledge, modelling and communication skills relevant to that role.

About this guide

Aniket Thakur prepared this educational guide from secondary research checked on 22 October 2026. All numerical illustrations are hypothetical unless stated otherwise. No investment product was tested, and no individual financial circumstances were assessed. Read the cited primary material and relevant product documents before acting.