The most daunting thing about interviewing to work in investment banking (aka "corporate finance" or "IBD") is how many unknowns there are. Interviewing is stressful enough, but with investment banking interviews it is exacerbated by the fear of facing a barrage of technical questions about DCFs, EBITDA, NPVs and other seemingly mysterious technical financial issues.
Even if you've done an internship, these questions can still be unsettling. Allow me, then, to help you conquer the fear of these unknowns. The points below cover what you need to understand, and how you can make sure you do understand.
1. The investment banking industry
In the first place, you have to understand what you are applying for and how one sub-sector of the investment banking industry differs from another. What is your motivation for wanting to work in investment banking? Why does it interest you more than other high-potential careers, like strategy consulting?
Don't be unprepared for these questions. Read one of the books that give a good overview of the City like The Vault Guide to Investment Banking by Chris Prior and Tom Lott.
2. The theory behind corporate strategy
Why do you need to understand this? Because you will impress if you can demonstrate that you understand the strategies and operations of companies and how they create competitive advantage. Basically, you will be showing that you have what it takes to be an outstanding banker. At a practical level, you should be ready to answer questions like why, at the time of writing, BP has been struggling during a period when the oil price has been close to an all-time high? On a subject closer to the hearts of most students, you should be able to explain Facebook's revenue model and whether it merited the recent investment from Microsoft which valued it at $15bn.
Michael Porter's best-seller, Competitive Strategy, covers these issues.
3. Financial statements
A company's financial statements should represent the ultimate distillation over time of its business strategy.
A company's published financial reports contain three separate financial statements. You need to know the different categories of information that each one shows.
This is where investment banking meets accounting. You can't find a much better starting point than Accounts Demystified by Anthony Rice.
Of all the activities in which an investment banker gets involved, valuation is arguably the most essential (see page 5 for more on this) . There are lots of ways to value a company, and you will need to be familiar with at least three of them. They fall into two distinct categories.
The first valuation category is "Fundamental Valuation", and the most used technique here is known as Discounted Cashflow ("DCF" for short) The second category is "Relative Valuation", and there are two techniques involved: (1) Comparable Companies Analysis and (2) Precedent Transactions Analysis.
David Fryckman's book, Corporate Valuation, is as accessible an introduction as you'll find anywhere.
5. Corporate finance theory
Broadly, a company is faced with a choice between two overall forms of finance: equity and debt, although there are now a number of hybrid options.
Financing is a job in itself in capital markets roles. Jobs in Equity and Debt Capital Markets (ECM and DCM) involve raising new finance and optimising the financial structures of client companies.
Brearley and Myers's Principles of Corporate Finance is to financing what Hamlet is to English literature: a sheer classic.
6. Mergers and acquisitions theory
In an mergers and acquisitions (M&A) deal the investment banker and his client are looking to create value, either by buying an asset for less than its true value, or from synergies, where the new corporate whole will be greater than the sum of its parts. This is the theory that says that one plus one can equal three.
Once a deal is underway, the investment bankers manage a continuing process of price negotiation, deal structuring, legal compliance and due diligence, in order to progress the transaction to a conclusion. Get a head start on the competition by getting up-to-speed with this.
A quality overview of M&A is Bruce Wasserstein's text, Big Deal.
7. The financial news
At interview, you are likely to be asked to put your theoretical knowledge into practice by commenting on a live or recent deal. So make an effort to know a couple of the headline-grabbing deals that are live during the week you interview, or recent transactions involving the bank or the specific team with which you are interviewing.
The best reference source is The Financial Times.