Finance interview best practices

Be prepared for technical questions.

Many students erroneously believe that if they are not finance/business majors, then
technical questions do not apply to them. On the contrary, interviewers want to be
assured that students going into the field are committed to the work they’ll be doing
for the next few years, especially as many finance firms will devote considerable
resources to mentor and develop their new employees.

One recruiter we’ve spoken to said “while we do not expect liberal arts majors to
have a deep mastery of highly technical concepts, we do expect them to understand
the basic accounting and finance concepts as they relate to investment banking.
Someone who can’t answer basic questions like ‘walk me through a DCF’ has not
sufficiently prepared for the interview, in my opinion”.

Another added, “Once a knowledge gap is identified, it’s typically very difficult to
reverse the direction of the interview.”

Keep each of your answers limited to 2 minutes.

Longer answers may lose an interviewer, while giving them additional ammunition to
go after you with more complicated question on the same topic.

It’s ok to say “I don’t know” a few times during the interview. If interviewers think that
you’re making up answers, they’ll continue probing you further, which will lead to
more creative answers, which will lead to more complicated questions and a slow
realization by you that interviewer knows that you don’t really know. This will be
followed by uncomfortable silence. And no job offer.

Finance interview questions: accounting

Accounting is the language of business, so don’t underestimate the importance of
accounting-related finance interview questions. Some are easy, some are more
challenging, but of all of them allow interviewers to gauge your knowledge level
without the need to ask more complex valuation/finance questions.Below we have
 selected most common accounting questions you should expect to see during the
recruiting process.

Q: Why do capital expenditures increase assets (PP&E), while other cash

outflows, like paying salary, taxes, etc., do not create any asset, and instead
instantly create an expense on the income statement that reduces equity via
retained earnings?

A: Capital expenditures are capitalized because of the timing of their estimated

benefits – the lemonade stand will benefit the firm for many years. The employees’
work, on the other hand, benefits the period in which the wages are generated only
and should be expensed then. This is what differentiates an asset from an expense.

Walk me through a cash flow statement.

A. Start with net income, go line by line through major adjustments (depreciation,
changes in working capital and deferred taxes) to arrive at cash flows from operating
activities.

 Mention capital expenditures, asset sales, purchase of intangible assets, and

purchase/sale of investment securities to arrive at cash flow from investing
activities.

 Mention repurchase/issuance of debt and equity and paying out dividends to

arrive at cash flow from financing activities.

 Adding cash flows from operations, cash flows from investments, and cash flows
from financing gets you to total change of cash.

 Beginning-of-period cash balance plus change in cash allows you to arrive at end-
of-period cash balance.
Q: What is working capital?

A: Working capital is defined as current assets minus current liabilities; it tells the
financial statement user how much cash is tied up in the business through items
such as receivables and inventories and also how much cash is going to be needed
to pay off short term obligations in the next 12 months.
Q: Is it possible for a company to show positive cash flows but be in grave
trouble?

A: Absolutely. Two examples involve unsustainable improvements in working capital

(a company is selling off inventory and delaying payables), and another example
involves lack of revenues going forward in the pipeline.

Q: How is it possible for a company to show positive net income but go

bankrupt?

A: Two examples include deterioration of working capital (i.e. increasing accounts

receivable, lowering accounts payable), and financial shenanigans.

Q: I buy a piece of equipment, walk me through the impact on the 3 financial

statements.

A: Initially, there is no impact (income statement); cash goes down, while PP&E goes
up (balance sheet), and the purchase of PP&E is a cash outflow (cash flow
statement)

Over the life of the asset: depreciation reduces net income (income statement);
PP&E goes down by depreciation, while retained earnings go down (balance sheet);
and depreciation is added back (because it is a non-cash expense that reduced net
income) in the cash from operations section (cash flow statement).

Q: Why are increases in accounts receivable a cash reduction on the cash

flow statement?

A: Since our cash flow statement starts with net income, an increase in accounts
receivable is an adjustment to net income to reflect the fact that the company never
actually received those funds.

Q: How is the income statement linked to the balance sheet?

A: Net income flows into retained earnings.

Q: What is goodwill?

A: Goodwill is an asset that captures excess of the purchase price over fair market
value of an acquired business. Let’s walk through the following example: Acquirer
 buys Target for $500m in cash. Target has 1 asset: PPE with book value of $100,
debt of $50m, and equity of $50m = book value (A-L) of $50m.

