Finance Interview Questions
Most common questions (and answers) used to hire for jobs and careers in finance
Most common questions (and answers) used to hire for jobs and careers in finance
We’ve compiled a list of the most common and frequently asked finance interview questions. If you want to ace your finance interview, then make sure you master the answers to these challenging questions below. This guide is perfect for anyone interviewing for a financial analyst job and it’s based on real questions asked at global banks to make hiring decisions.
In conjunction with this comprehensive guide to finance interview questions (and answers), you may also want to read our guide on how to be a great financial analyst, where we outline “The Analyst Trifecta“.
There are two main categories of finance interview questions you will face:
#1 Behavioral and fit questions relate more to soft skills such as your ability to work with a team, leadership, commitment, creative thinking, and your overall personality type. Being prepared for these types of questions is critical and the best strategy is to pick 5-7 examples of specific situations from your resume that you can use as examples of: leadership, teamwork, a weakness, hard work, problem-solving, etc. To help you tackle this aspect of the interview we’ve created a seperate guide to behavioral interview questions.
#2 Technical questions are related to specific accounting and finance topics. This guide focuses exclusively on technical finance interview questions.
General best-practices for finance interview questions include:
The balance sheet shows a company’s assets, its liabilities, and shareholders’ equity. The income statement outlines the company’s revenues and expenses. The cash flow statement shows the cash flows from operating, investing, and financing activities.
Cash is king. The cash flow statement gives a true picture of how much cash the company is generating. Ironically, it often gets the least attention. You can probably pick a different answer for this question, but you have to have a good justification (e.g., the balance sheet because assets are the true driver of cash flow etc etc.).
This is somewhat subjective. A good budget is one that has buy-in from all departments in the company, is realistic yet strives for achievement, has been risk-adjusted to allow for a margin of error, and is tied to the company’s overall strategic plan. In order to achieve this, the budget needs to be an iterative process that includes all departments. It can be zero-based (starting from scratch each time), or building off the previous year, but it depends on what type of business you’re running as to which is better. It’s important to have a good budgeting/planning calendar that everyone can follow. This is an important part of how to be a world-class financial analyst.
A company should always optimize its capital structure. If it has taxable income, then it can benefit from the tax shield of issuing debt. If the firm has immediately steady cash flows and is able to make their interest payments, then it may make sense to issue debt if it lowers the WACC.
WACC (weighted average cost of capital) is calculated by taking the percentage of debt to total capital, multiplied by the debt interest rate, multiplied by one minus the effective tax rate, plus the percentage of equity to capital, multiplied by the required return on equity.
There are pros and cons to financing with debt vs equity that a business needs to consider. It is not automatically better use debt financing simply because it’s cheaper. A good answer to the question may highlight the tradeoffs, if there is any followup required.
This question has four parts to it:
Part a) EBITDA increases by amount capitalized;
Part b) Net Income increases, amount depends on depreciation and tax treatment;
Part c) Cash flow is almost constant – however, cash taxes may be different due to depreciation rate and therefore cash flow could be slightly different
Part d) Valuation is constant – except for cash taxes impact/timing on NPV
It’s important to have strong financial modeling fundamentals. Wherever possible, model assumptions (inputs) should be in one place and distinctly colored (bank models typically use blue font for model inputs). Good Excel models also make it easy for users to understand how inputs are translated into outputs. Good models also include error checks to ensure the model is working correctly (e.g., the balance sheet balances, the cash flow calculations are correct, etc.). They contain enough detail, but not too much, and they have a dashboard that clearly displays the key outputs with charts and graphs. For more, check out our complete guide to financial modeling.
Nothing. This is a trick question – only the balance sheet and cash flow statements are impacted.
Working capital is typically defined as current assets less current liabilities. In banking, working capital is normally defined more narrowly as current assets (excluding cash) less current liabilities (excluding interest-bearing debt).
Negative working capital is common in some industries such as grocery retail and the restaurant business. For a grocery store, customers pay upfront, inventory moves relatively quickly, but suppliers often give 30 days (or more) credit. This means that the company receives cash from customers before it needs the cash to pay suppliers. Negative working capital is a sign of efficiency in businesses with low inventory and accounts receivable. In other industries, negative working capital may signal a company is facing financial trouble.
In this answer to this interview question, it’s important to consider the company’s normal working capital cycle.
If the purchase will be used in the business for more than one year, it is capitalized and depreciated.
There are essentially four areas to consider when accounting for Property, Plant & Equipment (PP&E) on the balance sheet: initial purchase, depreciation, additions (capital expenditures), and dispositions. In addition to these four, you may also have to consider revaluation. For many businesses, PP&E is the main capital asset that generates revenue, profitability, and cash flow.
This is a classic finance interview question. On the balance sheet, the asset account of inventory is reduced by the amount of the write-down, and so is shareholders’ equity. The income statement is hit with an expense in either COGS or a separate line item for the amount of the write-down, reducing net income. On the cash flow statement, the write-down is added back to Cash From Operations (CFO), as it’s a non-cash expense (but must not be double counted in the changes of non-cash working capital). Read more about an inventory write-down.
There are many reasons: to achieve synergies (cost savings), enter new markets, gain new technology, eliminate a competitor, and because it’s “accretive” to financial metrics. Learn more about accretion in M&A.
[Note: Social reasons are important too, but you have to be careful about mentioning them, depending on who you’re interviewing with. These include: ego, empire building, and to justify higher executive compensation.]
This is one of the great finance interview questions. Step back and give a high-level overview of the company’s current financial position, or of companies in that industry in general. Highlight something on each of the three statements. Income statement: growth, margins, profitability. Balance sheet: liquidity, capital assets, credit metrics, liquidity ratios. Cash flow statement: short-term and long-term cash flow profile, any need to raise money or return capital to shareholders.
This has been CFI’s guide to finance interview questions and answers. We’ve also published numerous other types of interview guides. The best way to be good at interviews is to practice, so we recommend reading the most common questions and answers below to be sure you’re prepared for anything!
Here are our most popular interview guides (questions and answers):