Equity Research Banking Valuation Interview-Free Cash Flow to Equity to Dividend Discount Model

Cracking the Banking Coverage Valuation Interview

If you walk into an equity research interview and try to value a bank like you would a software company, you are going to struggle. Interviewers know that valuing financial institutions requires a completely different toolkit. You cannot rely on EBITDA multiples or Free Cash Flow to Firm (FCFF) because, for a bank, debt isn’t just a financing choice it is their raw material.

This guide covers the advanced valuation techniques you need to master for banking sector coverage. We move past theory into the messy reality of M&A adjustments, regulatory capital, and tail risk modeling.

Here is how to handle the 15 toughest valuation concepts you will face.

1. The Core Philosophy: Why Banks Are Different

Regular companies produce goods; banks produce money. Because customer deposits are liabilities used to generate assets (loans), metrics like EV/EBITDA become meaningless. You must shift your focus entirely to Equity Value.

The Shift: Stop looking at Enterprise Value. Start looking at Price-to-Book (P/B), Residual Income, and Dividend Discount Models (DDM).

The Test: Interviewers will ask why EBITDA fails for banks. The answer? Interest expense is an operating cost, not a financing detail.

2. Mastering the Bank DCF: Free Cash Flow to Equity

Standard DCF models add back debt. For banks, you must use Free Cash Flow to Equity (FCFE) directly.

The Calculation: Start with Net Income, add back Non-Cash Charges, and crucially subtract the Change in Working Capital and Net Capital Expenditure.

The "Regulatory Trap": You cannot just grow a bank's balance sheet without growing its capital base. If JPMorgan grows loans by 5%, it must retain enough earnings to keep its CET1 Ratio (Common Equity Tier 1) at roughly 11%. If you miss this "capital drag," your valuation will be dangerously high.

3. Terminal Value: Perpetual Growth vs. Exit Multiples

You need to be fast with both methods, as you often have under 3 minutes to run these numbers in a case study.

Perpetuity Growth Method: Best for mature giants like Bank of America. Use a growth rate (g) of 2-3% (matching long-term GDP).

Exit Multiple Method: Best for high-growth challengers or M&A targets. Apply a median P/B multiple from peer analysis.

4. Price-to-Book is King

While tech trades on earnings, banks trade on Book Value. This is because bank assets are marked-to-market, and regulatory capital is tied to book value.

The Magic Formula: Justified P/B = (ROE - g) / (Ke - g)

Where:

• ROE = Return on Equity

• g = Growth rate

• Ke = Cost of Equity

Example: If a bank has an ROE of 14%, long-term growth (g) of 5%, and a Cost of Equity (Ke) of 10%, the Justified P/B is 1.8x. Memorizing this calculation is an easy way to score points.

5. The DuPont Analysis Defense

Interviewers love DuPont Analysis because it exposes how a bank generates returns.

It breaks ROE down into three levers:

1. Net Profit Margin (Efficiency)

2. Asset Turnover (Volume)

3. Equity Multiplier (Leverage)

The Insight: A bank generating 15% ROE through high margins warrants a higher valuation than a bank generating 15% ROE simply by loading up on dangerous amounts of leverage.

6. Cleaning Up the Numbers: Normalizing Earnings

Banks are notorious for "noisy" income statements. You must adjust reported earnings to find Core Earnings.

Common Distortions: Securities gains/losses, DVA (Debt Valuation Adjustments), and litigation settlements.

Example: If Bank of America reports $6.9B in net income but that includes a one-time $450M securities gain, your valuation model must run on the normalized $6.45B figure.

7. WACC Adjustments for Financials

Calculating WACC (Weighted Average Cost of Capital) for a bank is tricky.

Tax Shield: Less valuable because banks already have lower effective tax rates.

Debt Definition: You typically exclude deposits from the debt calculation.

The Numbers: For a firm like Goldman Sachs (assuming 11% Cost of Equity, 3.5% Cost of Debt, and 35% Debt/Cap ratio), your WACC might land around 8.12%. Generally, bank WACC sits lower (7-9%) than corporate WACC (10-12%).

8. The Residual Income Model (RIM)

This is arguably the most elegant way to value a bank. It values the firm based on the Book Value plus the present value of the Excess Returns (ROE minus Cost of Equity).

Why it works: It highlights value creation. If a regional bank earns a 12% ROE against a 10.6% cost of equity, it is generating economic profit. RIM mathematically proves why high-ROE banks trade at premiums to book value.

