Goldman Sachs. Morgan Stanley. JPMorgan. Kotak. Axis Capital. The names change, but the technical interview follows the same underlying logic across every serious investment bank. And the candidates who fail it almost always fail the same way: they memorised definitions instead of internalising the reasoning.
An interviewer at a bulge bracket does not want to know that you can define Enterprise Value. They want to know what happens to EV when a company issues new debt to buy back shares, and why the answer is not what most candidates instinctively say. That is the difference between preparation and fluency — and it is what this article is built around.
The technical questions that matter most in IB interviews are not the ones that test recall. They are the ones designed to find where your understanding breaks down.
The Three-Statement Model: Where Every IB Interview Starts
Most candidates say they can build a three-statement model. Most interviewers know candidates cannot actually use one to reason in real time.
The three-statement model question that exposes this most quickly:
"Walk me through the impact of a $100 depreciation increase on the three statements."
The answer that separates candidates:
- Income Statement: Depreciation increases by $100, reducing EBIT by $100. Tax decreases by $40 (assuming 40% tax rate), so Net Income falls by $60.
- Cash Flow Statement: Net Income is down $60. But depreciation is a non-cash charge, so you add back $100 in operating activities. Net cash flow increases by $40.
- Balance Sheet: PP&E on the asset side decreases by $100 (accumulated depreciation increases). Retained Earnings decrease by $60 (lower net income). Cash increases by $40. The balance sheet balances: -$100 assets, but -$60 equity and +$40 cash net = -$60 on both sides. ✓
What goes wrong: candidates who say "depreciation reduces cash flow" — because they learned DCF before they learned accounting — will get this wrong. Depreciation is a non-cash charge. It reduces taxable income and therefore taxes paid. The tax shield is real cash.
The non-obvious follow-up:
"Now you've told me cash increases by $40. Where exactly does that cash come from?"
Answer: It comes from the tax savings. The government effectively subsidises capital investment through depreciation tax shields. This is why highly capital-intensive businesses with large depreciation charges often have cash flow substantially higher than their reported net income.
When Reliance Industries builds a new refinery, the depreciation on billions in capex creates enormous tax shields annually. FCF-based valuation of Reliance captures this — earnings-based valuation does not. This is why DCF models are more appropriate than P/E multiples for capital-intensive businesses.
The interviewer asking this question is testing whether you understand that the IS, CFS, and BS are mechanically linked — not three separate documents.
Enterprise Value vs Equity Value: The Most Frequently Confused Distinction
The EV vs Equity Value question is in virtually every IB technical interview. Most candidates answer it correctly at a surface level. Where they fail is in the follow-up questions that probe the boundary.
The core distinction most candidates know:
Enterprise Value = Equity Value + Net Debt (Debt − Cash)
EV represents what an acquirer pays to own the entire business operations, regardless of how it is financed. Equity Value represents what the shareholders own.
The questions that separate candidates:
"A company has $500M EV and $200M of debt. What's the equity value?"
$300M. Basic. Everyone gets this.
"Now that company issues $100M of new debt and puts the cash on the balance sheet. What happens to EV and equity value?"
Most candidates say EV increases by $100M. Wrong.
EV = Equity Value + Debt − Cash. The company added $100M debt and $100M cash. Net Debt is unchanged. EV is unchanged. Equity Value is also unchanged.
"Same company. It uses that $100M of debt to pay a dividend. Now what?"
EV is still unchanged (debt increased $100M, cash paid out). Equity Value decreases by $100M (the cash left the company). Net Debt increases by $100M.
"Uses the $100M of debt to make an acquisition of a target with $100M EV. Now what?"
The acquirer's EV increases by $100M (added the target's EV). Equity Value is unchanged (the acquisition was funded entirely by debt). This is conceptually the entire logic of leveraged acquisitions.
The sequence tests whether you understand EV as a balance-sheet-neutral measure of business value versus equity value as the residual claim. Candidates who memorise the formula pass the first question. Candidates who understand the concept pass all four.
When Tata Motors acquired Jaguar Land Rover for £1.15 billion in 2008, the EV they paid represented the value of the entire JLR business operations. The financing structure — how much Tata used debt versus equity — did not change what JLR was worth as a business.
The acquisition row is where most candidates break. EV increases because you added a real business with real operations. Equity value stays flat because the acquisition was funded with debt — shareholders didn't put in additional capital, so their claim didn't change.
DCF Valuation: The Three Questions That Determine Whether You Pass
Everybody prepares DCF for IB interviews. Interviewers know this, which is why they ask the questions that go two layers deeper than the textbook explanation.
Question 1: "Walk me through a DCF."
