Investment Banking Analysis: Financial Valuation for IB Interviews – A Beginner's Guide

Getting ready for an investment banking interview means understanding how financial analysis and valuation work in real life, not just in textbooks. In this guide, I’ll walk through the core skills interviewers expect you to know, especially if you’re applying for analyst roles or summer internships.

Whether you’re from a finance background or switching careers, this guide will help you build confidence with financial modeling, valuation methods, data analytics, and the development and application of analytical models, all using plain, practical examples.

What This Guide Helps You With

To succeed in investment banking interviews, you’ll need more than textbook knowledge. Interviewers expect candidates to be fluent in financial data, comfortable with valuation logic, and capable of making sense of complex business scenarios. It’s not just about getting the numbers right; it’s about showing you understand the bigger picture. In this guide, you’ll learn how investment banks use financial analysis to support critical functions like capital raising, mergers and acquisitions (M&A), and strategic advisory services. You’ll also gain insight into how analysts apply modeling techniques and data analytics in real-world scenarios, not just on paper.

Here’s what you can expect to get from this guide:

• A breakdown of the core valuation methods you’ll likely be asked to explain in interviews
• Practical examples that connect modeling to decision-making
• Sample interview questions to help you think critically under pressure

If you’re working on any of these and want to make faster progress, it can help to talk through examples with someone who’s done it before. Browse the Investment Banking Coaches Here.

What Investment Banks Do and Who They Work With

Investment banks help businesses and investors execute large-scale financial transactions. This includes raising capital, facilitating mergers and acquisitions, and taking companies public through initial public offerings (IPOs). They also advise on complex deals and help clients identify, measure, and manage financial risk.

Corporate finance plays a central role in these services by providing transaction advisory, financial modeling, and valuation support throughout the entire process, from idea generation to deal execution.

Most investment banks work with:

Corporations

Corporations are one of the primary clients of investment banks. These companies rely on banks for capital raising through debt or equity issuance, assistance with mergers and acquisitions, and support when going public via an IPO. Investment banks provide the valuation, structuring, and negotiation expertise needed to execute complex corporate transactions that align with business growth strategies.

Institutional investors

Institutional investors such as pension funds, mutual funds, insurance companies, and hedge funds turn to investment banks for access to deal flow, real-time market data, and customized investment strategies. These clients often engage in large-scale trades or private placements, and they depend on the bank’s research and execution capabilities to make informed investment decisions across global markets.

High-net-worth and private investors

High-net-worth individuals and private investors work with investment banks for more tailored financial solutions. This may include access to exclusive investment opportunities, private placements, wealth management services, or strategic advice on asset allocation and estate planning. These clients often value discretion, long-term relationships, and personalized attention to their financial goals.

Note: Unlike commercial banks, which take deposits and issue loans, investment banks operate in capital markets. Some also have corporate banking arms that offer a hybrid of services. Leading banks in the investment banking industry include JPMorgan, Goldman Sachs, and Deutsche Bank.

Read: Investment Banking: What it Is & How it Works

What is Investment banking analysis?

Investment banking analysis is the process of evaluating a company’s financial data to support decisions around mergers, acquisitions, capital raising, and risk management. It includes using valuation models, financial ratios, and data analytics to assess a firm's performance, estimate its value, and guide investment decisions.

What You Need to Know About Financial Statements

Interviewers expect you to understand how the income statement, balance sheet, and cash flow statement connect. These statements are the foundation of financial analysis and help you understand a company’s performance using historical data.

Expert Tip: You’ll often be asked to use financial data from these reports to estimate revenue growth, explain changes in working capital, or justify a valuation. Human error can impact the accuracy of financial statements, making it crucial to leverage data analytics to identify and mitigate these errors.

How to Reconcile the 3 Financial Statements in Practice

Financial analysis in investment banking starts with linking the income statement, balance sheet, and cash flow statement.

Example Flow:

• Net Income → Add back depreciation → Adjust working capital → Equals Operating Cash Flow
• CFO + CFI + CFF = Change in Cash
• Change in Cash → Reconciles to Cash line on Balance Sheet

What interviewers ask: “If accounts receivable increase by $5M, how does that affect cash flow?” Answer: It’s a $5M use of cash, reducing the CFO.

Expert Tip: Practice this using Excel with clean financials from companies like Adobe or Nike.

Core Valuation Methods You’ll Be Asked About

Valuation is a key part of investment banking analysis. You’ll need to show that you understand the main methods, when to use them, and how to explain the numbers behind each one. Mastering these valuation methods can provide a competitive advantage by enabling firms to make informed decisions and maintain their edge against competitors. These are the three approaches every interviewer expects you to know:

1. Comparable Companies (Comps)

This method compares the company you’re analyzing to similar public companies. You look at how the market is valuing peers using ratios like EV/EBITDA or P/E, then apply those same multiples to your target company. Comps are popular because they’re market-based and quick to update, but they depend heavily on picking the right set of comparable companies.

