Finance Interview Questions & Answers | For Entry-Level Roles! #Finance

hey everyone eric here in this CashNews.co we’re going to discuss Finance interview questions and answers for entry-level roles like internships and analyst

positions if you don’t know me already i’ve worked in Finance for the last eight years with startups starting as an intern and now working in executive roles so

i’ve both been interviewed and interviewed candidates many times okay let’s get started preparing your mindset the reason we prepare for interviews is not to know the answer to every question in advance it’s to think about why we want this role and what are all the experiences in

our lives that led up to this moment these are the answers that i would give to the following questions but it doesn’t mean they’re necessarily the best or the right answers okay first question what is the goal of color: #1a73e8; text-decoration: none;">Finance so the core thing that Finance does is that it allocates Capital that’s whether

you’re on the investment side like Investment Banking or corporate Finance like running a company

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance people invest Capital and so in order to do that you need to create plans and projections about the future to try to identify the best opportunities and then what is a good opportunity generally

the best opportunities will be good for shareholders so you’ll make money they’ll be good for employees and they’ll make the customers happy all of these three things need to happen at the same time or else the whole thing stops working if employees are unhappy or if customers are

unhappy shareholders won’t make money so it’s all about allocating Capital towards the best opportunities next question can you describe a financial model and walk through one that you built okay so a financial model predicts the future it predicts the

Revenues the expenses and the Profitability of an overall company in the future so it’s basically a guess about what will happen but it gives you the opportunity to see it before you do it so that you can make changes to your plan so one simple financial

model i built and i included a link to this down below it’s called how to build a basic financial model really really simple but would help you understand these concepts so i’ll walk through that it was a company that made chairs and i looked at the total number of chairs that we made

and then i multiplied that by price to get our Revenue i looked at the manufacturing cost per chair to get the overall costs and then i calculated our other expenses so we had payroll we had some marketing so i could understand our overall operating Profit and then

finally in the years where we had positive Profits because some years we had negative Profits while we were scaling up the company when we finally did turn a Profit i calculated Taxes and subtracted that from your operating

Profit to get to the net Income so that’s how i built a basic financial model for this chair company walk through the main sections of a p&l p&l is Income statement by the way so you have a few main sections on the p&l you start

with gross Revenue and from gross Revenue that’s just the price times all of the everything that you sold you subtract discounts and refunds that gives you net Revenue net Revenue is basically all the money that you actually

collected the next section is called cost of goods sold or cost of sales same thing different names but same thing this is where you put all of your direct costs that are directly related to making your product so if it’s a physical product it’s like your materials cost your

manufacturing costs if it’s a tech product a lot of times there there aren’t a lot of costs um in terms of the cost of sales there will be some like server costs and some technology stuff but whatever directly goes into supporting your product and then your net Revenue

minus your cost of goods sold is your gross Profit which is like the Profit margin at the product level below your gross Profit you have your operating expenses these are more of your fixed costs so you’ll have the payroll of the management

team you also have marketing goes in your operating expenses and things like rent consultants Insurance all of these kind of things are in your operating expenses and then your gross Profit minus your operating expenses gives you your operating

Profit this is also known as earnings before interest and Taxes or ebit um from your ebit you finally have one last section of expenses and that’s interest and Taxes so interest is any interest you’re paying on any Debt

that the company has you put it there on the Income statement and Taxes you calculate based on your ebit to figure out okay what percent of your Income do you need to pay to the government in Taxes and then you subtract those from

your ebit and you get your net Income so that’s how an Income statement works what are the three main Financial Statements and what do they show okay the three main Financial Statements are the Income

statement the Balance Sheet and the Cash Flow statement the Income statement shows you all the money you made and all the money you spent on your core operations the Balance Sheet shows you everything that you own and everything

that you owe it’s as simple as that the Cash Flow statement shows you all of the ways the cash came into the company and left the company so cash comes in and leaves from operations cash comes in and leaves from investing so the company investing its own money into say

factories or other companies and then the third way is from financing and that’s the situation where outside investors actually invest into our company so maybe they’re lending us money or buying Shares of our business so there’s three main ways that the cash

comes comes and goes from the company how would you evaluate the financial health of a company so there isn’t like an exact right answer on this one but if i was looking at a company and i didn’t know anything about the company i’d say how much cash does it have then i’d say

how much Debt does it have and then i would say you know i would look at how much Revenue it generates but more importantly i would look at if the Revenue is increasing i’d look at the trends over the last couple years to see okay is the

company growing or is the company shrinking if it has a lot of Debt but it’s growing a lot maybe it’ll be easy to pay that Debt off but if it has a lot of Debt and it’s shrinking then the company is probably in a terrible position

