Wall Street Prep

Common Finance Interview Questions (and Answers)

Finance interview questions to be ready for

With the start of a new academic year, we know that finance interviews are again at the forefront of many of your minds. Over the next few months, we’ll be publishing most frequently asked technical finance interview questions and answers across a variety of topics – accounting (in this issue), valuation, corporate finance – to get you prepared. If you’re looking for interview prep resources beyond this article, be sure to take a look at our Interview Prep training package.

Before we get to accounting questions, here are some interview best practices to keep in mind when getting ready for the big day.Get prepared for finance interview questions

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.”

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.

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.

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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.

Q: 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 hepful. Please feel free to add any comments or recommendations in the comments section below.

Good luck in your interview!

 

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deewakar jha
deewakar jha
November 3, 2016 1:52 am

Dear sir, I am pursuing my MBA in finance and currently in second year and the placements are on the doorstep. I request you to keep publishing these kind of articles along with I think, if you will write on how to answer the questions related to the resume, which… Read more »

Dharmesh
Dharmesh
September 15, 2018 10:17 am

Respected sir,
I have completed my MBA in HR and FINANCE .I don’t know the whats types of questions asked in the finance interview.
Please tell me sir.

Sven
Sven
May 15, 2018 1:49 am

Q: I have a question of how to calculate net debt when there are derivatives used. Here is the information published by the company on it’s balance sheet: Short term borrowing 1,200 Long term borrowing 6,700 Cash and marketable securities 800 But then in a different part of the report… Read more »

Al-mamun
Al-mamun
October 3, 2017 12:14 pm

sir,at first take my salam. Sir i can’t answer properly in viva question about finance.Although finance was major in my BBA programmer.what kind of question comes from basic finance. sir please suggest me,,which question can i follow, have you any fdf file “the basic question about finance in viva ”… Read more »

Opubor Efemena
Opubor Efemena
September 17, 2017 1:11 pm

This was very helpful. Thank you very much.

Rohit Sharma
Rohit Sharma
December 4, 2016 11:10 pm

Can you please provide me bunch of questions that usually ask at the time of interview.

Penina Rotich
Penina Rotich
June 27, 2020 8:02 am

Nice one

Muhammad Haris
Muhammad Haris
June 17, 2020 4:01 pm

Thank you this is great work..keep on providing such stuff…more about financial statements and how to do them.

Venu kumar
Venu kumar
December 4, 2019 12:23 am

Thank you it must be useful

Shaikh Qutuboddin
Shaikh Qutuboddin
February 19, 2019 8:17 am

Hello Sir/Madam, My self Shaikh Qutuboddin, am an MBA grad in Finance also am working as finance and accounts executive in a Multinational Corporationsin Audit, Reconciliation, Revenue and Disbursement Statement preparation so am looking for a job in Financial Planning and Analyst, please advice me what should i prepare for… Read more »

govardhan
govardhan
December 27, 2018 11:23 am

superb

Anil kumar
Anil kumar
July 22, 2018 1:22 pm

Really it was very good but provide in pdf.

Bagcagul
Bagcagul
July 21, 2018 5:09 am

Really interesting article. Thanks!

Tijjani Kachallah
Tijjani Kachallah
July 17, 2018 7:56 am

Epic article and love the prompt answers given to questions asked.

lava kumar
lava kumar
June 11, 2018 1:39 am

nice

PEACE CHIMEZIE
PEACE CHIMEZIE
May 26, 2018 6:44 am

Epic Article. Most interesting article read.

Ashwini
Ashwini
May 14, 2018 8:26 am

It’s really useful………. thanks

Clotilda
Clotilda
May 7, 2018 10:36 am

This is good and helpful

Anup Mondal
Anup Mondal
February 24, 2018 9:35 am

Thanks.
Perfect articles.

