Finance theory
The ideas under the interview questions: discounting, the financial statements, risk and the cost of capital, relative valuation, capital structure, merger maths, leveraged buyouts and option pricing - from the primary sources.
Almost every valuation question in an interview is one idea applied at scale: a sum of money today is worth more than the same sum later, because today's can be invested. The DCF is that idea run over a forecast and a terminal value.
Accounting is the largest single topic in the question bank, and all of it rests on what each statement measures, how they connect and how the main lines are recognised. This page goes from the statements themselves, to the rules behind revenue, assets, liabilities and group accounts, to the ratios that read them together.
The discount rate in every valuation is a statement about risk. Two results from the 1950s and 1960s, both recognised by the 1990 Nobel prize, are how finance turns risk into a number.
Most valuations in banking are relative: a multiple taken from similar companies or similar deals, applied to the company in question. It is quicker than a DCF and easier to present, and the same qualities make it easy to misuse.
The most famous result in corporate finance says that how a company is financed does not change what it is worth. It is true under stated conditions, and the conditions are the whole lesson: each one that fails in practice is a reason financing decisions matter.
The first question asked of any public acquisition is whether it raises or lowers the buyer's earnings per share. The arithmetic is simple, the shortcut is worth knowing, and the answer says less than it seems to.
A leveraged buyout buys a company mostly with borrowed money and repays the debt from the company's own cash flow. The mechanics sit under every private equity interview and most of the bank's LBO questions.
The formula recognised by the 1997 Nobel prize is the foundation of the derivatives desks on a trading floor, and its central idea reaches well beyond options - to the way a company's debt and equity are valued.