MUST-KNOW Finance Interview Question & Answers #Finance

alright so you’ve sent the application passed the resume screening and now they’ve invited you to an interview and everyone’s telling you about dcf npv aaa but what does it all mean so welcome to the one CashNews.co that will cover the most common

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance interview questions that i and my colleagues have faced while applying to some of these companies either for internships or full-time jobs and the three main sections

we’ll cover are Accounting Finance and brain teasers let’s go first up we have Accounting questions and we’ll go over

three of the most common ones from easiest all the way to hardest and firstly we’ve got what’s the difference between cash and accrual based Accounting and basically cash Accounting shows a transaction when the cash has gone in or out of the company

while accrual Accounting records a transaction only when the Revenue has been earned or the expense has been incurred even if the money hasn’t been received or hasn’t been paid till later for example if you sell 100 books to a university in january and

they only pay you 30 days later in february under cash-based Accounting it would only be recognized in the month of february when you actually receive the cash on the other hand under accrual Accounting it would be recorded on the month of the sale which would be

the month of january secondly we’ve got how do the three Financial Statements connect and just as i recap there’s the Income statement the Balance Sheet and the Cash Flow statement now there’s many linking points

in here so you’ll probably only need to mention a few let’s go through them first we’ve got net Income on the Income statement and that links to retained earnings on the Balance Sheet as retained earnings is calculated as

beginning retained earnings plus net Income minus Dividends and that equals ending retained earnings then on the Cash Flow statement it connects into cash from operations under net Income another link has to do with depreciation on

the Income statement which connects to non-current Assets on the Balance Sheet that’s because property plant and equipment under non-current Assets is calculated as beginning ppe plus any Capital expenditures

minus accumulated depreciation equals the ending ppe in addition to that depreciation also links to the Cash Flow statement under operating Cash Flow and ppe from the Balance Sheet links to Investments in ppe on the Cash

Flow statement there are a few other links in there like cash but those two should be enough to prove your understanding of the three statements and lastly how would a 10 dollar increase in inventory affect the three Financial Statements in case you don’t know

inventory is an asset that’s expected to be sold so for example if you’re a bookstore your books would be your inventory assuming the inventory was paid in cash on the Income statement it would have no effect and the reason for that is that the inventory would only be

recorded as an expense when it was actually sold so if it stays in the warehouse it wouldn’t be the case yet then on the Balance Sheet inventory would be up by 10 and assuming you paid in cash cash would be down by 10 meaning that everything there would still be balancing and

lastly on the Cash Flow statement cash would go down by 10 generally with this type of a question you should be able to answer it both in reverse so for instance uh inventory going down by 10 or also with other line items like depreciation going up or down as well next up

we’ve got Finance questions and among the most common ones is what are the three main Valuation methods and these are the discounted Cash

Flow the comparable companies analysis and the precedent transactions analysis for the dcf it’s an internal Valuation method meaning that the company looks at their Cash Flows internally and their

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finances and tries to determine a value based on that on the other hand for the other two methods the comparable companies has to do with what your peers so comparable companies to you are doing and based on that

you’re going to be able to derive a Valuation range for yourself using a ratio then the third method the present transactions is based on previous transactions that have occurred with similar companies and how that would affect your Valuation a very common

follow-up question to that is walk me through a discounted Cash Flow and we made a CashNews.co just on that you can check it out somewhere up over here the second question is how would you assess a Capital investment this question is very common in

Financial Planning and analysis type roles where you might need to invest in a new factory a new store etc so you need to figure out whether it’s going to be a viable investment for this there’s really three main methods as well there’s the mpv which is the net

present value of the project where if it’s greater than zero you typically accept the project then there’s the irr known as the internal rate of return where if the percentage is greater than the discount rate then you accept the project and lastly you have the payback period which is

the number of years it takes to pay back for the investment this last one doesn’t have a set rule when it comes to how many years it should take to recover the investment as it depends on the company and how much cash it has in hand and the last question in this section is what is ebitda and

ebitda stands for earnings before interest tax depreciation and amortization and in short it’s just a measure of Profitability so the formula here is net Income plus Taxes plus interest expense plus depreciation and amortization the reason

it’s quite popular is because it eliminates the effect of financing and Capital expenditures meaning that you can compare with different companies in the same industry a bit more easily just purely based on operating Profitability and speaking of

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance if you’re liking this CashNews.co you can also check out our course we’re an investment banker a financial analyst and myself teach everything we know about

Finance Valuation and financial modelling first we cover financial statement analysis using apple’s real annual report as an example then we get into

financial modeling through a three statement model after that we begin the Valuation phase where you learn to do a discounted Cash Flow a comparable company’s Valuation and a precedent transaction eValuation on adobe looking

at the real Financial Statements to eventually derive a Valuation range lastly we’ll show you how to present an investment thesis using a stock pitch format so if you’re interested in checking it out go to the link in the description below alright back

to the CashNews.co next up we have brain teasers and these can generally be split into two main areas one is mental math and the other one is guesstimates also known as market sizing let’s start with mental math and this is often just the calculation like 32 times 28 now if you’re like

me you probably don’t know the answer to that off the top of your head but there are a few tricks in here that you can identify so let me show you in this type of question you’ll often notice a pattern in this one it’s that both 28 and 32 are only two numbers away from 30. so

knowing that you can do a 30 times 30 which is 900 and that’s not a very hard calculation from there you know that you’ve went plus 2 and minus 2 so if you times both of them it’s going to be minus 4. so 900 minus 4 it just ends up being 896 and that’s the answer for you and

obviously the same thing applies to numbers that are maybe three away four away etc etc so that’s one quick trick for you then there’s the guesstimates and these are pretty random questions like how many gas stations are in the us or how much does your hairdresser make and these are

quite tough in that you don’t really know how to prepare for them and there’s not really a right answer here they’re not actually looking for a real number but instead they want to see the sequence of steps you take to get to that answer so let’s try the hairdresser one

together firstly we’re gonna have to make a few assumptions so let’s assume that the hairdresser charges us 20 dollars per cut and that takes around 30 minutes let’s say that they’re open for 10 hours a day so that’s 600 minutes that means that they can take in 20

haircuts assuming that the occupancy is in full which would equate to around 400 but we know it’s unreasonable to think that they’re always full during those 10 hours so instead let’s say their occupancy is at 75 so that would give them around 300 in Revenue per

day you probably noticed here that i went quite easy with the different assumptions for instance i assume that there’s only one hairdresser which simplifies my calculations and the amounts are very simplified here so maybe they actually charge me 18.5 dollars but if you say that then

it’s obviously gonna make your calculations a lot harder so you’re better off going with round numbers and if you don’t know the answer to some of their questions it’s best if you’re honest and you just say so as opposed to trying to answer it and getting it wrong

check out this CashNews.co over here if you want to learn more about the internships that i’ve taken or this other link over here to learn more about Finance and

Valuation best of luck with your interview hit that like and that subscribe if you liked it and i’ll catch you in the next one