Top 35 Finance Interview Questions & Expert Tips
To have a successful career in finance, it’s important to not only have knowledge but also to showcase your expertise in interviews. Whether you’re new to the field or an experienced professional looking to improve your skills, doing well in job interviews is crucial. This blog provides a wide range of finance job interview questions suitable for all levels of expertise. It covers basic finance interview questions for beginners as well as more complex ones for intermediate and advanced professionals. We aim to give you the tips and information necessary to navigate various types of finance interviews. Read on to find out:
Top Finance Interview Questions And Answers
When you go for an interview, you should expect to see different questions depending on your experience level. There are different finance interview questions for freshers, intermediate, and advanced-level candidates. Here is a breakdown of interview questions about finance for people at different levels of experience.
Basic Finance Interview Questions
Here are some entry-level finance interview questions and answers for freshers:
Q1. What is finance?
Answer: Finance is a broad term that covers various aspects such as banking, debt, credit, capital markets, money, and investments. Finance involves managing money and obtaining the funds needed for different purposes.
It deals with elements like assets, liabilities, and financial systems in general. There are three main types of finance: personal (individuals), corporate (businesses), and governing body (government).
Q2. Define Fair Value?
Answer: Fair value is the current price or worth of something. It’s important in fair transactions when buying or selling things like assets or companies. Fair value helps determine a reasonable and justifiable price for these items. For example, when purchasing a company, fair value comes into play to assess the worth of its assets and establish an appropriate sale price.
Q3. Can you explain what swaps are in simple terms?
Answer: Swaps are agreements between two parties where they exchange money for a certain period. They can be used to manage risk or make investments based on changing factors like interest rates or currency values.
Q4. What’s the distinction between EBIT and EBITDA?
Answer: EBIT stands for Earnings Before Interest and Taxes. It measures a business’s operating profitability. While EBIDTA stands for Earnings Before Interest, Depreciation, Taxes, and Amortization. It is similar to EBIT but it is used to measure a company’s profitability before the dedication for taxes and capital assets.
Q5. What is a secondary market?
Answer: The secondary market refers to the trading of securities that have already been issued in the primary market. In the primary market, investors buy directly from companies through initial public offerings (IPOs). However, in the secondary market, buyers purchase these securities from other investors who want to sell them. Common instruments found in a secondary market include stocks, bonds, preference shares, and debentures.
Q6. What does goodwill mean?
Answer: Goodwill is an intangible asset that arises when one business acquires another. It represents the excess amount paid for the acquisition, beyond what can be accounted for by the fair value of assets and liabilities.
Goodwill exists because of factors like brand name reputation, loyal customers, positive relationships with staff and clients, as well as unique technologies owned by a company.
Q7. Can you explain what Debentures are?
Answer: Debentures are like official papers that show someone borrowed money from a company. When the time is up, the person who took out the loan gets back not only what they borrowed but also some extra cash as decided in advance.
Q8. How can you determine the value/worth of a company?
Answer: One way is by looking at its market capitalization, which involves multiplying the share price by the number of shares. However, it’s important to account for factors like debt and liabilities as well.
Other methods include evaluating net asset value or earnings power value. Each approach has its strengths and weaknesses but understanding all of them helps determine how much a company is truly valued.
Also Read: Data Entry Interview Questions
Q9. What do you understand about RAROC?
Answer: RAROC (Risk Adjusted Return On Capital) is a measurement used by banks to determine profitability while considering risk. It takes into account factors such as economic capital and expected losses to calculate more accurate returns. Banks use RAROC alongside other methods for effective risk management in lending operations.
Formula: RAROC = (Revenues – Costs – Expected Losses) / Economic Capital
Q10. Explain working capital?
Answer: Working capital, or net working capital (NWC), is the amount of money a company has after subtracting its debts from its assets. It includes items like cash, unpaid invoices from customers, and inventory.
To calculate it, you use information (ie, current assets and current liabilities) from a company’s balance sheet. For example, current assets are things that can be converted to cash within one year or less (such as cash, inventory, or goods ready for sale). On the other hand, current liabilities include obligations such as salaries, and taxes due in the next 12 months or taxes owed within this period.
Intermediate-Level Finance Interview Questions
Here are some of the common finance interview questions to prepare with as an intermediate-level candidate:
Q11. What is Financial Risk Management?
Answer: Financial risk management is the process of managing and addressing potential financial problems for your company. It’s not about completely avoiding risks, but finding a balance between acceptable risks and those you want to avoid. The most important part is having a plan that outlines specific rules and practices to handle risky situations safely. This strategy helps employees understand how to navigate challenges and risky situations safely.
Q12. What does the payback period refer to?