This is the warm-up. You should be able to answer in under 90 seconds:
- Project free cash flows for 5-10 years based on revenue growth, margins, and capex assumptions
- Calculate terminal value using either the Gordon Growth Model (FCF × (1+g) / (WACC − g)) or an exit multiple
- Discount all cash flows and terminal value back to the present using WACC
- Add cash, subtract debt to get equity value; divide by shares to get price per share
Question 2: "Why do you use WACC as the discount rate, and when is it wrong to do so?"
This is where most candidates stumble.
WACC is appropriate when you are valuing the entire enterprise (both equity and debt holders' claims). It reflects the blended cost of all capital the business uses.
It is wrong to use WACC when:
- The capital structure is expected to change significantly (leveraged buyout, where you'd use APV instead)
- The project or division has a different risk profile than the overall business
- The company is distressed and the market value of debt differs substantially from book value
Question 3: "If I increase the terminal growth rate by 0.5%, what happens to the DCF valuation, and is the magnitude of the change a problem?"
The answer must include:
- Valuation increases, often by 15-25% on a typical model
- The magnitude is a feature, not a bug — it reveals that DCF valuations are acutely sensitive to terminal value assumptions
- Terminal value often represents 60-80% of total DCF value, which means the DCF is substantially a bet on long-run normalised growth rather than near-term cash flows
- This sensitivity is why you always present a sensitivity table, not a point estimate
In 2021-22, several Indian startup IPO valuations were built on DCF models with terminal growth rates of 8-12%. When interest rates rose and WACC increased by 2-3 percentage points, valuations collapsed 40-60% — not because the businesses deteriorated, but because small WACC changes have enormous impact on terminal value.
Comparable Company Analysis: The Technique Most Candidates Apply Mechanically
Comps — comparable company analysis — is about selection, adjustment, and interpretation. The mechanical part (pulling EV/EBITDA from Bloomberg) is a data task. The analytical part is everything else.
What interviewers actually test:
"You're valuing a mid-size Indian pharmaceutical company. What makes a company a good comparable?"
Wrong answer: "Companies in the same sector."
Right answer: Comparable companies should have similar:
- Revenue scale and growth trajectory — a ₹500Cr specialty pharma company is not comparable to a ₹15,000Cr generics giant even if both are "pharma"
- Business model — an API manufacturer, a branded generics company, and a hospital chain are all "healthcare" but have entirely different cash flow profiles and appropriate multiples
- Geographic revenue mix — a company with 80% US exports faces different regulatory and FX risks than a domestic-focused company
- Margin profile — EBITDA multiples compress for structurally low-margin businesses and expand for high-margin ones
"Why would you exclude the highest and lowest multiple company from your comps set?"
To reduce the distortion from outliers that have idiosyncratic situations — a company in financial distress will trade at artificially low multiples, and a company with recent M&A rumours will trade at artificially high multiples. Neither represents the "clean" fundamental value the analysis is trying to establish.
The adjustment question that separates candidates:
"Your comps analysis gives you a 14x EV/EBITDA median. Your target has negative EBITDA this year. What do you do?"
Options:
- Use EV/Revenue instead of EV/EBITDA, noting it is a rougher measure
- Use forward EBITDA (project when the company will reach normalised profitability)
- Use EV/EBIT or P/E if the company is EBITDA-negative but earnings-positive
- Use a DCF to anchor valuation, with comps as a sanity check rather than a primary method
When Nykaa (FSN E-Commerce Ventures) IPO'd in 2021, traditional EV/EBITDA comps were limited because few Indian listed beauty e-commerce comparables existed. The bankers used global comps (Sephora-parent LVMH, Ulta Beauty), Indian e-commerce comps at lower weight, and a DCF model. This multi-method approach — explicitly weighting and blending methods — is what sophisticated comps analysis looks like.
M&A Accretion/Dilution: The Calculation Everyone Prepares, The Interpretation Everyone Gets Wrong
Accretion/dilution analysis tests whether you understand the earnings impact of an acquisition. Everyone prepares the mechanics. Few candidates explain what the result actually means.
The mechanical question:
"Acquirer has EPS of ₹50 on 100M shares. They issue 10M new shares to acquire a target worth ₹1,500Cr that earns ₹75Cr in net income. Is the deal accretive or dilutive?"
Combined net income: ₹50 × 100M (acquirer) + ₹75Cr (target) = ₹5,075Cr Combined shares: 110M New EPS: ₹5,075Cr / 110M = ₹46.14
The deal is dilutive — EPS falls from ₹50 to ₹46.14.
The interpretation question that matters more:
"The deal is dilutive. Does that mean it's a bad deal?"
