You should expect various questions ranging from common behavioral questions to complex mathematical problems whenever you enter a finance interview setup. Practicing for finance job interviews can help you perfect your critical thinking skills and improve your ability to respond concisely regardless of the pressure.
Reviewing popular finance interview questions with a friend is a practical way of polishing your responses to increasing your chances of making a good impression. In this article, we explore the top 30 finance interview questions and provide some sample responses to give you an idea of how to respond.
1. What Inspired Your Decision To Join A Career In Finance?
I chose a career in finance because mathematics was one of my favorite subjects. It was while at school that I discovered my passion for numerical puzzles. It fascinates me how financial equations have a single answer, but many approaches can lead to that same answer. Sometimes looking at a financial challenge from a different perspective is all it takes to increase available funds at a critical moment.
2. Share With Us Any Of Your Greatest Achievements
Highlights in my career are many. But one that comes to mind was when as a personal financial planner, I assisted a client with a two-year financial strategy to eliminate a $15,000 debt. The said client was drowning in debt and could hardly afford to meet ends. I offered my professional assistance, and I am happy that he is free from debt today and has begun a college fund for his children. I get fulfillment when I utilize my services to transform individual lives and help people take control of their finances.
3. What Strengths Are You Bringing To This Position?
My greatest strength is budgeting. I have learned that properly utilizing funds is the surest way of eliminating debt and growing income. I love exploring varied financial solutions and analyzing how the right budgeting strategy can result in more accurate forecasting.
A few years back, I got a job in an eCommerce company. When I joined, the company was experiencing a financial crisis and needed my services to help turn things around. After a thorough analysis, I knew the issue was a lack of proper budgeting. The first step was to create a list of all clients who owed the company and approach them to devise a repayment plan. Together, we came up with a flexible payment procedure. Within three months, I collected 75% of the total debt owed to that company. Additionally, I devised a long-term, transparent financial plan to ensure the company didn’t lapse into such a financial mess again.
4. What Are Your Weaknesses
Though I know I am not good at public speaking; I never miss an opportunity to develop in this area. Accepting a leadership role in my local school committee is helping me improve. Whenever I need to address the community about the school’s progress, I take time to practice my speech. I also ensure I look my best, as this boosts my self-esteem. Over time, I have noticed a great improvement, and I believe it’s only a matter of time and I will be great at it.
5. You’ve Just Joined A Company That’s Experiencing Cash Flow Challenges. What Approaches Can You Suggest To Help It Fulfil Its Financial Obligations?
First, I would audit the company’s income and expenditure. Conducting a full audit will help me identify loopholes and any overspending. To meet short-term cash requirements, I suggest acquiring stock on credit and devising flexible payment plans. Depending on the situation, I would also use bank drafts or short-term loans to meet financial obligations. I would also commit to sealing any loopholes and solving the immediate cash flow challenge. I would then conduct an in-depth review of all financial statements to prevent such a financial challenge from recurring.
6. In Your View, What Impact Would The Purchase Of An Asset Have On Our Cash Flow Statements, Balance Sheets, And Income Statements?
The purchase of an asset leads to an increase in non-current assets. While this purchase would increase assets, it will depreciate on the income statement. However, it can act as a long-term investment.
7. What Is A Cashflow Statement?
A cash flow statement is a financial report that provides information regarding a company’s financial transactions. It includes a summary of cash transactions flowing in and out of a company during a specific financial period. Additionally, it is a statement that helps measure a company’s financial position. It presents a comprehensive picture of a company’s profitability and provides critical information for creditors, investors, and management.
8. What Approach Would You Use To Organize A Cash Flow Statement?
A cash flow statement can gauge a company’s financial performance as indicated on the balance sheet at the start or end of every financial year. The first step is to categorize cash flows. The three main categories for a cash flow statement include expenses, investments, and financing.
After calculating the collective sum from the three listed categories, you need to add the opening cash balance and explain any adjustments to help you arrive at a final tally.
9. In Your Opinion, What’s The Intent Of Using A Cash Flow Statement?
With a cash flow statement, a business can gauge its liquidity status from the data and information on the generated cash flow. Also, it is easier to plan and forecast future investments because a cash flow statement helps outline the firm’s financial capabilities. A cash flow statement will help you gauge whether you are ready for expansion or need to wait a little longer.
Another great benefit of a cash flow statement is that it helps highlight any changes in account balances making it easier to monitor financial transactions. It gives a clear estimate of the available cash a company has.
10. Which Different Ways Can You Use To Value A Company? In Your View, Which Is The Most Appropriate Option For Our Company?
Different approaches help in valuing a company. You can evaluate a company using assets, historical earnings, revenue streams, or future sustainable earnings. I would use historical earnings to assess long-term financial trends for your case.
11. In Your View, Why Would An Organization Fund Its Operations By Issuing Equity Rather Than Debt?
An organization may choose equity rather than debt because equity has minimal risks compared to debt. While you may lose some control over an investor, you gain considerable financial stability and an opportunity to invest for the future.
