The IB technical interview is rapid-fire, on-camera, and unforgiving. Bulge-bracket and elite-boutique analysts want to see that you can articulate the answer in 30–60 seconds without notes — and that you can defend the second-order question that always follows.
Below are the 16 technical questions you absolutely must know, distilled from the canonical 200-bank set. Each section has the answer the way an analyst would actually say it on a Superday, the why behind it, and the most common follow-up.
If you'd rather drill these against an AI interviewer that asks them in random order with a 60-second clock, run a banking technicals mock.
1. Walk me through a DCF.
You're projecting unlevered free cash flows for an explicit forecast period — usually 5 to 10 years — discounting them back to today at the weighted average cost of capital, and adding a terminal value to capture everything beyond the forecast period.
Unlevered free cash flow is EBIT × (1 − tax rate) + D&A − capex − change in working capital. You discount each year's UFCF by (1 + WACC)^year, sum them up, and add the present value of the terminal value, which is usually computed using the Gordon growth method — final-year UFCF × (1 + g) / (WACC − g) — or an exit-multiple approach.
That gives you enterprise value. To get to equity value, subtract net debt (debt minus cash) and any preferred stock or non-controlling interests. Divide by share count for share price.
Follow-up: What's WACC? Cost of equity × (E/V) + cost of debt × (1 − t) × (D/V). Cost of equity is risk-free rate + beta × equity risk premium.
2. What's the difference between equity value and enterprise value?
Equity value is what you pay shareholders — it's market cap, or share price × diluted shares outstanding.
Enterprise value is what you'd pay to buy the entire business: equity value + total debt − cash + preferred stock + non-controlling interests. EV is capital-structure neutral, which is why it's used in operating multiples like EV/EBITDA.
The most common mistake is treating cash as positive in EV. It's negative because if you bought the company, you'd get the cash and could use it to pay down debt — your effective cost of acquiring the business goes down by the cash on hand.
Follow-up: When would EV/EBITDA be misleading? When companies have very different working capital or capex profiles. EBITDA ignores both. For capex-heavy businesses (telecoms, airlines), EV/EBIT or EV/(EBITDA−capex) is more honest.
3. Walk me through the three financial statements.
The income statement starts with revenue, subtracts COGS to get gross profit, subtracts operating expenses to get EBIT (operating income), subtracts interest expense to get pretax income, applies taxes to get net income.
The balance sheet shows assets, liabilities, and shareholders' equity at a point in time. Assets equal liabilities plus equity. Assets are current (cash, AR, inventory) and non-current (PP&E, intangibles, goodwill). Liabilities are current (AP, accrued expenses, short-term debt) and non-current (long-term debt, deferred tax).
The cash flow statement reconciles net income to actual cash. It has three sections: operating activities (start with net income, add back non-cash charges like D&A, adjust for working capital changes), investing activities (capex, acquisitions, divestitures), and financing activities (debt issuance/repayment, equity raises, dividends, buybacks). The change in cash on the CFS ties to the change in cash on the balance sheet.
4. If depreciation increases by $10, what happens to all three statements?
Assume a 25% tax rate.
Income statement. Depreciation is an expense, so EBIT goes down by $10. Pretax income goes down by $10, taxes go down by $2.50, net income goes down by $7.50.
Cash flow statement. Net income at the top goes down by $7.50. Depreciation, a non-cash add-back, goes up by $10. Net change in cash is +$2.50. (D&A is a non-cash expense — the actual cash effect is the tax savings.)
Balance sheet. Assets: cash up $2.50, PP&E down $10 (net). Total assets down $7.50. Liabilities and equity: retained earnings (from net income) down $7.50. Both sides balance.
Follow-up: What's the takeaway? Depreciation creates a real economic benefit through the tax shield — companies generate $2.50 of additional cash for every $10 of additional depreciation. That's why MACRS / accelerated depreciation matters in deal modeling.
5. If accounts receivable goes up by $10, what happens to cash?
Cash goes down by $10. AR represents revenue you've recognized but haven't collected — you've booked the income but not received the cash. On the cash flow statement, an increase in AR is a use of cash (subtracted in the working capital section).
Follow-up: What if it's accounts payable instead? AP goes up means you owe suppliers more — you've recognized the expense but haven't paid yet. Cash goes up by $10. Increase in AP is a source of cash on the CFS.
6. What's the difference between operating leases and capital (finance) leases under current accounting?
Under ASC 842 (US GAAP) and IFRS 16, both operating and finance leases sit on the balance sheet — lessees recognize a right-of-use asset and a corresponding lease liability for both.
The difference is how the expense flows through the income statement. Finance leases split the expense into interest (decreases over time) and amortization of the ROU asset — total expense is front-loaded. Operating leases show a single straight-line lease expense.
For valuation purposes, many bankers add operating lease liabilities to debt in EV calculations to get a clean comparable across companies with different lease/buy strategies.