No. Accretion/dilution is an accounting metric, not a value creation metric. A deal can be:
- Dilutive but value-creating: If the acquirer paid below intrinsic value, the deal creates value even if it reduces near-term EPS — because earnings accretion from synergies or multiple expansion will more than compensate
- Accretive but value-destroying: If the acquirer overpaid for a low-quality target, the near-term EPS increase from adding the target's earnings is outweighed by the long-term cost of the price paid
When HDFC Bank merged with HDFC Limited in 2023, the merged entity's EPS dynamics were carefully analysed. The short-term dilution from the insurance and lending subsidiary consolidation was accepted by management because the long-run cost-of-funds advantage and cross-sell opportunity were expected to generate sufficient synergy to overcome the near-term EPS headwind.
LBO Mechanics: The Questions That Separate Buy-Side Aspirants
If you are targeting private equity, M&A advisory, or leveraged finance, LBO questions will appear. The core test is whether you understand what drives returns in a leveraged buyout.
The three sources of LBO returns:
- Multiple expansion: Buying at 7x EBITDA and selling at 9x. The same business at a higher multiple because market sentiment improved or you found a strategic buyer willing to pay a premium.
- EBITDA growth: Growing the underlying business — revenue growth, margin improvement, operational efficiency — increases the absolute EBITDA base that the exit multiple is applied to.
- Debt paydown (deleveraging): The business generates cash flows that repay debt over the hold period. When you sell, the remaining equity is worth more because the debt is lower.
The quick LBO mental model:
Entry: $1,000 EV, 60% debt ($600), 40% equity ($400), 6x EBITDA ($166.7M EBITDA) Five years later: EBITDA grows to $220M, debt repaid to $350M Exit: sold at 7x EBITDA = $1,540M EV Equity value at exit: $1,540 − $350 = $1,190M Return on equity: $1,190/$400 = 2.97x in 5 years, ~24% IRR
The questions that probe deeper:
"Which of the three return drivers is most controllable by the PE firm?"
EBITDA growth — operational improvements, pricing, acquisitions. Multiple expansion depends on market conditions outside the firm's control. Debt paydown depends on the debt structure agreed at entry.
"What's the difference between IRR and MOIC, and why do PE firms report both?"
IRR is time-sensitive (accounts for when you got the money). MOIC (Multiple on Invested Capital) measures total dollars returned. A deal that returns 2.5x in 2 years has a higher IRR than one that returns 3.0x in 7 years, but the second deal returned more total money. PE firms report both because each tells a different story: IRR matters for fund deployment velocity, MOIC matters for the absolute size of the return pool.
The Questions Behind the Questions: What the Interviewer Is Actually Evaluating
Every technical question in an IB interview is testing one of four things:
1. Mechanical fluency: Can you execute the mechanics without hesitation? Three-statement linkages, WACC calculation, comps multiples, accretion/dilution arithmetic. This is the minimum threshold — not the differentiator.
2. Conceptual integrity: When the standard formula doesn't apply, can you reason from first principles? The "negative EBITDA, which multiple do you use" question tests this.
3. Business judgment: Can you connect the technical output to a real decision? Knowing that terminal growth rate drives DCF sensitivity is mechanical. Knowing that this means you should present a range rather than a point estimate — and why that matters for the client's decision — is judgment.
4. Intellectual honesty under pressure: Can you say "I'm not certain, but here's how I would reason through it"? Interviewers who are practitioners know that many questions do not have single correct answers. They are evaluating whether you can reason transparently rather than bluffing to a confident-sounding wrong answer.
The candidates who get offers are not the ones who knew all the answers. They are the ones who demonstrated that they understand why the answers are what they are — and would be able to figure out a variant they had not seen before.
Closing: From Technical Preparation to Deal-Floor Fluency
Technical interview preparation for investment banking is the beginning of the skill set, not the end of it. The questions covered here — three-statement linkages, EV mechanics, DCF sensitivity, comps selection, accretion/dilution, LBO returns — represent the core topics that distinguish analytically prepared candidates from everyone else.
The natural next questions for any serious IB candidate are deeper and more applied: How do you build a merger model that handles different consideration structures (cash, stock, mixed)? How do you adjust WACC for a subsidiary with a different risk profile than the parent? How do you defend your DCF assumptions to a managing director who disagrees with your terminal growth rate?
At Meritshot, the Investment Banking programme is structured around exactly this progression: from technical foundation to deal-level application. Students work through end-to-end financial modelling cases — Nykaa's IPO valuation, the HDFC-HDFC Bank merger model, a leveraged acquisition of a FMCG business — where every technical concept covered in this article is applied to a real transaction with real numbers and real complications.
The goal is not to help you pass the interview. It is to help you be effective on day one.
Explore the Meritshot Investment Banking Programme →
This article was written by the Meritshot content team. Meritshot trains professionals in Data Science, AI Engineering, Full Stack Development, Investment Banking, and Cyber Security through hands-on, practitioner-led programmes.