9. Precedent Transactions & Control Premiums

When valuing a takeover target, trading multiples aren't enough. You must account for the Control Premium usually 20-40%.

Scenario: If the sector trades at 1.2x P/B, but recent M&A deals happened at 1.6x P/B, that roughly 33% gap represents the value of control and synergies.

10. Modeling Tail Risk: Monte Carlo Simulations

Single-point estimates are dangerous. A Monte Carlo simulation with 1,000 iterations reveals the full distribution of outcomes.

Inputs: Vary your Net Interest Margin (NIM) (e.g., 2.1% - 2.8%) and Credit Costs (0.3% - 1.5%).

Output: You might find Citigroup's intrinsic value ranges from $115B to $178B. This highlights downside risks that a standard DCF hides.

11. The Gordon Growth Model Connection

Use this to link P/E ratios to fundamentals.

Formula: Justified Forward P/E = Payout Ratio / (Ke - g)

The red flag: If a bank with 13% ROE and 6% growth should trade at 13.5x P/E but is trading at 9x, you have either found a bargain or a hidden risk the market is pricing in.

12. Dividend Discount Model (DDM)

DDM is the go-to for mature, stable banks (especially PSU banks) with high payout ratios (60-70%).

Two-Stage Model: Use this when a bank is currently in a high-growth phase that will eventually stabilize.

Sensitivity: Be aware that in DDM, the Terminal Value often accounts for 70-80% of the total value. Small changes in your perpetual growth assumption will drastically swing your price target.

13. The Football Field Visualization

Technical accuracy matters, but presentation sells the idea. A Football Field chart compares value ranges across all methods:

• DCF

• Trading Comps

• Precedent Transactions

• Sum-of-the-Parts (SOTP)

This visual allows you to spot outliers immediately. If your DCF is significantly lower than the Trading Comps, you need to explain why.

14. NBFCs vs. Traditional Banks

Never value an NBFC (Non-Banking Financial Company) exactly like a bank.

The Difference: NBFCs lack stable deposit funding and have volatile ROEs. Their asset quality is harder to verify.

The Metric: Value NBFCs primarily on P/E Multiples. This explains why Bajaj Finance might trade at 35x P/E (growth/consumption story) while HDFC Bank trades at 18x P/E (stability/book value story).

15. The "So What?" – Making the Recommendation

Your Excel model is useless if it doesn't lead to a decision.

Sensitivity Analysis: Always include data tables showing how value changes if Cost of Equity rises by 1% or ROE falls by 2%.

The Call: If your model shows 32% upside ($165 intrinsic vs. $125 price), is it a Buy or a Strong Buy? You must assess the risk-reward ratio and identify the catalyst that will unlock that value.

Valuation Methods and DCF Modeling Interview Question

1. The JPMorgan DCF Model

Question: Build a full DCF model for JPMorgan in Excel. Walk through forecasting net income, adjusting for non-cash items, calculating free cash flow to equity, and discounting at cost of equity?

Suggested Answer: To value a bank like JPMorgan, we can't use a traditional Free Cash Flow to Firm (FCFF) model because debt is actually a "raw material" for banks, not just a funding source. Instead, we use the Free Cash Flow to Equity (FCFE) approach.

First, we forecast Net Income. Starting with the current baseline (e.g., $49.6B), we project it forward over 5 years. We drive this growth by making assumptions about Loan Growth and Net Interest Margins (NIM). For a mature bank, we might see growth taper from 6% down to 3.5% over the period.

Second, we adjust for non-cash items by adding back Depreciation & Amortization (D&A). Since these are accounting expenses that don't actual burn cash, they need to be added back to our net income.

Third and this is the most critical step for banks we must account for Regulatory Capital. As the bank's balance sheet grows, regulators require it to hold more equity (Tier 1 Capital). We calculate this "reinvestment" by multiplying the loan growth by the required capital ratio (e.g., 11%). This is cash that cannot be paid out to shareholders.

Finally, we arrive at FCFE: Net Income + D&A - Required Capital Increase. We then discount these flows back to the present using the Cost of Equity (calculated via CAPM), not WACC, to arrive at the equity value.

Tip for the Candidate: The "Gotcha" in this question is the capital reinvestment. Most candidates forget that banks have to "spend" money (retain earnings) just to grow their loan book legally. Mentioning Regulatory Capital shows you understand how banks actually work.