12. What’s Your Approach To Managing Pressure And High-Stress Levels With Account Holders?
From experience, I’ve realized that clients react calmly to a situation when they feel heard. In all my projects, I involve them and practice active listening to ensure I understand their concerns. Furthermore, I validate their feelings which helps in diffusing tension. I find it practical to develop solutions without the added pressure of dealing with an agitated client.
13. What Do You Understand By The Term Working Capital?
Working capital is the remaining balance after deducting liabilities and assets. This balance helps determine how much is tied up in business through receivables and inventories. It also helps you gauge how much you need to pay off your short-term obligations. Generally, working capital is the amount of money coming in or going out. Its formula is best represented when you subtract current liabilities from current assets.
Working capital = current assets – current liabilities
For instance, a company’s current assets refer to accounts receivable and outstanding invoices, i.e. money that clients owe your company. Alternatively, current liabilities include accounts payable, such as short-term borrowing and accrued liabilities.
14. There Are Several Types Of Working Capital. Which Ones Are You Familiar With?
The primary function of working capital is to analyze the total amount readily available to meet all the demands of current expenses. There are several categories of working capital.
- Gross working capital refers to the amount a company has invested in or assets that can easily convert to cash. It refers to assets in high liquidity, such as stocks.
- Net working capital can be positive or negative and reflects a company’s liquidity. Working capital refers to a company’s net working capital and depicts whether it can meet its financial obligations.
- Regular working capital is the least amount of capital required to meet current day-to-day working expenses. These may include salary payments, supplies, and overhead expenses.
- Permanent or fixed working capital is the minimum amount in current assets or cash needed to cover all current liabilities. The company’s amount of permanent capital depends on its size and business growth. The larger the company, the more fixed working capital it requires.
- Reserve margin working capital is the amount set aside for emergencies such as natural disasters, inflations, strikes, or layoffs.
- Special working capital is a temporary working capital that comes in handy in exceptional circumstances like ad campaigns, accidents, marketing, or new product development projects.
- Variable, temporary, fluctuating, or cyclical working capital is the difference between net and fixed working capital.
- Seasonal working capital relates to seasonal product demands, which include funds available to operate in peak seasons. It is a form of variable working capital.
15. Explain A Situation Where A Company Exhibits A Positive Net Income But Goes Bankrupt.
A company can exhibit a positive net income and face bankruptcy simultaneously due to deteriorating working capital and financial tactics. Such a situation can arise when a company’s outgoing cash exceeds the amount coming in. This can happen when companies stretch their budgets to complete pending projects, but payments do not come promptly. Likewise, when liabilities are greater than assets, the company can show a positive net income but cannot sustain business operations without assistance from investors.
16. How Is It Possible For A Company To Have A Positive Cash Flow Yet Experience Serious Financial Challenges?
A company selling on credit may exhibit a positive cash flow for a while even though it may be in trouble. While it may show a strong revenue, future forecasting shows that revenue is set to decline at some point.
17. In Your View, What Is The Best Evaluation Metric For Analyzing An Organization’s Stock?
Depending on the specific circumstances, there are several ways of analyzing stock prices, identifying available investments, and determining the viability of any financial strategy. Generally, technical analysts integrate charts for different purposes. For instance, point charts help determine stock movement; bar charts are excellent for tracking fluctuations in stock prices, while line charts help track daily movement.
18. What’s Your Understanding Of A Working Capital Cycle?
The working capital or cash conversion cycle is the amount of time a business takes to convert net working capital into actual cash. If a cycle is long, the company’s capital is tied up during that duration without a return on investment. The longer the cycle, the longer an organization is tying capital without making money.
Working capital cycle = Inventory period + receivable days – payable days.
19. Why Do Many Businesses Aim For A Negative Working Capital Cycle?
Most businesses strive for a negative working capital cycle because a negative working capital cycle is indicative of a fast-moving inventory with shorter repayment periods. Proper working capital management is critical for a company to realize negative working capital. The main objective is to ensure the business continually operates with adequate cash flow, pay off debts, and optimally invests company assets for future growth. Working capital management is key in managing a company’s short-term financing.
20. What’s Your Understanding Of Working Capital Loan?
Any business needs finances to operate. A reality that leads some companies to opt for a working capital loan. This loan is beneficial if a business has exhausted all other financial avenues but still needs funding for operational expenses like utilities, rent, or payrolls. Working capital loans are ideal for seasonal or cyclical types of businesses because of the flexible nature of the loan and its effectiveness in meeting short-term expenses.
21. Distinguish Between A Journal And Ledger?
A journal is a book used to record new financial transactions, while a ledger has specific accounts drawn from a journal. Simply put, journals are records that are used to prepare ledgers.