 Acquirer records cash decline of $500 to finance acquisition

 Acquirer’s PP&E increases by $100m
 Acquirer’s debt increases by $50m
 Acquirer records goodwill of $450m
Q: What is a deferred tax liability and why might one be created?

A: Deferred tax liability is a tax expense amount reported on a company’s income

statement that is not actually paid to the IRS in that time period, but is expected to be
paid in the future. It arises because when a company actually pays less in taxes to
the IRS than they show as an expense on their income statement in a reporting
period.

Differences in depreciation expense between book reporting (GAAP) and IRS

reporting can lead to differences in income between the two, which ultimately leads
to differences in tax expense reported in the financial statements and taxes payable
to the IRS.

Q: What is a deferred tax asset and why might one be created?

A: Deferred tax asset arises when a company actually pays more in taxes to the IRS
than they show as an expense on their income statement in a reporting period.

 Differences in revenue recognition, expense recognition (such as warranty

expense), and net operating losses (NOLs) can create deferred tax assets.
I hope you enjoyed this article and found these finance interview questions helpful.
Please feel free to add any comments or recommendations in the comments section
below.

Good luck in your interview!

MBA Finance Interview Questions and Answers:
These MBA interview questions and answers types are being divided into
the different topics that specifically covers MBA finance. Here are the
questions asked in finance interview for freshers that falls under this
category.

1. General Accounting:

The finance questions that usually comes when it comes to this categories
are what are the various types of accounting, characteristic features, cost
accounting and the objectives of it, defining management accounting and
its objectives, the scope of management accounting, comparison between
financial and cost accounting, between financial and management
accounting and the comparison between management accounting and cost
accounting.

These are basic general accounting questions that would need answers
from you, in an MBA finance position interview.

2. Accounting Type:

Another type that is covered in the MBA finance interview questions are;
defining personal accounts and listing the different accounts within
personal accounts, explaining the meaning of real accounts and providing
a list of real accounts and how these can be used in real time, Definition of
nominal accounts and listing the different types of nominal accounts,
the principle of double entry system of accounting, explaining what a
trial balance is and what does an accurate trial balance suggests.

These are basic text book questions but one needs preparations so that it
shows that you know the subject.
3. Journal:

Questions that comes from about Journal are, defining journalizing and
breaking down the columns of a journal, subsidiary books and why these
are maintained, listing the type of transactions that are entered in a
journal, what is a cash book, defining a purchase day book, sales day book
and the importance of both, purchase return register, sales return register
and defining journal proper. These are questions that will need the basic
textbook answers.

4. Expenditure:

Listing and explaining the different types of expenditures that are relevant
to accounting, capital expenditures, defining revenue expenditure and its
effect on the profitability statement in a period, deferred expenditures
and how deferred expenses are taken care of in a profitability statement.
A short and concise answer should do fine.

5. Ledger:

Definition of a ledger and the meaning of a ledger posting, the meaning of

controlled ledger and the purpose of maintaining one and what it means
by the balancing of ledger accounts; these are the questions that are
enclosed within the category. Answers that are straightforward and basic
textbook guides will be able to help you answer these.

6. Depreciation:

The definition of depreciation and the cause of depreciation, the need of a

depreciation account, the effect of depreciation of assets on profits received
by owners, the different ways of calculating depreciation and the straight
line method of calculating depreciation, written down value method of
calculation, production unit method of calculation, the annuity method of
calculating depreciation, sinking fund method of calculation, revaluation
method of calculating depreciation and the different acts on the calculation
of depreciation.

7. Bank reconciliation:

The definition of the bank reconciliation statement and why is it prepared,

tallying of the bank pass book and your bank book and the things needed
while preparing a bank reconciliation statement.

8. Balance sheet:

Explanation of a balance sheet and the need for preparing it, items
appearing on the liability side of a balance sheet, items appearing under
the assets, the adjustment entries and why these are passed and the entries
that are needed for the preparation of the final accounts.

9. Profit and Loss:

The need for preparing the profit and loss accounts and the components of
profit and loss. The answers to these are all basic textbook definitions.

10. Financial Accounting:

Meaning of accounting concepts, the different types of accounting

conventions and the various systems of accounting and explanations of
each.

11. Rectification of errors:

Groups that are under rectification of errors, types of errors that have an
effect on the trial balance, the type of errors that do not affect trial
balance, steps to locate errors in case there is a disagreement in the trial
balance and measures to rectify these errors.
12. Cost Accountancy:

The questions that comes under this category are: the definition of cost
accountancy and the objects of cost accountancy, cost centre, the
comparisons between impersonal and personal centres and between
production and services cost centres, the definitions of direct and indirect
costs, variable, semi-variable and fixed cost, controllable and
uncontrollable costs, normal and abnormal costs, opportunity and
differential costs, sunk costs and steps involved when installing a costing
system.