2. Terminal Value: Perpetuity vs. Exit Multiples

Question: How do you calculate terminal value for a bank using both perpetuity growth method and exit multiple method. Which is more appropriate for mature versus growth stage banks?

Suggested Answer: The Perpetuity Growth Method assumes the bank will continue to generate cash flows forever, growing at a steady pace. You calculate this by taking the final year's FCFE, growing it by one year, and dividing by (Cost of Equity - Growth Rate).

The Exit Multiple Method assumes the bank is sold at the end of the forecast period. Here, you take a terminal metric (usually Book Value or Tangible Book Value) and multiply it by a comparable industry multiple, like 1.4x P/B.

For a mature "Bulge Bracket" bank like JPMorgan or Bank of America, the Perpetuity Growth Method is generally more appropriate. These institutions track GDP closely and are expected to exist indefinitely.

However, for high-growth challengers, fintechs, or regional banks in an aggressive expansion phase, the

Exit Multiple Method is better. Their current growth rates are unsustainable in the long run, so pricing them based on what the market would pay for them today (the multiple) is more realistic than assuming a perpetual growth rate.

Tip for the Candidate: Always link your choice of method to the lifecycle of the company. A mature company gets a "forever" valuation; a startup gets a "market exit" valuation.

3. DuPont Analysis & Valuation

Question: A bank trades at 1.8x book value with ROE of 14% and cost of equity of 10%. Using the DuPont framework, justify whether this valuation is fair, cheap, or expensive?

Suggested Answer: To determine if the valuation is fair, we look at the relationship between Return on Equity (ROE) and the Price-to-Book (P/B) ratio.

A quick "fair value" check is the formula: Justified P/B = ROE / Cost of Equity. Using the numbers provided: 14% / 10% = 1.4x.

Since the bank is trading at 1.8x P/B, but the basic math suggests it should be at 1.4x, it appears to be trading at a premium (roughly 28% expensive).

However, using the DuPont Framework, we dig deeper. If that 14% ROE is high quality meaning it's driven by high Net Profit Margins and efficiency rather than dangerous amounts of leverage the premium might be warranted. Furthermore, if the bank is growing its book value rapidly, the Gordon Growth derivative (ROE - g) / (r - g) might show that a 1.8x multiple is actually reasonable for a high-growth compounder.

Tip for the Candidate: Don't just stop at the math. Acknowledge the calculation shows it's "expensive," but immediately pivot to why the market might pay a premium (Growth or Quality). This shows business intuition.

4. Calculating WACC for Investment Banks

Question: Calculate WACC for Goldman Sachs assuming 11% cost of equity, 3.5% cost of debt, 35% debt to total capital, and 21% tax rate. Show all steps?

Suggested Answer: We calculate the Weighted Average Cost of Capital (WACC) by weighing the cost of equity and the after-tax cost of debt.

First, the Equity Component: With an equity weight of 65% (100% - 35% debt), the contribution is: 0.65 × 11% (Cost of Equity) = 7.15%.

Second, the Debt Component: We must tax-effect the debt because interest is tax-deductible. After-tax Cost of Debt = 3.5% × (1 - 0.21) = 2.77%. Weighted contribution: 0.35 × 2.77% = 0.97%.

Finally, sum them up: WACC = 7.15% + 0.97% = 8.12%.

It is worth noting that 8.12% is relatively high for a bank. This reflects Goldman Sachs' business model: as an investment bank, it relies more on volatile trading and advisory fees (higher risk = higher Cost of Equity) and less on cheap deposit funding compared to a commercial bank like Wells Fargo.

Tip for the Candidate: When discussing WACC for banks, always qualify that for pure commercial banks, we rarely use WACC (we use Cost of Equity). However, for investment banks or conglomerate valuations, WACC is still a relevant metric for enterprise valuation.

5. Comparable Company Analysis (Comps)

Question: Build a comparable company analysis in Excel for 6 large banks showing P/E, P/B, P/TBV, EV/Assets, and dividend yield. Normalize for one-time items?

Suggested Answer: To build a solid comps table, we gather the raw financials (Market Cap, Net Income, Book Value) for our peer group JPM, BofA, Wells Fargo, Citi, etc.

We focus on specific banking multiples:

1. Price-to-Earnings (P/E): The standard measure of profitability.

2. Price-to-Book (P/B): The most important metric for banks. JPM might trade at 1.7x, while a restructuring story like Citi might trade at 0.68x.