What interviewers want to hear:

• How did you pick your peer group
• Which metrics do you use and why
• How did you calculate and normalize the multiples

Common metrics used:

2. Precedent Transactions

This method uses past M&A deals involving similar companies to estimate value. It shows how much real buyers were willing to pay and often includes a control premium. This method is especially useful for M&A advisory and pitch books. It helps explain what kind of deal terms are realistic in the current market.

What you’ll need to do:

• Find relevant transactions (same sector, size, geography)
• Pull data from public filings, news, or databases
• Calculate multiples at the time of the deal

3. Discounted Cash Flow (DCF)

The DCF method values a company based on its expected future cash flows. Those cash flows are discounted back to today using the WACC (Weighted Average Cost of Capital). It’s more technical and assumes you have a good grasp of financial modeling.

Main steps:

1. Project the company’s free cash flows for 5 to 10 years
2. Calculate a terminal value to account for all cash flows beyond the forecast period
3. Discount everything back using WACC

Key areas to explain:

• Revenue growth assumptions
• Margin trends and cost structure
• CapEx and working capital
• Terminal growth rate or exit multiple

Expert Tip: Don’t just show the formula. Walk through your logic for each input. Be clear about why you chose certain assumptions and what would happen if they changed. This shows you can build and explain an analytical model, not just copy it.

Read: Master Valuation Techniques for Interview Success

Bonus: LBO Analysis vs DCF (What You Should Know)

While not always tested at the analyst level, knowing how leveraged buyouts differ from DCF shows advanced understanding.

LBO Overview: You assume a company is acquired mostly using debt. You project free cash flows to determine how quickly that debt is paid down and calculate IRR based on an eventual sale or exit.

LBO vs DCF:

• DCF: Your value is based on the intrinsic value of future cash flows
• LBO: Your valueis based on returns to equity investors, assuming a leveraged structure

Key Assumptions: Entry/exit multiple, debt interest rate, equity contribution, and hold period. Even a basic 5-year model with 60% debt and 20% IRR target can impress an interviewer.

How Data Supports Good Financial Analysis

Data analytics in investment banking is no longer optional. Whether you’re reviewing a deal, valuing a stock, or advising clients, turning raw data into insights is part of the job. Interviewers want to know how you think about data quality, data security, and real-time data. Investment bankers rely on business intelligence tools and platforms that combine big data and cloud computing to keep analysis accurate and fast. Data analytics also plays a crucial role in streamlining processes, automating repetitive tasks, and enhancing overall efficiency.

Examples:

• Using Excel models linked to external financial data
• Creating dashboards to track market or company metrics
• Validating trends before making investment recommendations

Data analytics not only supports financial analysis but also helps improve risk management by enabling more effective risk assessment and mitigation strategies.

Tools and Techniques You Might Hear About

Interviewers may not expect you to code, but you should know what these tools do and how they help with analytics in investment banking. Here are some concepts that may come up in interviews or case tasks:

Applying Excel, Python, and BI Tools in IB Analysis

While Excel is still the most used tool in investment banking analysis, knowing how other tools contribute can set you apart in interviews.

• Excel: Build dynamic models with sensitivity tables, scenario toggles, and formatting that mimics real pitch decks.
• Python & SQL: Clean large datasets, pull financials from APIs (like Yahoo Finance or EDGAR), and calculate metrics programmatically. You might not need this in a first-year analyst role, but showing familiarity earns points.
• Tableau / Power BI: Create dashboards tracking deal pipeline, market comps, or KPI trends for ongoing coverage of clients.

Risk and Credit: What You Need to Know for Interviews

Basics of Risk Management and Credit Analysis

Risk is part of every deal. You should know how to talk about risk management, including identifying risks, using data to measure them, and applying credit risk analysis techniques. Interviewers want to hear how you would manage risk using both traditional methods and data-driven insights.

Common risk categories:

• Market Risk: Exposure to changes in interest rates, stock prices, or exchange rates.
• Credit Risk: Risk that a borrower or counterparty won’t repay a loan or meet a contractual obligation.
• Operational Risk: Failures in internal systems, processes, or people (including fraud or compliance issues).

Real-World Use Cases

Investment bankers use risk assessment tools to support capital raising, screen deals, or evaluate debt covenants. For example, in credit markets, analysts use models to estimate a company’s ability to repay loans under different conditions. These tools help banks offer better terms to clients and stay aligned with regulatory requirements.