13. Cost element:

The different elements of cost, overheads and how they are being classified,
factory overheads, office and admin overheads, selling and distribution
overheads, the definition of gross and net profit.

14. Budgetary control:

Definition of budget and its characteristics, budgetary control and its

characteristics, the advantages of a budgetary control, prerequisites of
implementing a budgetary control, cash budget, purchase budget,
production budget, define a budget manual, difference between a fixed and
a flexible budget, role of a budget control in cost control and the
requirements for the success in its preparation.

MBA Finance Personal and Generalized

Questions:
The interviewers will not be asking just the specific financial analyst
interview questions that are related to MBA, there will be questions that
will be personal and general which will help the hiring panels to evaluate if
you are fit for the position in their company or not.
The specific questions are the easy part of getting through the personal
interviews and as a fresher, there is a huge likelihood that you can still
remember all the answers to the questions above.

Here are few top interview questions and answers that you will need to go
through and prepare your self with since they will be imperative in getting
the job

1. About Yourself:

The first thing that the interviewers will want to know is about you, so the
best way to tackle this answer is by being honest and straightforward. Be
clear about who you are, what you like and the kind of challenges that you
are always looking forward to when it comes to searching for a job.

The secret is not repeating what has been written on your resume; make
sure that you also tell them about your educational background, the
extracurricular activities that you care about and your strength as an
individual (something that is not about your professional life). This is your
first step at giving the interviewer a solid first impression.

2. Your interest on the job:

Another important question that the interviewers are going to ask you is
the reason why you are applying for that particular job. It may be any of
your expectations from the job, maybe because it fits your skills because it
is something that you love or just because you really need the money.

The best answer for this kind of question is ensuring that you are interested
in the work; again this should be backed up by the fact that you have the
skills and the knowledge for doing the necessary work. It is important to
answer this question with the knowledge of the job applied for.
3. Resume:

Your resume is a very important part of your interview and it is advisable

that you are able to explain what was written in the resume, whether in a
detailed description or as a summary; this will depend on what your
interviewers want to hear.

They will want to see how you communicate and present your
accomplishments and accolades, this is also another way of reading the
level of your confidence and knowledge on the skills and educational
background that you have.

The best answer is a quick summary of your resume that is presented in a

confident and gives them the impression that you know what you have
written about and your skills.

4. Future endeavors:

A very important information that the interviewers would want to know is

your reliability. They will want to know whether you are going to work for
them long term or if you are already thinking about moving to another
company that has greener pastures. This is also a great way for the
interviewers to know if you are focused and a person who has aims.

The best way to tackle this question is in being honest and let them know
your dreams if you are looking forward to fast promotions that will show
your commitment to growth, and it shows that you are also result oriented
and therefore ready to learn how to be successful.

5. Job Knowledge:

Knowing what the company you are applying into will surely give you
plus points because the question about your knowledge of the company
will be asked. It is good to be prepared and let them know all that you have
learned about the organization. This shows commitment and that it is
actually in your preferences.

Going in without knowing the core services of the company will kill the
interview even before you are able to make that good and solid impression.
It is always advisable to be able to answer this question favorably as this is
your way of showing that you know what you are getting into and that
is why the job application.

6. Why study MBA?

This is a very common question in most personal interviews; they will be

interested to know what was the reason for you to choose this line of
studies. A great way to know your focus on the future, career and a great
life, this is also a great way to see your knowledge of your educational
background.

The way to tackle this question is by being completely honest with them
and tell them your end-game (because you want to be specific that this
path is going to give you), let them know your strategy and the reason why
you took MBA to get to your dream. In the corporate world, it is a huge
thing to be able to carry yourself.

7. Strengths and Weaknesses:

This is another information list that is going to be important for your

prospective employers to know. Understanding your strengths and
weaknesses is a sign of personal maturity and a focus that will be very
advantageous for the company.

It is advisable that you educate yourself on the SWOT model before the
interview and being genuine about yourself is the best way to get through
this answer.
Do not over highlight your strengths or contradict between the two and the
most important is in hiding your weaknesses. Share whatever is
comfortable to you. However, do not add to any of the points given.