3. Price-to-Tangible Book (P/TBV): This strips out goodwill, giving a cleaner view of liquidation value.

Crucially, we must Normalize Earnings. If a bank reported $12B in income but had a $2B one-time legal settlement, we add that back to get a "clean" net income. Without this, our P/E ratios would be distorted.

We then create a valuation range (Low, Base, High) based on the quartiles of these multiples to value our target company.

Tip for the Candidate: Emphasize "normalization." Interviewers want to know that you aren't just copy-pasting numbers from Bloomberg/Yahoo Finance, but that you actually read the footnotes to find non-recurring items.

6. Residual Income Model

Question: A regional bank has book value of $25 per share, current price of $32, ROE of 12%, and growth rate of 5%. Using residual income model, calculate intrinsic value?

Suggested Answer: The Residual Income Model is fantastic for banks because it defines value as the Book Value plus the present value of any "excess" returns generated above the cost of capital.

First, we check the Cost of Equity (using CAPM variables, let's assume ~10.6%). Next, we calculate the Residual Income for the next year: (ROE - Cost of Equity) × Book Value. (12% - 10.6%) × $26.25 (projected book) = $0.37 per share.

We treat this $0.37 as a perpetuity growing at 5%. PV of Excess Returns = $0.37 / (10.6% - 5%) = $6.61.

Finally, Intrinsic Value = Current Book Value ($25) + PV of Excess Returns ($6.61) = $31.61.

Since the stock is trading at $32, it is fairly valued. The model tells us that the premium over book value is exactly justified by the bank's ability to generate returns (12% ROE) that exceed its cost of capital.

Tip for the Candidate: Conceptually, this model proves that if ROE equals Cost of Equity, the bank should trade exactly at Book Value. If ROE > Cost of Equity, it trades at a premium.

7. Precedent Transaction Analysis

Question: Walk through a precedent transaction analysis for bank M&A. Calculate transaction multiples (P/E, P/B, P/Deposits) for 5 recent deals and apply median to your target?

Suggested Answer: Precedent Transaction Analysis looks at historical M&A deals to see what acquirers have actually paid for similar banks. Unlike trading comps, these prices include a Control Premium (the extra cash paid to take over a company).

We gather data on recent deals (e.g., JPM buying First Republic, or regional consolidations). We calculate three key multiples:

1. P/Book: Often higher than trading multiples (e.g., 1.46x median).

2. P/Earnings: Usually around 15-16x.

3. Price-to-Deposits: A unique banking metric. A median of 16.9% implies acquirers pay a premium for stable funding sources.

We take the median of these metrics and apply them to our target. For example, if our target has $3.8B in book value, applying the 1.46x deal multiple gives us a valuation of $5.55B. We usually average the results from the P/B, P/E, and P/Deposit methods to triangulate a final value.

Tip for the Candidate: Highlight P/Deposits. It's a metric specific to bank M&A that doesn't show up in other industries. It shows you understand that in banking, deposits are a valuable asset to an acquirer.

8. Valuing NBFCs vs. Traditional Banks

Question: How do you value a NBFC differently than a traditional bank. What multiples are most relevant and why does P/B work better for banks?

Suggested Answer: NBFCs (Non-Banking Financial Companies) and traditional banks operate differently. Banks have stable, cheap funding (deposits) and strict capital rules. NBFCs borrow from the market (expensive) and are focused on growth.

For traditional banks, Price-to-Book (P/B) is king. This is because their assets are marked-to-market and regulatory capital requirements create a direct link between equity and earnings power.

For NBFCs, Price-to-Earnings (P/E) is often more relevant. NBFCs are growth engines with more volatile earnings and higher risk. Their book value can sometimes be misleading due to aggressive lending or under-provisioning. A high-growth NBFC like Bajaj Finance might trade at a massive P/B multiple that looks "broken," but its P/E multiple will tell a rational story about its growth prospects.

Tip for the Candidate: Frame this as "Stability vs. Growth." Banks are valued on their balance sheet (Book Value); NBFCs are often valued on their income statement (Earnings growth).

9. Monte Carlo Simulation

Question: Build a Monte Carlo simulation in Excel with 1000 iterations to model a range of potential fair values for Citi based on varying assumptions for NIM, loan growth, and credit costs?

Suggested Answer: A Monte Carlo simulation allows us to move away from a single "guess" at valuation and instead see a probability distribution of outcomes.