In practice, risk management shows up in several areas:

• Debt underwriting – Estimating the probability of default when issuing bonds or loans
• Capital raising – Using credit models to price debt based on a company’s financial data and market conditions
• Deal screening – Flagging risks early before moving forward with a transaction
• Covenant checks – Evaluating if a company can meet future debt terms based on forecasts and ratios

Tech and Tools That Give You an Edge

Modern Tools That Analysts Use

Most financial modeling is still done in Excel, but banks now use a range of tools like artificial intelligence across the financial sector to streamline processes and boost cost savings. You don’t need to be a data scientist, but knowing how investment banking analytics work will help you speak more clearly in interviews.

What Interviewers Want to See

Even if the role focuses on traditional Excel modeling, interviewers want to know that you can think beyond spreadsheets. Your edge comes from knowing how to apply data, tools, and financial knowledge in real business situations.

Focus on showing that you can:

• Use numbers to support clear, informed decisions
• Understand how market trends affect client outcomes
• Think through risk assessment using investment banking analytics
• Connect data to strategy, especially when it comes to raising capital or evaluating investment outcomes
• Provide actionable insights that improve how clients or internal teams make decisions

Practice Tasks You Can Do Before the Interview

1. Build a Mini Financial Model

Start with a public company you understand something with clean financials and consistent revenue (e.g., Nike, Coca-Cola, or Adobe).

Simple Steps:

• Download the last 3–5 years of financial statements from the company’s investor relations site or a platform like Yahoo Finance or EDGAR.
• Forecast revenue, gross margin, operating costs, and free cash flow for the next 5 years.
• Make your assumptions realistic based on historical data, market trends, and analyst estimates.
• Include a simple sensitivity table showing how changes in growth rate or margin affect the output.

What You’ll Learn:

This builds your core skills in financial modeling, data analysis, and explaining assumptions, three things almost every interview will ask about.

2. Try a Simple Valuation

Use public data to run a basic valuation using both Comparable Companies and DCF methods.

Simple Steps:

• Pick 3–5 peer companies from the same sector.
• Pull their valuation multiples (like EV/EBITDA and P/E) from Yahoo Finance, Capital IQ, or Morningstar.
• Apply those multiples to your target company’s financials to estimate a value range.
• Then build a short DCF: forecast cash flows, estimate terminal value, and discount them using a rough WACC (you can use estimates from Damodaran’s site or similar sources).

What You’ll Learn:

You’ll get practice with investment banking analysis, thinking through valuation methods, and using market data to make informed judgments.

3. Walk Through a Real-World Deal or IPO

Pick a recent transaction ideally one with available filings and media coverage (e.g., Instacart, Reddit, or ARM’s IPO).

Simple Steps:

• Read the S-1 or investor presentation to understand the company’s story, risks, and financials.
• Review press releases, earnings call transcripts, or analyst reports to gather unstructured data.
• Summarize the deal: What was the pricing range? What were the comps? Was there a demand premium?
• Build a short case for whether you think the IPO was priced fairly or if the market over-/undervalued it.

What You’ll Learn:

This shows you how to use financial data, industry expertise, and real-time data to form a view. It’s also a great way to prepare for deal origination or capital-raising questions in interviews.

Note: After each task, explain your work out loud or write a summary as if you were answering an interview question. This helps you build confidence in how you communicate under pressure something interviewers watch closely.

Case Study: Instacart’s IPO Financial Analysis

Let’s walk through how you could analyze a real IPO like Instacart (CART).

Deal Overview: Instacart went public in 2023 with an offering priced at $30/share, valuing it around $10B. Revenue grew from $1.5B to $2.5B in three years, but net margins were thin.

Comparable Companies: You could compare Instacart to DoorDash, Uber, and Amazon Fresh. Let’s assume average EV/Revenue = 4.5×. If Instacart had $2.5B revenue: Estimated EV = 4.5 × $2.5B = $11.25B

DCF Approach: Project modest 10% annual growth, 5% terminal rate, and a WACC of 8%. This gives you a rough intrinsic value around $9.5–10.5B depending on assumptions.

Risk Notes: High customer churn, low margins, competitive pressure from Amazon and Walmart. Be prepared to explain how you’d adjust your valuation model based on these risks.

Top Technical Questions for IB Interviews (and How to Answer Them)

These technical interview questions are designed to test your understanding of financial analysis in investment banking. Practicing them can help you explain core concepts clearly under pressure.

1. What is WACC, and how do you calculate it?

Walk through the formula: WACC = (% Equity × Cost of Equity) + (% Debt × Cost of Debt × (1 – Tax Rate)). Interviewers want to know if you understand the components, such as beta, risk-free rate, and capital structure mix.

