3 “Check the Box” Technicals You Can’t Afford to Miss

January 12, 2025

The Non-Target Playbook 

If you over-explain a basic technical, you’re guaranteed to get grilled the rest of the interview.

Bankers live & breathe technicals, meaning you will never know more than them.

If they want to go in-depth on a particular question, they’ll ask follow-ups.

Over-explaining a simple concept will suck up time too…

So they won’t have the chance to test whether you know the harder concepts during that short 30min.

I got asked the three technicals below in every first round & superday during recruitment.

Most kids fall victim to over-explaining, so here’s how to answer each in a clean & concise way.

  • Question 1: What is WACC and how do you calculate it?

    • Answer: WACC is the weighted average cost of capital companies use as their discount rate. You calculate it by taking percent equity times cost of equity and add that to the percent of debt times the after-tax cost of debt.

    • Common Over-Explanation: Detailing how to calculate each component (i.e. CAPM formula for cost of equity)

  • Question 2: If you could only use one financial statement, which would it be and why?

    • Answer: Cash flow statement because it gives the best view of a company’s liquidity and ability to generate cash. The income statement can reflect non-cash items and the balance sheet only shows a company’s assets and liabilities at one point in time.

    • Common Over-Explanation: Listing the specific non-cash items that may appear on the income statement

  • Question 3: What is the formula for enterprise value?

    • Answer: You start with equity value then add debt, preferred stock and non-controlling interests. Then you subtract cash to get enterprise value.

    • Common Over Explanations: Listing other investor groups, Explaining difference between current and implied right away without being asked

99% of questions you’ll see are follow-ups from these types of basics.

The “basics” consists of four main conceptual categories.

Each has their own BIWS (Breaking Into Wall Street) guide.

For each category, here are the interview questions I was most commonly asked.

Category 1

Core Finance (32pg)

This is the shortest guide by far.

You won’t get questions directly from this one.

However, none of the other guides will make sense if you don’t know these fundamentals.

  • Time Value of Money

  • Net Present Value

  • IRR

  • WACC

  • Inflation

Top 3 Common Interview Questions

Question 1) What is a typical IRR PE firms target when considering an investment?

Answer: ~ 20% - 25%

Question 2) How much would you pay for a company that generates $100 of cash flow every year forever?

Answer: Depends on the discount rate. If rate is 10%, you’d pay $100 / 10% = $1,000

Question 3) What does “Discount Rate” mean conceptually?

Answer: It’s represents opportunity cost. It reflects the required return for investment opportunities with a similar amount of risk

Study Approach

This is the first guide you should read.

I read it cover to cover five times first semester freshman year.

If you have extra time, take a stab at reading Rosenbaum & Pearl before diving into the other guides.

Free PDF to that linked here: https://investmentbankingclub.org/downloads

Category 2 

Accounting & 3 Financial Statements (99pg)

This is the most important guide by far.

Accounting is the language of business and a thorough understanding will set you apart right away.

Top 3 Common Interview Questions

Question 1) How are Prepaid Expenses, Accounts Payable and Accrued Expenses different?

Answer: Prepaid expenses are assets whereas accounts payable and accrued expenses are liabilities on the balance sheet. Prepaid expenses are items a company already paid for but don’t appear on the income statement yet because those expenses aren’t being used during that period per accrual accounting. Accounts payable and accrued expenses are the opposite where you already recognized them on the income statement because the expense has been incurred, but you haven’t actually used the cash to pay for it yet. The difference between accounts payable and accrued expenses is that accrued expenses are typically used for monthly recurring items.

Question 2) Single-Step Changes on the Financial Statements

Example: If a company’s depreciation increases by $10, what is the impact to the three financial statements?

Answer: Start on income statement. Depreciation increases expenses by $10 so pre-tax net income is down $10. Assuming a 40% tax rate, net income is down $6. That flows to the top of the cash flow statement. Net income is down $6, then you add back $10 because depreciation is a non-cash expense. So, cash is overall up $4. On the balance sheet on the assets side, cash is up $4, but accumulated depreciation is also up $10, bringing the assets side down a total of negative $6. On the liabilities plus equity side, it’s also down $6 due to the negative $6 in net income falling under retained earnings. Therefore, both sides are down $6 and balance.