We identify the variables with the most uncertainty: Net Interest Margin (NIM), Loan Growth, and Credit Costs. We assign a distribution to each (e.g., NIM follows a normal bell curve, while Credit Costs might have a "fat tail" to account for a potential recession).

We set up a Data Table in Excel to run the DCF model 1,000 times, each time picking a random number from those distributions.

The result isn't a single stock price, but a range. We might find that the Mean value is $145B, but there is a "fat tail" of risk where value drops to $115B if credit costs spike. This helps us understand not just the value of Citi, but the risk profile of that value.

Tip for the Candidate: You don't need to be a coding wizard to explain this. Focus on the output: "It helps us quantify tail risk what happens in the worst 10% of scenarios?"

10. Justified P/E (Gordon Growth)

Question: A bank has forward P/E of 9x while sector average is 11x. The bank's ROE is 13% versus sector 11%. Calculate justified P/E using Gordon Growth Model if both have 6% growth and 10% cost of equity?

Suggested Answer: We use the Gordon Growth Model derivative for P/E: Justified P/E = Payout Ratio / (Cost of Equity - Growth).

First, we determine the Payout Ratio. Since Growth = ROE × Retention Ratio, we can solve for retention.

For the bank: 6% Growth = 13% ROE × Retention. Retention is 46%, so the Payout Ratio is 54%.

Now, plug it into the formula: Justified P/E = 54% / (10% - 6%) = 13.5x.

The math reveals a massive discrepancy. The bank is trading at 9x, but its fundamentals (high ROE allowing for high payouts) suggest it should trade at 13.5x. This implies the stock is significantly Undervalued (by ~50%), assuming the market isn't pricing in some hidden risk that we missed.

Tip for the Candidate: This is a classic arbitrage question. The candidate who can calculate the number gets a B+. The candidate who says "It's undervalued, unless the market thinks that 13% ROE is temporary or risky," gets an A.

11. Football Field Valuation

Question: Create a football field valuation chart in Excel showing value ranges from DCF, comparable companies, precedent transactions, and sum of the parts for a diversified bank?

Suggested Answer: A Football Field chart is a visual summary that compares valuation ranges from different methodologies to spot the consensus.

We plot horizontal bars for each method:

• DCF: Usually yields a lower, conservative range based on cash flows.

• Trading Comps: A wider range reflecting market volatility.

• Precedent Transactions: Typically the highest range because it includes the Control Premium.

• Sum-of-the-Parts (SOTP): For a diversified bank like Citi, breaking it into pieces (Retail, Corp Bank, Wealth Management) often reveals a value higher than the current stock price (the "conglomerate discount").

By drawing a vertical line representing the current share price through these bars, we can visually argue whether the bank is undervalued. If the share price line cuts through the far left (low end) of every bar, it's a clear "Buy" signal.

Tip for the Candidate: Mention Sum-of-the-Parts (SOTP). For large, messy banks, SOTP is often the most insightful valuation method because it uncovers value hidden by the "conglomerate discount."

12. Adjusting for Core Earnings

Question: How would you adjust a bank's reported earnings for core earnings by removing securities gains, debt valuation adjustments, and restructuring charges before applying a P/E multiple?

Suggested Answer: To get to Core Earnings, we have to strip out the "noise" to find the recurring profitability of the bank.

Starting with Net Income, we make the following adjustments (tax-effected):

1. Remove Securities Gains/Losses: If the bank got lucky trading stocks this quarter, we remove those gains. They aren't part of the core business.

2. Remove DVA (Debt Valuation Adjustment): If the bank's own credit gets worse, accounting rules ironically say they make a profit on their debt. This is "fake" income—we remove it.

3. Add back Restructuring Charges: Severance or branch closure costs are one-time expenses. We add them back to show what earnings would look like normally.

Once we have this clean "Core Earnings" number, we apply the industry P/E multiple. This prevents us from overvaluing a bank just because they had a lucky one-time windfall.

Tip for the Candidate: Mentioning DVA (Debt Valuation Adjustment) is a "pro move." It's a specific, counter-intuitive accounting rule in banking. Knowing to remove it shows deep technical knowledge.

13. Intrinsic P/B Ratio

Question: Calculate intrinsic P/B ratio using DuPont: ROE = 15%, payout ratio = 40%, growth = 9%, cost of equity = 12%. Show formula and result?

Suggested Answer: We use the fundamental valuation formula: P/B = (ROE - Growth) / (Cost of Equity - Growth).