Follow-up: How does a lease differ from buying outright? A purchase puts a depreciable asset and (usually) a debt obligation on the balance sheet. A lease creates an ROU asset and lease liability. Tax treatment also differs — lessee in a true tax lease can't depreciate the asset.
7. Walk me through a leveraged buyout (LBO).
A financial sponsor buys a target using a small equity check and a large amount of debt — typically 70–90% debt at the high end of the cycle, 50–60% in tighter markets. The target's own cash flows pay down the debt over the hold period, usually 5–7 years.
Returns come from three sources: debt paydown (deleveraging the same equity check), EBITDA growth (operational improvement, bolt-on M&A), and multiple expansion (selling at a higher multiple than you bought). In a typical 2x return case, debt paydown is the largest contributor; in a 5x case, you usually need at least one of the other two.
The model: build a 5-year projection of EBITDA, free cash flow, and debt schedules. At exit, apply an exit multiple to LTM EBITDA, subtract remaining debt, get equity value to the sponsor. IRR = (exit equity / entry equity)^(1/years) − 1.
Follow-up: What makes a good LBO target? Stable, predictable cash flows (so you can carry debt), low capex needs, room for operational improvement, a defensible market position so you don't lose share while paying down debt, and ideally hard assets to lend against. Subscription software businesses have become favorites because of the cash flow stability.
8. What's the difference between a 10-K and a 10-Q?
10-K is the annual filing — audited, more detailed, includes management's discussion and analysis, risk factors, and full financial statements. Filed within 60–90 days of fiscal year end.
10-Q is the quarterly filing — unaudited, shorter, three per year (the fourth quarter is covered by the 10-K). Filed within 40–45 days of quarter end.
For modeling, 10-K is the source of truth for full-year numbers and footnote detail. 10-Q is what you reference for the most recent quarter's run-rate.
9. What's accretion / dilution?
In an M&A deal, accretion / dilution measures whether the acquirer's pro-forma EPS goes up (accretive) or down (dilutive) post-deal.
Math. Pro-forma net income = acquirer net income + target net income + after-tax synergies − after-tax cost of incremental debt − foregone interest on cash used. Pro-forma diluted shares = acquirer shares + new shares issued in the deal.
Rule of thumb. All-cash deals are usually accretive when the acquirer's after-tax cost of debt is lower than the target's earnings yield (1 / P/E). All-stock deals are usually accretive when the acquirer's P/E is higher than the target's P/E.
Follow-up: Is accretion the same as a good deal? No. Accretion is a one-year EPS calculation; it doesn't account for synergy realization risk, integration cost, customer attrition, or strategic value. Plenty of accretive deals destroy value over 5 years.
10. Why might a company trade at a premium or discount to its peers?
Premium reasons. Higher growth rate, better margins, stronger competitive moat, better management, scarcity value, recent positive momentum, takeover speculation.
Discount reasons. Lower growth, customer concentration, regulatory overhang, weaker management, leverage, illiquidity, governance issues, recent negative news, limited float.
When you're valuing a comp set, you're not just averaging multiples — you're asking which specific peers your target most resembles on these dimensions and weighting accordingly.
Follow-up: How do you decide which multiple to use? Match the multiple to the company's most stable economic driver. EV/EBITDA for steady operating businesses. EV/Revenue for early-stage where margins aren't stable. P/E for financial institutions where capital structure is core to the business. EV/(EBITDA − Capex) for cap-ex-heavy industries where EBITDA overstates cash generation.
11. What's beta and how do you compute it?
Beta measures a stock's volatility relative to the market. Mathematically, it's the covariance of the stock's returns with market returns, divided by the variance of market returns. A beta of 1 means the stock moves with the market; a beta of 1.5 means it moves 50% more than the market.
For DCF work, you usually compute levered beta for comparable public companies, unlever each one (β_unlevered = β_levered / (1 + (1 − t) × D/E)), average the unlevered betas, then re-lever at the target's capital structure. This isolates business risk from capital-structure risk.
Follow-up: Where does beta show up in the DCF? Cost of equity = risk-free rate + β × equity risk premium. So a higher beta means higher cost of equity, lower discount factor on future cash flows, lower valuation.
12. What are the three main valuation methodologies and when do you use each?
Trading comparables. What similar public companies trade at today. Multiples-based: EV/EBITDA, EV/Revenue, P/E. Best for established businesses with clear public peers. Captures current market sentiment.
Precedent transactions. What similar private companies sold for. Same multiples. Includes a control premium (typically 20–30%). Best for sizing M&A bids.
DCF. Intrinsic valuation based on projected cash flows. Best when you have a real forecast and don't trust public market sentiment, or when the business is unique enough that comps don't apply.
In a fairness opinion or pitch deck, you typically present all three and triangulate. The "football field" chart shows the valuation range from each methodology, with the implied range from the deal price overlaid.
