Frequently Asked Interview Questions in Finance

Career

So, you are the finance major guy, right? Well, you might be good, but your selection in the finance department would be based mostly on the way to portray your knowledge before the interview board. Research about the company before the interview to know about their services and work culture. Brush up on the finance interview questions and answers before you face the board.

Interview questions for finance

1. Why do capital expenditures increase an organization’s assets, while other expenditures, like paying taxes, employee salaries, utility bills, etc. are shown as expense?

The capital expenditures are capitalized on the balance sheet due to the benefits received because of them over a period of time. But the general expenses like the employees’ salaries, taxes, utility bills provide benefit for a shorter period of time. Hence these are expensed on the income statement and not the balance sheet.

2. Explain cash flow statement?

Explain the net income and proceed to the major adjustments like the depreciation, deferred taxes, and working capital changes. You get the cash flow from operations. Explain using the following:
• Cash from generated from investing activities: Capital expenditures, purchase of intangible assets, sale of real assets, and purchase/sale of investment securities.
• Cash flow from financing activities: Issuance/repurchase of dept, sale of equity, and payment of dividends
• Total change in cash: add the cash flows from operating, investing and financing activities
• Cash balance at the end of the period: cash balance at the beginning + total changes in cash balance.

3. What is working capital of the company?

In simple words – working capital is current assets minus the current liabilities.
One can notice the amount of cash or near cash tied up in the business due to receivables and inventories. It also tells the cash required to pay off the short term liabilities. The time frame in question here is one year.

4. What is goodwill? You may give an example to explain it properly.

Goodwill is an intangible asset of the company. It is the excess of the purchase price over the fair market price of the asset that has been purchased or acquired.
Eg: A business is bought for $100 million. PP&E book value is $50 m; equity is $30m and debt is $10m. In this case the goodwill is $30 million which is arrived as sale price minus fair book value i.e. $ 100 million – (50m +30m -10m)or $30 million.

5. How can a company file bankruptcy yet have positive net income?

A company may have positive net income on account of deterioration in the working capital. This may take place with the decrease in the accounts payable and increase in accounts receivable. However the company might experience financial trouble in the future. Similarly positive net income can be shown by manipulating the financial statements as well.

Apart from the above common finance interview questions, you also need to focus on the financial statements, creation of deferred tax assets and liability, accounts receivables and other adjustments. The reconciliation of the bank passbook and the cash book is also an important area to be looked into.

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