Plugging in the numbers: P/B = (15% - 9%) / (12% - 9%) P/B = 6% / 3% = 2.0x.

The intuition here is powerful: The bank earns 15% on equity, but investors only require a 12% return. Because the bank generates an "excess" 3% return and grows it over time, investors are willing to pay 2x the book value for that performance.

Tip for the Candidate: Memorize the simplified formula: (ROE - g) / (r - g). It's much faster to use in a pressure situation than deriving the full Gordon Growth model from scratch.

14. Accretion/Dilution in M&A

Question: A bank acquisition is announced at 2.2x book value. The target has ROE of 16% and acquirer's ROE is 12%. Analyze if this premium is justified from a return perspective?

Suggested Answer: We need to determine if paying 2.2x Book for a 16% ROE bank creates value for an acquirer with a 12% ROE.

First, look at the target's standalone fair value. With a 16% ROE, a valuation of 2.2x is actually quite reasonable (likely below its intrinsic value).

However, the real test is Return on Investment. If the acquirer pays $220 to buy $100 of book value earning 16% ($16 earnings), the return on that cash layout is only 7.3% ($16/$220). Since 7.3% is below the likely Cost of Equity (10-12%), this deal is initially dilutive to value.

To make this work, the acquirer needs Synergies. By cutting costs (usually 30% of the target's expenses), the acquirer can boost that $16 in earnings to ~$25. At that level, the return on the $220 purchase jumps to >11%, making the deal Accretive.

Tip for the Candidate: This questions tests if you understand that a "good company" (high ROE) isn't always a "good deal" if the price (2.2x Book) is too high. The bridge between the two is Synergies.

15. Dividend Discount Model (DDM)

Question: Using dividend discount model, value a PSU bank with current dividend of $1.20, expected growth of 7% for 5 years then 4% perpetually, and cost of equity of 11%?

Suggested Answer: We use a Two-Stage DDM here: a high-growth phase and a stable-growth phase.

Phase 1 (High Growth): We project the $1.20 dividend growing at 7% for 5 years. We discount each of these future dividends back to today using the 11% cost of equity. Summing these gives us the value of the near-term cash flow (approx $5.36).

Phase 2 (Terminal Value): We calculate the value of the dividends from Year 6 onwards using the perpetuity formula: D6 / (Cost of Equity - Stable Growth). Discounting this large lump sum back to today gives us the bulk of the value (approx $14.84).

Total Value: Adding both parts ($5.36 + $14.84) gives us an intrinsic value of $20.20.

This suggests that for a stable, dividend-paying bank (like a PSU), the majority of the value (~73%) comes from the long-term tail, making the valuation highly sensitive to that 4% terminal growth assumption.

Tip for the Candidate: When valuing state-owned or PSU banks, always mention that you might apply a discount to your final DDM number to account for "Governance Risk" or "NPA uncertainty," which models often fail to capture.

Final Thoughts

Bank valuation is where technical modeling meets economic intuition. It is fundamentally different from valuing a tech startup or a manufacturing firm because a bank’s balance sheet is its product, and regulatory constraints dictate its ability to grow.

These 15 questions represent the level of sophistication Equity Research interviewers expect. They don't just want to see if you can plug numbers into a formula; they want to know if you understand why FCFE is superior to Free Cash Flow to Firm, or why P/B captures value better than EV/EBITDA.

The "Why" is More Important Than the "What"

The key to acing the interview is moving beyond memorization to genuine Business Judgment.

Here is the test: If your model calculates that a bank with 14% ROE deserves a 1.8x P/B multiple, but the market is trading it at 1.2x, do not just assume it’s a "buy." You need to ask the hard questions: Is that ROE sustainable? Are there hidden credit risks in the loan book? Is management destroying value through poor capital allocation?

Technical precision without skeptical judgment won't get you the job.

Build Muscle Memory

Practice until these models become automatic. You should know the mechanics by heart: the FCFE derivation, the Justified P/B formula, and how to calculate Terminal Value.

Your goal is speed and accuracy. When you can build a Comparable Company Analysis (Comps), a full DCF, and a Football Field valuation chart in under 45 minutes, you are ready for the pressure of a bulge bracket interview.

Understanding the Nuance

Every bank you cover JPMorgan, Goldman Sachs, Citigroup has a unique DNA. Some trade at premiums due to operational efficiency, while others trade at discounts due to regulatory headaches.

Understanding these nuances is what separates a candidate who mechanically applies formulas from an analyst who delivers genuine investment insights.