um from there i’d probably just look at the net Income to see like how Profitable is the company and probably some Cash Flow metrics like maybe operating Cash Flow to see how much cash is the business actually generating from

its operations and if i looked at all those things i would have a pretty good idea of this the overall financial health of a company and i would know sort of from there what to look at next what is cash versus accrual Accounting okay so accrual Accounting follows

something called the matching principle and pretty much all Accounting is done based on the accrual Accounting method not the cash method not the cash based Accounting so accrual based Accounting has this rule and it says you need

to match your Revenues and your expenses with the time that you provide your product or service it sounds like it makes sense right but it’s it’s more complicated than that and let me explain through an example let’s say that we’re a car company that takes a

couple months to deliver the car like tesla right now if you order a tesla you’re gonna have to wait a number of months before you can get it because there’s so many orders so let’s say you pay tesla in january for the car you send them the money tesla receives the money in

january and they say we can’t deliver your car until april the accrual-based Accounting method would say okay you received this money in january tesla you can’t report it as Revenue you can’t put the Revenue on your

Income statement until you actually deliver the product or service until you deliver that car so tesla would actually have to wait until april to put the Revenue on their Income statement they would collect the cash but they couldn’t report

it and they would also correspondingly have to take all those costs associated with the car and report them in april too even if they spent the money earlier and so that follows the matching principle you need to match the Revenue and the cost with the timing of delivering the

product or service and this is very relevant with other companies like they run events like if you’re like if you were having a concert for instance you’d be selling all these tickets in advance but you can’t actually say that you earned that Revenue until you put

the concert on so that’s the accrual-based Accounting method cash based would just be that you report anything when the cash actually comes in or leaves the company and so that’s used less but you’ll see that sometimes as well what’s something interesting

that’s happened in the Capital Markets recently so the only way you can prep for a question like this is to actually follow the Capital

href="https://cashnews.co/markets" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Markets like you can’t have a canned answer because these kinds of things are changing all the time but i’ll give you sort of like uh what i would answer if someone asked me that

today it’s december 2020 just as a reference point um but if you’re preparing for an interview it’ll be sometime in the future and the situation will be different so um in 2020 right now the coronavirus pandemic is is going on in the world and something interesting for me

that’s happened in the Capital Markets is we were following all the tech companies and their market share so a lot of these businesses that do like e-commerce are

competing for in-person customers who usually go in person and they’re trying to get them to go online right and there were projections around what their market share would be in five years or sometimes even 10 years out from now and we were expecting okay it’s going to take 10 years to

get you know four more or ten more percentage points of market share when the pandemic hit we saw many of these companies take that market share in one month so like jumped 10 years into the future immediately because all the customers were forced to shop with them and that caused like a massive

massive increase in the Valuations of these companies which is fascinating and it’s caused a complete disruption um across financial Markets and this split between

winners and losers which is very very dramatic and it reflects the way that the world is actually functioning and we don’t know to what extent the world will return back to something like before or after the pandemic or people will continue behaving in the same way after the pandemic so

obviously the most interesting thing for me is market share and businesses that have taken physical infrastructure and made it digital and are distributing their products in a way that’s easier for people to buy things now that they’re sort of locked inside and finally i would recommend

that you ask your interviewer a question i always ask interviewers questions sometimes tough questions and actually a couple times i’ve asked an interviewer a question and received an answer that made me really concerned and i’ve pulled out of the interview process so it’s an

opportunity for the company to interview you but also for you to interview the company because you’re going to be spending a lot of your life at this place if they hire you so you want to make sure that it’s the right fit so one thing that i like to ask is what is the goal of

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance at this company that’s going to tell you about sort of like how your department would fit into the ecosystem and sort of what’s what’s the mission of the team

also i would ask a specific person what’s something you’ve done on the Finance team that you’re proud of that’ll tell you about the values and sort of

the ethics of the person and if the thing that they say they’re proud of you think that’s really interesting and great as well you they would probably be a good mentor for you but if you completely disagree or you think it’s really boring or something like that then you should be

skeptical so those are some example questions but sometimes i also ask questions like do you like your job things like this are you happy here because sometimes people will give you a really honest answer so i hope these questions gave you some good background and got you thinking about how to

answer Finance interview questions for entry level roles also if you like this CashNews.co please subscribe to my channel click the bell and enable the alerts notifications

so that you don’t miss any of my new CashNews.cos when they come out i also included down below in the description some links to some other CashNews.cos like how to build a basic financial model as well as some other color: #1a73e8; text-decoration: none;">Finance CashNews.cos that i recommend that you study and understand before you go into your sort of entry level Finance

interview anyway i hope this was helpful for you and see you in the next CashNews.co