Follow-up: Which gives the highest valuation? Usually precedent transactions, because they include a control premium. Trading comps reflect minority public-market value; DCF depends entirely on the assumptions.
13. What's PIK debt?
Payment-in-kind. Instead of paying interest in cash, the issuer accrues additional principal at each interest period. So if you have $100M of 12% PIK debt, after one year you have $112M of debt outstanding instead of paying $12M in cash.
PIK is the most expensive layer of capital because it compounds — the lender takes on the cash flow risk and demands a premium. Used in LBOs to maximize leverage when cash flow is committed to amortizing senior debt. Also common in distressed restructurings where the company can't service cash interest.
Follow-up: PIK vs. cash-pay vs. PIK-toggle? Cash-pay is straightforward. PIK is always paid in additional principal. PIK-toggle gives the borrower a choice each period — pay cash or PIK — usually with a small premium for the PIK option. Sponsors prefer toggle for flexibility.
14. What happens to a DCF if WACC goes up?
Higher WACC means a higher discount rate, which means future cash flows are worth less today. The valuation goes down.
Specifically, the terminal value is the most sensitive piece because the Gordon growth formula is TV = FCF × (1+g) / (WACC − g). A 1-percentage-point increase in WACC, holding everything else constant, can drop terminal value 15–25% depending on how close WACC is to g.
This is why DCFs are sensitive to assumptions and why comps are usually a sanity check — comp multiples implicitly account for WACC through market pricing.
Follow-up: What drives WACC up? Higher risk-free rate, higher equity risk premium, higher beta, higher cost of debt, more debt-heavy capital structure (when after-tax cost of debt is lower than cost of equity, more debt actually reduces WACC — until distress costs kick in).
15. Why do companies issue equity vs. debt?
Debt is usually cheaper because interest is tax-deductible and lenders bear less risk than equity holders. But debt requires committed cash flows for interest and principal; if you can't service it, you default.
Companies issue equity when (1) they don't have stable cash flows to support debt, (2) they're already at the limit of what their existing cash flows can service, (3) management wants to preserve flexibility (no covenants, no maturity wall), (4) the equity is overvalued and management wants to capitalize on it, or (5) the use of proceeds is high-risk (acquisition, R&D) and a default would be catastrophic.
Follow-up: Why might a company prefer debt even when equity is available? Tax shield, no dilution to existing shareholders, signaling effect (debt issuance can signal confidence in cash flows), and the discipline of debt payments forces operational rigor. Modigliani-Miller would say capital structure doesn't matter without taxes and frictions, but in the real world, taxes and frictions are large.
16. What are some red flags you'd look for in a target's financials?
- Aggressive revenue recognition. Booking revenue before delivery, channel-stuffing at quarter-end, long DSOs (days sales outstanding) trending up.
- Capitalizing operating expenses. Software companies sometimes capitalize internal-use software development that should be expensed; check the capex line and the change in capitalized software.
- One-time gains in operating income. Always recompute "core" EBITDA stripping out gains on asset sales, insurance settlements, etc.
- Inventory build-up. Inventory growing faster than revenue is either demand softening or a write-down coming.
- Goodwill that hasn't been impaired despite weak business performance. Often a sign management is unwilling to take the hit.
- Off-balance-sheet liabilities. Contingent considerations, guarantees, operating leases under older standards, supplier financing — read the footnotes.
- Working capital improvements that look "too good." Sustainable WC compression is rare; check whether DPO (days payable outstanding) shot up — that's just delaying payment to suppliers, not a real improvement.
Follow-up: How would you adjust the LBO model for these? Take a haircut on EBITDA for revenue you don't trust, capitalize disputed expenses for an apples-to-apples comp, model out the supplier finance unwind in your working capital projections, and stress-test the deal at "scrubbed" numbers.
FAQ
How fast should I be able to answer these?
30–60 seconds for the core question, plus another 15–30 seconds for the most likely follow-up. Bulge-bracket Superdays often allocate ~3 minutes per technical, so 4–5 questions per round.
What's the worst answer to "Walk me through a DCF"?
Reading off a memorized script in monotone. Senior bankers know the script too — they're listening for whether you actually understand each step or just recited them. Pause, breathe, and answer like you're explaining it to a smart non-banker. That sounds confident.
What if I don't know the answer?
Say "I haven't seen that one — let me think about it from first principles" and reason out loud. Bankers respect candidates who can derive the answer they don't know far more than candidates who fake one.
Should I use specific numbers or stay abstract?
Use numbers. "If depreciation goes up by $10 with a 25% tax rate" is a much stronger answer than "if depreciation goes up, taxes go down somewhat." The numbers force you to do the math out loud, which is exactly what they're testing.
How does this differ from a private equity interview?
PE interviews dig deeper on LBO mechanics, returns analysis, and investment judgment. The technical bar is the same, but you'll spend much more time on case studies and live LBO modeling. IB technicals are fast and broad; PE technicals are deeper and more analytical.