Applying Consulting Case Structure to Investment Banking Interviews

Recently, a candidate spoke to me about a first-round interview that he had with a major investment bank. He emerged from the interview feeling optimistic. He was poised throughout the interview and answered all of the technical questions correctly. However, he was not invited to the next round. Why not?

The feedback he received was that his responses, while correct, were not communicated in a “structured” format. He was confused. The word “structure” is thrown around a lot but what does it actually mean within the context of an interview?

During investment banking interviews, it is important to be well-versed in financial modeling, valuation, accounting and the markets in general. However, it is not enough to be technically proficient during an interview. In other words, simply knowing the answer to a question is not enough. It is just as important to be able to communicate the response in a way that not only conveys confidence and poise but, when applicable, applies a hypothesis-driven approach to analyze a problem and makes your train of thought evident. The end result is a well thought-out response that is delivered clearly, effectively and is based on analysis.

Consulting firms use case interviews to gauge a candidate’s ability to analyze and solve business problems. Performing well in these interviews is less about your experience in the industry in question and more about your ability to develop a hypothesis and analyze any business problem. Case structure can also be applied to investment banking interviews.

For example, what if you were asked the following question:

If you were the CEO of Goldman Sachs, what actions would you take today?

Many candidates would attempt to jump straight to the answer when, in many cases, your line of reasoning is just as important (or more important for some questions) as the answer itself. Particularly for very open-ended questions like the one above, it is important to take a step back and approach the question with a structured process. Let’s run through the process with a simple example.

Let’s say you are asked the following:
Can equity value be greater than enterprise value?

Step 1: Listen and clarify the question asked

First, make sure that you understand the question asked and clarify any part of the question before diving into your response. Build rapport with the interviewer, maintain eye contact and most importantly – listen! Do not make the interviewer repeat the question.

Step 2: Define your structure or framework

Many times (not always) you can define a framework and use it to analyze the question asked. This framework can be something you learned in class or one that you invent. Be careful not to attempt to squeeze a problem into a particular framework.

Framework:
Enterprise Value = Equity Value + Net Debt
Net debt = Total interest bearing debt – Cash
We can use the equations above to analyze whether equity value can be greater than enterprise value.

Step 3: Conduct your analysis

Use your above framework to think through your response, making your line of reasoning evident. Hopefully, you arrive at the correct response. When you do not arrive at the correct response, communicating your responses in this manner will give the interviewer insight into your train of thought and determine whether you were on the right track or not. When you simply blurt out the wrong answer, the interviewer cannot tell whether you completely misunderstood the relevant concepts or whether you just made a minor misstep somewhere.

Framework: Enterprise Value = Equity Value + Net Debt
Net debt = Total interest bearing debt – Cash
Analysis: Equity value can be greater than enterprise value if net debt is negative. Net debt can be negative if a company has more cash than total interest bearing debt.

Step 4: Your response

After conducting your analysis, you are ready to communicate your answer to the question asked.
Response: Thus, equity value can be greater than enterprise value.

Practice mock interviews with friends and emphasize questions that you are unfamiliar with to practice working through them to get the answer. Particularly for open-ended questions, resist the temptation to dive straight into the answer. Click here for sample interview questions.

Global Markets interview questions coming soon!

Bankingorbust.com tools to help prepare:

Earnings Projection and Discounted Cash Flow (DCF) Modeling
Leveraged Buyout (LBO) Modeling
MS Excel for Financial Services applications

Be sure to take advantage of the resources on this site. Best of luck preparing!