BHAGWAN PEDANEKAR
BHAGWAN PEDANEKAR
February 16, 2018 6:09 am

THANK YOU SIR

Ayushi
Ayushi
January 17, 2018 10:33 pm

Nice article!!

Hiren
Hiren
December 15, 2017 11:19 am

Nice article!

Anshu Kumari
Anshu Kumari
November 28, 2017 9:51 am

Can you explain this question in more detail :-
Q: Is it possible for a company to show positive cash flows but be in grave trouble?

Anand M K
Anand M K
November 24, 2017 9:45 am

Thank you so much for the article Sir! Really appreciate a lot. This made my confidence boosted as I was searching for Finance Questions to be asked by the interviewer. Really thanks once again Sir.

Maphuti seleka
Maphuti seleka
November 21, 2017 11:15 pm

I’m having interview at tax worx and I don’t know what type of questions I will be asked and it’s been 2years since I did accounting and this will be my 1st internship after my N6 achievement in financial management.

tayyaba
tayyaba
October 19, 2017 11:39 pm

thanks a lot

vishnu
vishnu
October 13, 2017 7:16 am

Thank you

PJ Usak
PJ Usak
October 8, 2017 8:00 pm

If you buy a Current Asset for $100 how does it flow through the three financial statements?

Is this the same answer as buying equipment?

vishnu
vishnu
September 15, 2017 3:05 am

dear sir
in an pantnership firm the previous expenses paid in current year and it would in previous as payable. now the amount is paid then what will be the entries
plz give me a answer

Carlos Esqueda
Carlos Esqueda
September 9, 2017 1:54 pm

Thank you!! 🙂

K Masthan
K Masthan
September 9, 2017 1:09 pm

Please send some short tips for Basic Of Accounts Interview questions

Ganesh
Ganesh
August 12, 2017 5:49 am

thank you

Christha
Christha
July 27, 2017 11:55 am

Thank you so much. 🙂

Zulaikha Madina Zahari
Zulaikha Madina Zahari
July 6, 2017 4:17 pm

Thank you. This helped me so much.

Akinwunmi zainab
Akinwunmi zainab
June 17, 2017 8:04 am

Hi,

pls sir wats d link to join if i want to get basic accounting questions nd your update

Allan
Allan
June 5, 2017 10:11 am

thanks for your question and answers, it has help me improve my project issues about financial system assignment

Raymond
Raymond
June 1, 2017 7:56 am

Are you sure these are the most common questions?

sonu
sonu
April 15, 2017 7:29 am

thank u

SHWETA PATIL
SHWETA PATIL
April 13, 2017 6:20 am

Hello Sir I have a doubt in goodwill calculation, like goodwill it is reputation of company, then also we will treat it asset and keep in balance sheet with measuring in amount so how you calculate in amount.
can i get explanation.

Romya Ranjan Dash
Romya Ranjan Dash
April 8, 2017 12:10 pm

Precise and informative points for job seekers.

Pounraj
Pounraj
March 23, 2017 2:23 pm

Thanks, hope it’s useful for my interviews

Naveed
Naveed
March 21, 2017 8:59 am

Precise and clear answers.

Narayana
Narayana
February 23, 2017 5:16 am

Very Informative and well written.

Thank You

AMIT
AMIT
February 15, 2017 1:34 pm

“well explained answers in short way”
Thanks

AMIT
AMIT
February 15, 2017 1:32 pm

THANKS SIR

vijay
vijay
February 15, 2017 12:52 pm

Thanx sir and my help in english speeking in job intarview

mounuddin ansari
mounuddin ansari
February 11, 2017 1:57 am

it’s really precise and understandable ans.
thank u sir

Shweta
Shweta
February 8, 2017 1:09 am

Thank you sir.

Shweta
Shweta
January 25, 2017 12:50 am

Very Informative and well written. Thank You!

mamta sharma
mamta sharma
January 20, 2017 7:28 am

thnk u sir for the efforts u had made for the interseted readers with proper explaination of the important topics