The six most common investment banking interview questions and how
to answer them
Define Beta for a layman

Beta tells you how much the price of a given security moves relative to movements
in the overall market.

A Beta of 1 means that if the market moves, the stock moves in unison with the
market.

A Beta < 1 means that if the market moves a certain amount, the stock will move les
s than that amount

A Beta >1 means that if the market moves a certain amount, the stock will move
more than that amount.

What is CAPM?

CAPM is the Capital Asset Pricing Model, and it is a model designed to find the
expected return on an investment and therefore the appropriate discount rate for a
company's cash flows. It is a linear model with one independent variable: beta.

CAPM divides the risk of holding risky assets into systemic and specific risks. To the
extent that any asset is affected by general market moves, that asset entails
systematic risk. Specific risk is the risk which is unique to an individual asset. It
represents the component of an asset's volatility which is uncorrelated with general
market moves. According to CAPM, the marketplace compensates investors for
taking systematic risk, but not specific risk.

CAPM considers a simplified world in which there are no taxes or transaction costs.
All investors have identical investment horizons. All investors have identical
perceptions regarding the expected returns, volatilities and correlations of available
risky investments.

Formula: Ri = Rf + Beta * (MRP)

Rf = risk‐free rate (use 10‐year Treasury)

MRP = Market Risk Premium (Rm – Rf)

Rm = Expected Return of Market

Of the three main valuation methods (DCF, public comparables and
transaction comparables), rank them in terms of which gives you the highest
price? Which one yields the highest valuation?

Simple answer: It depends. Depends on discount rate in DCF model, depends on the
comparable companies used, depends on whether the market is hot/cold and the
companies are overvalued/undervalued for no good reason.

Generally, however, transaction comps would give the highest valuation, since a
transaction value would include a premium for shareholders over the actual value.

The second highest valuation would probably be the DCF, since there are a lot more
assumptions that are involved (growth rate, discount rate, terminal value, tax rates,
etc.), but it can also be the most accurate depending on how good the assumptions
are.

Trading comps offer the least wiggle room and will solely depend on the choice of
companies and how the market treats them.

If you had to pick one statement to look at (balance sheet, cash flow,income st
atement), which one would it be and why?

No right answer. Can go with whichever one you like. Each has its advantages.
Income statement shows the profitability of a company, trends in sales/expenses
margins, etc.; balance sheet is a great way to see what items make up the
company’s assets and whom the company needs to pay back for those assets.
Personally, I would go with cash flow statement. At the end of the day, cash is king.
A company that has positive income but very little cash is in deep trouble.

Cash
flows are used for DCF models, not net income. The cash flow statement allows
observing important performance metrics from both income statements and balance
sheets such as net income, depreciation, sources and uses of funds, changes in
assets and liabilities.

What is the difference between commercial and investment banking?

There are many definitions, but these are some of the broader ideas that differentiate
the two:

Commercial bank: accepts deposits from customers and makes consumer and
commercial loans using these deposits. The vast majority of loans made by
commercial banks are held as assets on the bank’s balance sheet.

Investment bank: acts as an intermediary between companies and investors. Does

not accept deposits, but rather sells investments, advises on M&A, etc…loans and
debt/equity issues originated by the bank are not typically held by the bank, but
rather sold to third parties on the buy side through their sales and trading arms.
What is accretion and dilution? — Give an example

Accretion is asset growth through addition or expansion. Accretion can occur through
a company’s internal development or by way of mergers and acquisitions.

Dilution is a reduction in earnings per share of common stock that occurs through the
issuance of additional shares or the conversion of convertible securities. Adding to
the number of shares outstanding reduces the value of holdings of existing
shareholders.

An acquisition is accretive when the combined (pro forma) EPS is greater than the
acquirer’s standalone EPS. For example, suppose analysts expect Procter &
Gamble’s EPS to be $3.05 next year. You are a banker charged with the task of
modeling the impact to Procter & Gamble’s EPS if they were to acquire Colgate-
Palmolive (this is purely hypothetical by the way). So you build your model and
determine that the pro form EPS next year would actually be $3.10 -- $0.05 higher
than had the acquisition not taken place. In other words, the deal would be $0.05
accretive next year. An acquisition is dilutive if the opposite is determined: that pro
forma EPS would be lower than $3.05. A deal is considered breakeven when there is
virtually no impact on EPS.

Accretion: When pro forma EPS > Acquirer's EPS

Dilution: When pro forma EPS < Acquirer's EPS

Breakeven: No impact on Acquirer's EPS