Updated October 19, 2023
Wondering why Tom (the character you see in the picture above) is so happy?
Well, he has cleared the Case study round at one of the bulge bracket investment banks and has been offered a job there. Wouldn’t you like to be at Tom’s place, rejoicing in your entry into Investment banking? Let me help you out.
Yes, here we are again, discussing the infamous investment banking interviews. If you didn’t know this, case studies are a part of Investment banking interviews. In fact, to land up at one of the bulge bracket investment banks, case studies are a ritual. You must be thinking if it is a tough nut to crack. The answer is Yes, but only if you are not well prepared and don’t know what and how of it. I am not here to frighten you, but let’s get the fact clear: preparing for case studies is equally important as that of your interviews, and not clearing this round could jeopardize your dream of getting into an investment bank.
But don’t worry; we will find out all about investment banking case studies, i.e., how to prepare for them and how to answer them, which would help you get through them and probably the interview.
I have listed down a few questions you would have regarding investment banking case studies. Hopefully, the answers will help you clear this interesting round at the assessment center, getting you the job offer.
What are Investment Banking Case Studies?
Simply put, case studies in investment banking interviews are the analysis of a business situation. Your interviewer would give you a business problem and ask for a detailed recommendation. Your job is simply to analyze the scenario, which could usually be a client’s business, and advise them with justified reasons on the present problem. All the required information would be provided to you, and taking some assumptions, you are supposed to solve them in the stipulated time period. Under normal circumstances, you would have sufficient time to review the case study and then discuss it during your interview. While the majority of the time, the case study round would happen on the day of your interview some recruiters also provide the material beforehand for the candidates to well prepare on the same.
Why Investment Banking Case Studies?
The idea behind these case studies is that bankers find the traditional way of interviewing candidates poor as these jobs’ requirements differ. Banking recruiters consider case studies a better measure to judge candidates as they provide an indicator of how you would perform on the job. Here you need not worry if your answer is correct or not; that is not what the interviews want; they are basically eyeing the thought process of the candidate and their analytical skills to find a solution to the given problem in a creative way. The creators of investment banking case studies design them in a way that encourages candidates to brainstorm and think critically on their own.
One of the main skills that are required in candidates for such jobs is their ability to solve problems. Recruiters want to get a basic insight into how you would tackle challenging situations and apply your intelligence, education, and work experience in successfully handling them. Along with this, they get a good opportunity to test other skills such as communication, presentation, and interpersonal skills. Due to these reasons, case studies weigh much more than the other ways of judging candidates in the investment banking recruitment process.
What are the Types of Case Studies?
Broadly the categories are divided into two, viz. the “Take home case studies” and “On the spot case studies”. In the case of take-home case studies, you are given a few days to work on them, complete your analysis and showcase your recommendations to the bankers over a 30-45 minute presentation. As you may have guessed, in on-the-spot case studies, the interviewer gives you the case study on the day of your interview and expects you to present it within an hour or two. The time split for this process would usually be 45-60 minutes of preparation and 10 minutes of presentation followed by a round of question and answer.
While the take-home ones could involve a much deeper analysis, including merger/LBO modeling and valuation, on-the-spot case studies would not involve such deep study as the time required to do the same is not sufficient and would be more about presentation and teamwork skills put to test. During the interview, the interviewer may request that you evaluate the valuation multiples of corporations and determine whether they are undervalued or overvalued.
The other case studies based on the client’s situation would majorly concentrate on areas such as sources through which capital should be raised, whether the proposed merger should be undertaken, and why? So these are the types on which you could expect investment banking case studies.
How to Prepare for Investment Banking Case Studies?
Practice. Yes, that’s all you need to do. Read and solve as many case studies as possible so that you get the knack for understanding business scenarios and solving them. Make sure you read business news often and are aware of the focus on reading about how and what business transactions are discussed. You should learn about various valuation techniques, including how to calculate them and interpret their results. Especially for financial modeling and valuation-based case studies, you need to be prepared as to how you would format it consistently while using PowerPoint and Excel.