Question 3) Multi-Step Changes on the Financial Statements

Example: A company buys a factory for $100 with debt. Walk me through what happens on the three statements (A) At the time of purchase, and (B) During year one.

Answer: Watch this Wall Street Mastermind YouTube video. Great explanation (https://youtu.be/rht4FIlzMFk?si=AnsZ31_lGOD0togS)

Study Approach

The first 63pg is basically a textbook.

  • I read through this once to grasp concepts and took no notes

  • I then read it a second time and took detailed notes

  • Finally, I did a third skim to drill everything down before diving into the questions

The guide breaks questions down into four sections.

Each is ~10pg and they get progressively harder.

I followed this routine to essentially memorize the phrasing of each example response.

  • (1) Pull first question up on screen. Hide answer by scrolling up a bit

  • (2) Say answer out loud to myself

  • (3) Scroll down slightly to check if I covered all parts of perfect answer

  • (4) If missed a part / stumbled in phrasing, write down the # of the question on sticky note

  • (5) Move onto next question & finish all in section

  • (6) Go back to top & re-do all question numbers I wrote down on sticky note

  • (7) Repeat until I can basically iterate BIWS’s answers word-for-word

Category 3

Equity Value, Enterprise Value & Valuation (95pg)

This is the second most commonly asked category behind accounting.

Questions here will be a mix of testing your understanding of concepts and performing calculations.

Top 3 Common Interview Questions

Question 1) What do Equity Value and Enterprise Value mean conceptually?

Answer: Enterprise value is the value of a business’s core operations to all investor groups and equity value is the value of the entire business (all of its assets) to only equity investors.

Question 2) How do you calculate Unlevered Free Cash Flow?

Answer: Starting with revenue, you subtract cost of goods sold and operating expenses to get to operating profit, also known as EBIT. Then you multiply by one minus the tax rate, add back depreciation, amortization and any other non-cash items. After that, you subtract capex and change in working capital to get to unlevered free cash flow.

Question 3) A company has 100 shares, a share price of $10 and 10 options with an exercise price of $5. What is its diluted equity value?

Answer: Basic equity value is $10 x 100 = $1,000. All options are in the money since exercise price is under current share price. Ten new shares are created from that and investors pay the company $50 ($5 x 10) to exercise these. The company gets $50 in cash from that and can buy back 5 of the 10 new shares at $10 per share. You now have a total of 105 shares with a share price of $10. This leaves you with a diluted equity value of (105 x $10) = $1,050

Study Approach

I followed the same rinse & repeat cycle I used for the accounting section.

This guide has four sections as well.

I got in the routine of tackling a few sections every Sunday night.

This would take ~2hr and allowed me to chip away slowly throughout freshman year.

Category 4

Valuation & DCF Analysis (118pg)

If you understood the previous three, you should fly through this one.

It uses all of those fundamental concepts in action with the following valuation methodologies.

  • Discounted Cash Flow Analysis

  • Public Comparable Companies

  • Precedent Transactions

Top 3 Common Interview Questions

Question 1) What are the advantages and disadvantages of the three main valuation methodologies?

Answer: This Wall Street Mastermind video covers it well (https://www.youtube.com/watch?v=ladWOK1lhQg)

Question 2) Walk me through a DCF.

Answer: This Youtube video covers it well (https://www.youtube.com/watch?v=wSjk7j9rN_M)

Question 3) What are the formulas for un-levering and re-levering beta and why do you need to do this?

Answer: (Formula Below). You un-lever & re-lever because it allows you to take away the risk from capital structure / use of leverage and isolate the inherent business risk. You then re-lever based on targeted capital structure because the practice of valuing a company is typically forward looking.

Study Approach

For this guide, I used the same rinse & repeat cycle as above.

However, spending time actually building models helped the concepts stick better.

Here are three ways to practice modeling.

1. Case Competition. (Either on-campus or find national competition)

2. Practice DCF

3. Excel Certification (Focus on three statement modeling before doing LBOs)

How to Get Started

You should never have to pay for the BIWS guides.

Simply ask an upperclassmen to send you the PDFs.

They come as part of this the “all-inclusive” set of guides (https://breakingintowallstreet.com/investment-banking-interview-guide/) offered by BIWS.

The all-inclusive package has six modules, but everything I talked about here is in module four.

Best of luck and happy recruiting!

Cheers 🥂

- Jack