Answer: The time it takes for an investment to break even and start making money is called the payback period. It’s how long until you make back your initial investment. This is important because we want to know when our investments will start paying off financially.
The quicker an investment pays back its cost, the more attractive and appealing it becomes. To calculate the payback period, simply divide your initial investment by the average amount of cash flow generated over time.
Q13. What is Return On Equity or ROE?
Answer: Return on Equity (ROE) measures how well a company generates profits for its shareholders. It helps investors determine which companies are providing good returns. However, comparing ROEs in market shares can be tricky because different industries have varying profit levels. Additionally, within the same industry, companies that pay dividends instead of keeping profits may display different ROEs.
Q14. What do banks classify as NPA?
Answer: When people don’t pay back their loans on time or fail to make interest payments for a certain period, banks classify them as non-performing assets. This usually happens when the loan is overdue by 90 days or more, although some lenders have smaller deadlines for considering a loan past due.
Q15. What are SENSEX and NIFTY?
Answer: SENSEX and NIFTY are indices that act like scoreboards for the stock market. They show how different types of stocks are doing overall in real time. SENSEX is the index for the Bombay Stock Exchange, while NIFTY is for the National Stock Exchange.
Q16. What are Derivatives?
Answer: Derivatives are financial contracts that derive their value from an underlying asset, such as stocks or currencies. Investors enter into agreements with another party to determine how they will react to future changes in the value of this asset. These contracts can be traded either through a broker-dealer network or on exchanges.
Q17. What is a Dividend Growth Model?
Answer: A dividend growth model helps figure out how much a stock is worth by looking at how the company’s dividends will grow over time. This helps us see if a company’s stock is priced too high or too low compared to its expected future earnings.
Q18. Define Put Option vs Call Option?
Answer: A put option is a contract that allows the buyer to sell a specific amount of assets at a predetermined price within an agreed period. The underlying assets can be shares, commodities, bonds, forex, and more.
In contrast to put options, call options give the holder the right to buy assets at a set price before or on the expiration date of the contract.
Q19. What is Cost Accountancy? Mention its objectives?
Answer: Cost accountancy is a form of managerial accounting that aims to track and analyze all expenses associated with production, including variable and fixed costs. Its main objectives are recording, categorizing, and allocating expenditures related to goods, labor, and overhead to accurately determine the cost of products or services.
Q20. What is a Cash Flow Statement?
Answer: A cash flow statement is an important tool for managing finances and monitoring the movement of money in an organization. It helps assess a company’s performance, particularly in terms of short-term planning. The statement shows where funds come from and how they are used. Additionally, it highlights incoming money, expenses related to business operations, and investments at a specific period.
Advanced Level Finance Interview Questions For Experienced Professionals
Here are some of the best finance interview questions along with suggested answers for experienced professionals:
Q21. What do you understand by Liquidity?
Answer: Liquidity means having money that you can get to easily whenever you need it. It’s like having cash on hand for emergencies or opportunities. Having liquid assets, such as savings accounts and cash, allows you to be prepared for unexpected financial situations and take advantage of good chances that come your way.
Q22. What is Deferred Tax Liability?
Answer: A deferred tax liability is money that a company owes in taxes, but does not have to pay immediately. This happens because there is a time gap between when the tax was recognized and when it needs to be paid.
Q23. When is it better for a company to borrow money instead of selling ownership shares?
Answer: When a company wants to decide whether to borrow money or sell ownership shares, it should consider its main goal of improving how it manages its finances. If the company can save on taxes by borrowing money and has enough steady income to pay back the interest, then getting a loan may be better because it helps lower the overall cost of capital that the company needs.
Q24. Explain Preference Capital?
Answer: Preference capital is money that a company receives when it sells preference shares. These special shares are like a combination of stocks and bonds, which means the people who own them get some extra benefits. They receive dividends first if the company earns profits. And even if things go bad and the company goes bankrupt, these shareholders will be paid out before regular shareholders from whatever assets or resources are left in the company’s possession.
Q25. Explain Adjustment Entries and their passing procedure?
Answer: Adjustment entries are made at the end of an accounting period to ensure that the financial statements accurately reflect a company’s true financial position and profit or loss. These entries must be passed before preparing final reports to avoid misrepresentation and provide an accurate balance sheet.
Also Read: Accounting Interview Questions
Q26. What is Investment Banking all about?
Answer: Investment banking acts as a financial bridge, connecting individuals and businesses who have money to invest with those in need of it. They facilitate the buying and selling of shares or help sell them for a fee. Essentially, investment bankers play the role of helpful intermediaries ensuring everyone’s financial needs are met.
Q27. What does Hedging mean?