But there is a problem you could not find real case study questions that are used by banks for interviews. But since you have to practice, try asking a friend or any colleague you know who has been through such case study rounds for the kind of questions they received. If even that is possible, create your own case study. Yes, you could simply do that by taking up a company, building up a hypothetical situation, and asking yourself self-questions like should they merge with company ABC? What kind of capital structure the company should have?
Check out to practice more on case studies and tests at the assessment center.
How to Perform Well?
- As I already mentioned, you will have to practice vigorously beforehand.
- Understand the case and questions carefully before interpreting, and think twice before you finalize the decision for the problem.
- Assess all the relevant factors and possible problems while keeping in mind the resources you have.
- The solutions you provide should be realistic and be aware of the implications for the organizations under study.
- Have strong logical reasons behind every statement you make and cater to the case’s critical issues at the beginning.
- Be creative and think “out of the box” to get the banker’s attention towards you.
- Specific knowledge regarding the industry under study is unnecessary, but it would be an added advantage.
- The next important step is to collect your thoughts and bring across the main points. Do not beat around the bush, as you would have limited time, so be precise as you speak.
- Answer the interviewer’s questions giving justified reasons.
- There is nothing right and wrong, but at times of arguments (which surely happen if there are group discussion), strongly mention why you did not opt for those possibilities.
Now you must be wondering how we actually apply all this in a case study. Let’s understand investment banking case studies through an example which is a typical “On spot case study.”
Argus Public Ltd. is presently trading at a 52-week low – although its recent earnings announcements and the current quarter have been similar to that of the analyst projections. In order to increase their profits they wish to undertake a project. How do you think should they raise capital for the same? Provide you with a brief overview of the company, including its financial statements.
What You Have to Do
Prepare a presentation giving our recommendation on what could be the best financing method in this situation.
Though the answers to case studies are generally subjective this example has a clear answer. Argus Public Ltd. should “raise debt” as opposed to equity.
- Argus Ltd. should raise debt because if the company issues equity at a time when its share price is at a 52-week low it would result in too much-lost ownership.
- Let’s assume that the normal share price of the company is $30 and there are 10 million shares outstanding, hence the market capitalization here would be $300 million. Now, if the 52-week low share price is $20 the market cap is now $200 million. In such a scenario, if the company issues say $100 million worth of new shares, that’s one-fourth of their company when the share price is $30, but it’s one-third of the company when the share price is $20.
- On the contrary, if they raise debt they do not have to give up on the ownership. They would face fewer problems as their financials are otherwise strong.
- Debt is a superior option as there would be no dilution and since the share price is at a 52-week low equity financing at this point would have higher-than-normal dilution.
The presentation could include the following slides;
- The recommendation and highlight the key reasons for why debt.
- Explain the reasons why equity is not the correct solution in this situation.
- How debt is a better option and specify the amount that could be raised (You could arrive at that figure based on EBITDA multiple and around 1-2x to be extremely conventional).
- Discuss the issues that could arise with debt financing such as payment of interest expense in future years along with the measures to deal with them (For instance if the forecasts show that the pre-tax income surpasses the interest income significantly.
- Conclude the presentation by confirming why debt would be the most feasible solution, and justify how the company could cover the interest expense.
Keep in mind that you do not exceed the time limit allotted to present the slides. Rehearse well before so that it goes through smoothly. If it’s a group presentation, ensure everyone gets the chance to speak and express their views. The assessors surely would mark you on your behavior while working in a team.
Consider this as an opportunity to showcase your skills and talent to investment bankers. Those 15-20 minutes could change your life and help you achieve your dreams, so make them count and give your best 🙂
Investment Banking Case Studies Infographics
Learn the juice of this article in just a single minute, Investment banking case studies Infographics.