“You need to be good at math for Investment Banking.” – This is another big myth of Investment Banking.
The short answer: For M&A Investment Banking and Private Equity, you don’t need anything beyond basic arithmetic. We are talking about addition, subtraction, multiplication and division. Throw in some percentages and growth rates and some means and medians. That’s the math needed for Investment Banking.
For more quantitative finance roles, you’ll be working with advanced statistics and data science methods. To be clear, these are not related to M&A Investment Banking or Private Equity. The roles are more related to quantitative trading, hedge funds, asset management or risk management.
You will never use advanced calculus, differential equations, geometry or trigonometry.
Math needed for Investment Banking
This is the math you need for M&A Investment Banking:
Can you add, subtract, multiply and divide in an Excel spreadsheet?
Can you quickly estimate percentages in your head?
Can you calculate compound growth rates?
Can you spit out rule of 72 numbers?
Can you quickly look at numbers to see outliers?
That’s it. You are done.
All the complicated math you have learned in finance classes are important to grasp the concepts. But you won’t be sitting at your desk manually calculating an IRR or DCF. Instead, you compile all the required data and plug them into the company template. You will often work with existing templates or simple models rather than building everything from scratch. That’s inefficient and nobody has time to do that.
Even in complicated financial models, the math is not complicated. It’s still just addition, subtraction, multiplication, division, and the occasional IRR, mean, median or VLOOKUP function. What makes it complicated is not the math but all the data inputs you need to keep track of in your Excel model.
Additionally, financial modeling is only a small part of what an Investment Banking Analyst does daily. There is a lot of “administrative work”, such as emailing people and updating lists and presentations. Your tasks as an intern will be to support your Analysts as best as you can. These may include researching, compiling lists, updating slides and some basic financial modeling. Notice that all the tasks do not involve any advanced math.
Now, if you want to do the “math” side of the business, it’s an entirely different career path. We are talking about people taking math majors or going straight into quantitative finance – not your average business or finance degrees. The academic degrees you need for Investment Banking are simpler than full-blown quant roles. Yes, we’ll ask for your SAT, GMAT and GPA scores. But this is to judge how much you are willing to walk the extra mile and whether you can burn the midnight oil. We do not care about your math courses in college.
Advance math classes are not needed
What does this all mean for you? If you are not a quant person and want to get into Investment Banking, don’t take advanced math or quantitative finance classes – especially if they drag your GPA down. Besides basic accounting, valuation and corporate finance classes, you don’t need to go overboard. Investment Bankers look at the overall GPA and don’t go into detail about every single class. In other words, maintaining a 3.8 GPA is better than a 3.3 GPA with “tough” classes. Nobody will check your classes and their respective difficulties.
You want to maintain a minimum GPA of 3.5 (US) or a British upper second-class (2:1). In ECTS grades, it would be anything above a B+. In German grades, stay above a 2.2 – preferably a 1.9 and above. You want to be in the top 20% of your class to maximize your chances.
You need to be good with numbers
You don’t need to know advanced math, but you must be good with numbers. What does that mean? While the mathematical operations are simple, you will work with large spreadsheets. Adding two Excel cells together is simple. But if you add the two wrong cells together, things get messed up. Now, scale this error to 100 operations and you are looking at an even larger pile of mess. This is exactly the problem you run into in Investment Banking. You need to keep track of your inputs, know which operation you are doing, why you are doing it and interpret the result.
Things that are more useful on-the-job
To drive the point home, understanding accounting concepts and knowing how to use Excel is more useful than any advanced calculus or linear algebra in Investment Banking. In addition to knowing your technical stuff, are you willing to put in the hours and are you a bearable person to work with? These things will bring you further in Investment Banking than advanced math.
If you want to get better with numbers, here are four things you can work on:
1. Accounting
These are the basics of Investment Banking. Develop a strong understanding of a P&L, Cash Flow Statement and Balance Sheet. Learn how these statements look like and learn how they are interconnected. This is also relevant to your interview preparation. You will 100% get accounting questions in your Investment Banking interview.
2. Excel skills
Don’t get this one wrong. You will learn detailed financial modeling on the job. However, it’s important to come in knowing how to use Excel without a mouse. Knowing all the basic functions and keyboard shortcuts will speed up your ability to process changes in an Excel spreadsheet. The ability to quickly manipulate and edit your spreadsheet will be extremely helpful compared to learning some advanced math. Besides that, you will make a good impression because all top-tier Analysts know how to use Excel without a mouse.
Here are a few shortcuts to start with:
Use Alt + E + S for paste special
Use Shift and Ctrl when navigating the spreadsheet with your arrow keys
Shift/Control + Space and Ctrl + +/- to add/remove lines or columns
Shift/Ctrl + Space and Shift + Alt + Left/Right to group/ungroup rows or columns.
Use F4 to fix formulas or repeat the last action
Use Home, End and Ctrl + Shift when typing and selecting text
Ctrl + Backspace/Delete to delete entire words vs. just single letters
3. Attention to detail
If you are being told to re-check your work repeatedly, that’s not a good sign. You need to check your work more often before submitting it. Lacking attention to detail will kill your return offer. Learn to check your work multiple times. Messing up the company name or the shareholders’ names will make you and the bank look unprofessional. And please, get your numbers right. Check whether all cells are linked to the correct source and whether the correct operations are performed. Having errors in your numbers is one of the worst things that can happen to you.
4. Work endurance
Work endurance is less of a thing that you can train for. But know what you are signing up for. Investment Bankers work long hours. We are talking about 60-80h per week most of the time. And with work endurance, we mean not complaining and holding your emotions together while the world is crashing around you. You are being bombarded with emails and new tasks and must always respond happily and politely. All of this with great accuracy and attention to detail. You will not mix up two similar companies. You will not mix up two CEOs. You will not mix up revenue or EBITDA figures. This is what being a professional means. With time you get better at containing yourself while focusing on the mission (deal).
Where does it leave us?
For M&A Investment Banking and Private Equity, you don’t need anything beyond basic arithmetic. We are talking about addition, subtraction, multiplication and division. Throw in some percentages and growth rates and some means and medians. That’s the math needed for Investment Banking.
For more quantitative finance roles, you’ll be working with advanced statistics and data science methods. To be clear, these are not related to M&A Investment Banking or Private Equity. The roles are more related to quantitative trading, hedge funds, asset management or risk management.
You will never use advanced calculus, differential equations, geometry or trigonometry.
What’s more important is to be “good with numbers”. The basic arithmetic operations are easy. But you need to know what you add or subtract on a scaled-up level. You need to be able to trace your input data and understand why you are doing which operations. To be good with numbers, having a good understanding of accounting, Excel skills (speed), attention to detail (no careless errors) and work endurance are helpful. These things together will bring you further in Investment Banking than advanced math.
Additional resources
Feeling inspired to break into Investment Banking? Are you up for the challenge?
If you would like to fast-track your interview prep and maximize your chances of landing an offer, come train with us. We’ll give you everything you need to land the IB job you’ve always wanted… how to professionally edit your CV & cover letter, how to ace all technical questions, how to shine with tricky behavioral questions, how to master Excel like a pro and how to navigate office politics to maximize your chances of a return offer. Everything you need to know in one place.
Check out your free preview and learn how to handle the top interview questions.