Answer: Hedging is a strategy people or businesses use to protect themselves from potential losses. They do this by making opposite investments, like buying futures contracts or options, which help reduce the impact of price changes. By doing this, they can manage risk and shield themselves from market ups and downs while still maintaining some financial stability.
Q28. What is the Inventory Turnover Ratio?
Answer: The inventory turnover ratio provides information on how quickly a company can sell its inventory. A high ratio suggests that the company is selling its products efficiently, while a low ratio may indicate slower or stagnant sales activity for the company. The specific turnover rate can vary based on the industry and type of product being sold.
Q29. Can a company have a positive net income and still go bankrupt?
Answer: Yes, a company can make more money than it spends and still end up bankrupt. Two types of bankruptcy can occur in this situation: insolvency and “true” bankruptcy.
Insolvency happens when a company’s spending outweighs its incoming money, often because clients don’t pay as quickly as expected after completing a project. “True” bankruptcy occurs when the company owes more than it owns in assets, even if there is good cash flow.
By using certain financial strategies like increasing accounts receivable or decreasing accounts payable, a company might appear to have positive net income even though they are close to running out of money.
Q30. What does loan syndication mean?
Answer: Loan syndication means that several lenders join together to give money as a loan to someone who needs it, like companies or governments. Each lender contributes some of the total amount and shares in any risks involved.
General Finance Questions
Here are other general questions for finance job applicants.
Q31. Tell me a little about yourself?
Answer: I have always had a passion for finance, which started when I became the treasurer in high school. Throughout college, I made sure to gain practical experience by interning at different banks and investment firms. This helped me see things from various perspectives – from managers to CEOs and even customers.
Q32. What unique qualities or skills do you possess that other applicants don’t?
Answer: I have a lot of experience because I’ve pushed myself to learn new things in every job. At my previous bank job, despite being the youngest on my team, I was quickly promoted and managed several employees. Unlike others who are good with numbers, I am also very outgoing which allows me to connect well with clients and help them make informed decisions. With me, you’ll get both financial expertise and strong customer relationships.
Q33. What are the biggest obstacles you’ve overcome?
Answer: Securing an internship without prior experience was a tough challenge because of high competition and being younger than other applicants. But I didn’t let that discourage me. I reached out to employers on networking platforms, talked about the role, and made sure someone reviewed my application. Luckily, a school project matched the job role in an organization. This gave me an advantage. I also took a business communication course to improve my corporate communication skills. As a result of these efforts, I got the internship.
Q34. How would your past co-workers and managers describe you?
Answer: Previous managers would describe me as detail-oriented, organized, and careful. I take my time to double-check any work involving numbers because even a small error can have serious consequences. As a result of this dedication, colleagues often rely on me for final project reviews before submission.
Q35. Which stock would you choose and why, if you had to select only one?
Answer: Netflix is the best stock choice because it can still grow internationally and has had a strong financial performance. Its place in technology is significant, making its stock a good investment opportunity for long-term growth.
Finance Job Interview Tips
To ace any interview, it takes more than just finding common interview questions. You need to research the company and show why you’re the best fit for the job. Getting ready for a finance interview means combining your knowledge of the subject, understanding how the industry works, and having good communication skills. Here are some tips on how to prepare for an interview:
- Align with Company Culture: Before an interview, research the firm to understand its long-term goals and discuss how you can contribute in alignment with these objectives. This shows your interest in being a long-term investment.
- Update LinkedIn Profile: Keep your LinkedIn page up-to-date as it may be reviewed by interviewers to gain insights into your background and personality.
- Analyze Job Description: Read the job description thoroughly to grasp the required skills and ideal candidate qualities needed by the company. It can also give hints about potential interview questions that might arise during discussions.
- Prepare Questions for the Interviewer: Have some well-thought-out questions ready for when you are asked if you have any concerns or questions at the end of an interview.
- Arrive Early: Aim to arrive a few minutes early before scheduled interviews so that you have time to relax without feeling rushed.
- Provide Brief & Clear Responses: Give clear and concise answers, focusing on important achievements. If any of these finance interview questions is difficult, it’s okay to pause briefly before responding. Put effort into understanding the question fully and provide clarification if necessary or when asked for more context.
Conclusion
Finance jobs can set your career on a road to monetary success. To be well-prepared for a finance interview, it’s important to know the different kinds of questions you may come across depending on your experience level. Entry-level finance interview questions focus on basic concepts, while intermediate and advanced positions, cover more technical and advanced concepts. To do well in a job interview, understand the company’s values and job description, and come prepared for the interview by following the aforementioned tips.
What was the most difficult finance job interview question you faced? How did you handle it? Please share your experience in the comments. Also, read about the right interview etiquette to enhance your interview preparation.
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