22. What Does The Term Financial Modeling Mean?
Financial modeling is a quantitative analysis used primarily for asset pricing or general corporate finance. It is a process that tabulates a company’s revenue and expenses into a spreadsheet to anticipate how current decision-making can impact the future. A financial model is beneficial and can be a very impactful tool on tasks like:
- Budget planning and allocation,
- Testing diverse setups,
- Gauging the impact of any changes in financial policies,
- Estimating the valuation of a company,
- Analyzing the competition.
23. What Does Expense Model And Quarterly Forecasting Mean?
An analysis of expenditure and revenue expected to be incurred or produced in the future is referred to as quarterly forecasting. For this, referencing an income statement and a complete financial model is ideal. Developing a realistic model is challenging and may require the services of a financial analyst to model revenues with a high degree of detail and precision.
An expense model’s role is to determine the expense categories that form the basis of developing a budget. An expense projection is developed to make the model functional, which helps in identifying variables and fixed costs. These form the basis for precisely forecasting the organization’s expected profit or loss.
24. What Are Financial Statements, And What’s Your Experience In Utilizing Them?
Financial statements are written documents that convey the financial performance of a company. Accountants or financial experts mainly audit them to guarantee the accuracy for taxation, financing or investment purposes. A financial statement may include balance sheets, cash flow statements, and income statements used by government agencies, firms, or business enterprises. Furthermore, nonprofit entities use a similar yet different set of financial statements.
25. There Are Several Types Of Financial Statements. Which Ones Are You Familiar With?
Financial analysts and investors depend on financial data to analyze a company’s performance. This data is useful in predicting the future path of an organization’s stock price. One of the greatest resources of reliable and audited financial statistics is the annual report comprising the company’s financial statements. Market analysts use a financial statement, creditors, and investors to evaluate a company’s earning potential and financial health.
There are three main financial statements,
- the balance sheet,
- income statement and
- cash flow statement.
A balance sheet offers an overview of a company’s liabilities, assets, and shareholder equity at the end of a financial period—likewise, an income statement overviews revenues, expenses, net income, and earnings per share. Lastly, a cash flow statement measures a company’s capability to generate income for debt repayment, fund its operating expenses, and support investment. The cash flow statement works in tandem with the income statement and balance sheet.
26. A Cash Flow Statement Is An Indispensable Report That Every Firm Must Have. What Approach Do You Take When Creating It?
While there’s no specific formula for calculating a cash flow statement, it contains three sections that can analyze the cash flow processes and determine how a company uses its income. These three sections of a cash flow statement are:
- Operating activities refer to any cash source from business operations, product or service sales. Likewise, the cash from operations includes any adjustments in the cash accounts receivable, inventory, depreciation or accounts payable. These transactions include interest payments, wages, rent or cash receipts from selling services and products.
- Financing activities include sources of cash from banks or investors and shareholder payments. They include debt or equity issuance, loans, stock repurchase, dividends or debt repayment.
- Investing activities include any long-term source or use of cash from the company’s investment. This category includes purchasing or selling assets, extending or receiving loans from vendors or customers, and payments from mergers or acquisitions. Other examples include purchases of fixed assets like equipment or property.
Three main financial statements, i.e., the balance sheet, income, and cash flow statements, depict a business’s assets and liabilities, expenses, revenue, and cash flow from investments, operating, and financing activities.
27. What Are The Main Components Of A Financial Statement?
Depending on a firm’s activities, the main components of a financial statement largely differ. However, the most common of these features are:-
- taxes,
- inventory,
- revenue,
- marketable securities,
- short and long-term debts,
- accounts receivable and payable
- cash flows from investments, operations, and financing activities.
28. What Are The Benefits Of A Financial Statement?
A financial statement provides insights into how a business generates revenue, the amount it generates, the cost of doing business, and how the firm manages its cash. It also includes a company’s assets and liabilities and details how well or poorly a business manages its financial operations.
29. As A Financial Expert, How Do You Interpret A Financial Statement?
You can interpret a financial statement in several ways, first by comparing it to previous financial periods to gauge performance. Using comparative income statement reports helps compare a company’s revenue in previous financial years and what the income is in the current year. Yearly analysis helps stakeholders track and analyze a company’s health.
You can also interpret a financial statement by comparing results with competitors or other industry players. Comparing financial statements with competitors gives financial analysts a clearer picture of which companies are performing well and which are lagging behind.
30. As A Finance Expert, Which Financial Aspects Do You Frequently Analyze?
It is essential to document financial reports for current and future reference. Usually, factors depend on the type of business that affects the metrics. Some of these fundamentals are:
- Financial risk exposure and management
- Streamlining business processes to make them effective
- Identifying opportunities
- Financial strategizing
- Auditing
Conclusion
Finance is a wide field consisting of banking, insurance, investment, and any related financial service. Consequently, interview questions vary depending on the industry, employer, job type, position, and work-related experience. If you’re looking forward to joining the financial industry, the above questions will hint at what to expect in an interview setting. Please note that finance interview questions may include seemingly irrelevant questions to test your ability to cope with the unexpected and think on your feet.