2. Walk me through a DCF.

Start with free cash flow projections, calculate terminal value using either the Gordon Growth method or exit multiples, and discount everything back using WACC.

3. How do you select comparables?

Discuss industry, size, geography, and business model. Justify why those peers are relevant. Normalize metrics if needed (e.g., non-recurring charges).

4. Explain working capital on cash flow.

An increase in working capital (e.g., rising accounts receivable) reduces cash. A decrease (e.g., delayed payables) increases it.

5. Compare EV/EBITDA, P/E, and EV/Sales.

EV/EBITDA is common for comparing firms with different capital structures. P/E focuses on equity value. EV/Sales is useful for high-growth, low-profit companies.

5 Expert Tips for Standing Out in Interviews

1. Know How Investment Banks Actually Make Money

Be ready to explain what investment banks do beyond the textbook answer. Break down how they earn fees through M&A advisory, capital raising, trading, and underwriting. Show that you understand how investment banks serve corporate and institutional clients differently than commercial banks or asset managers.

2. Use Data to Back Up Your Thinking

Don’t just give opinions; support your answers with numbers. For example, if you’re talking about valuation, refer to actual multiples, market trends, or historical data. If you’re describing a risk, mention how you would use credit risk analysis, financial modeling, or advanced analytics to quantify it.

3. Keep Your Explanations Simple

The best candidates can explain financial concepts without overcomplicating things. Use plain language when talking about financial analysis, capital markets, or investment strategies. Avoid jargon unless the interviewer uses it first.

4. Prepare Short Stories With Real Results

Think of 2–3 clear examples where you:

• Used data analysis to solve a real problem
• Worked on a team under time pressure
• Made a mistake, learned from it, and adjusted
• Delivered actionable insights based on financial or operational data

5. Know How Different Financial Institutions Work

You should understand how investment banks, commercial banks, corporate banks, and institutional investors differ, especially in how they manage risk, raise capital, or approach client relationships. Interviewers may ask about this to test your industry knowledge and awareness of the financial sector as a whole.

The Bottom Line

If you’re preparing for investment banking interviews, focus on building real skills financial modeling, valuation, and data analysis, and learn how to explain them clearly. Interviewers aren’t just testing technical knowledge; they’re looking for how you think, how you work under pressure, and how well you communicate insights. Get familiar with tools like Excel, Capital IQ, and basic data analytics concepts. Practice breaking down deals, reviewing financial statements, and defending your assumptions. Whether you're coming from a finance degree or switching careers, showing you can apply structured thinking and produce clear, data-backed answers will set you apart.

Work with Investment Banking Coaches

If you’re preparing and want to feel sharper with your answers or models, A Investment Banking Coach sometimes helps candidates practice with feedback and real case examples. Coaches can also help you understand the core functions of investment banking, such as mergers and acquisitions and capital markets advisory services. Browse Investment Banking Coach here.

Related Articles

• Valuation Techniques Every Investment Banking Candidate Should Know
• Preparing for Success: Top 10 Questions Asked in Investment Bank Interviews
• Investment Banking Interview Guide: What to Know
• Networking Secrets for Landing the Perfect Investment Banking Role
• Key Skills Every Aspiring Investment Banker Must Have

FAQs

What is investment banking analysis?

• Investment banking analysis refers to the process of evaluating companies, industries, and financial data to support decisions around mergers, acquisitions, capital raising, and other transactions. Analysts use financial modeling, valuation methods (like DCF and comps), and data analysis to assess deal opportunities and guide clients. The goal is to provide accurate, data-backed advice that helps clients make large financial decisions.

Is it hard to be an investment banking analyst?

• Yes, being an investment banking analyst is challenging due to the long hours, fast pace, and high expectations. Analysts are responsible for financial modeling, valuation, and pitch materials under tight deadlines. The role requires accuracy, attention to detail, and the ability to perform under pressure.

Do investment banking analysts make a lot of money?

• Yes, investment banking analysts typically earn high compensation. Entry-level analysts in major firms can make over $100,000 annually, including base salary and performance bonuses, with pay increasing significantly after promotions.

What is financial analysis in investment banking?

• Financial analysis in investment banking involves evaluating a company’s financial statements, performance metrics, and valuation to support mergers, acquisitions, capital raising, and strategic decisions. It includes using tools like DCF, comps, and financial ratios to guide recommendations and investment outcomes.

Is a 3.7 GPA good enough for investment banking?

• A 3.7 GPA is generally considered competitive for investment banking, especially if it’s from a target or semi-target school. However, banks also look at internships, leadership experience, and technical skills when evaluating candidates.