Investment banking modeling tests are a crucial part of the interview process for investment banking positions. These tests evaluate a candidate’s financial modeling skills and ability to think on their feet. With proper preparation, candidates can stand out and impress interviewers during these high-pressure tests. This article will provide an overview of what to expect during investment banking modeling tests and tips on how to successfully prepare.
Common types of investment banking modeling tests
The most common modeling tests given by investment banks are DCF, LBO, M&A models and technical questions. DCF (Discounted Cash Flow) models are used to value a company and estimate future cash flows. LBO (Leveraged Buyout) models analyze the viability of a leveraged buyout. M&A (Merger & Acquisition) models evaluate potential acquisition deals. Technical questions test a candidate’s foundational finance knowledge on concepts like WACC, optimal capital structure, valuations methods etc. The type of test will depend on the group and role one is interviewing for.
Format and duration of tests
The format can be paper-based or Excel-based. Paper-based tests involve calculating models by hand without Excel, evaluating one’s grasp of the principles. Excel-based tests are more common and assess Excel skills along with conceptual knowledge. The duration can range from 30 mins to a few hours depending on firm and position level. Associate positions tend to have more rigorous tests than analyst roles.
How to prepare for investment banking modeling tests
Thorough preparation is key to performing well on these high-pressure tests. Some tips include: fully understanding the principles through books/courses, learning Excel shortcuts/formulas, memorizing key formulas, building models from scratch repeatedly, practicing under time pressure, participating in mock interviews for feedback, and staying up to date with current events/deals in the industry.
Investment banking modeling tests rigorously evaluate a candidate’s technical skills and ability to analyze problems. With extensive practice and being well-versed in core concepts, candidates can stand out even under high pressure during these interviews.