Interview Questions About Financial Management
Interview Questions About Financial Management – Corporate Finance is a great career for those with exceptional financial skills and good problem solving. Companies value skills such as managing finances, organizing information, and keeping an eye for detail when hiring for corporate finance positions. Along with these, candidates who want to get a job in the field of corporate finance must also ensure that they have a good knowledge and understanding of the concepts. Below are some frequently asked corporate finance interview questions (with answers):
Analysts use a financial model (usually in Excel) to project an organization’s future performance. The steps to creating an accurate model are as follows – study historical results and assumptions and prepare income statements, balance sheets, schedules and cash flow statements. After that, analysts perform sensitivity analysis, stress tests, and audits to verify the model.
Interview Questions About Financial Management
WACC is an important metric for CDF (Discounted Cash Flow) valuation. This is the rate at which the company discounts future cash flows to calculate the present value of the business. The components of WACC are: Market value of debt, Market value of equity, Cost of Debt, and Cost of equity
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An indirect method of generating cash flow is also given. It starts by taking the net profit from the income statement and adjusting it for non-cash items. To prepare cash flow from operating activities, we add depreciation back to EBIT. Next, we calculate the cash flow from investing activities and the cash flow from financing activities.
When using the NPV function, one assumes that future payments are to be made at regular intervals. XNPV comes into play when we know the exact date of each cash flow. The excel function for this is XNPV (Rate, Cash Flow, Cash Flow Dates)
The three most common ways of raising short-term finance are Bank Overdrafts, Unsecured Bank Loans, and Trade Credit.
Both methods are related to bond length. Adjusted length comes with tweak and is more accurate than Macaulay length. Macaulay duration is the weighted average of the number of years an investor must hold the fixed income instrument to obtain the initial investment. Adjustment duration means the percentage change in the value of the bond.
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Deferred tax liability is basically the tax that the company has to pay for the current year but would pay in the future. Such liability does not arise because the company does not meet tax obligations. Instead, it arises because of the time when the company earns certain income and pays the taxes for the current year.
A company may decide to add debt to optimize its capital structure. When a company has taxable income, issuing debt may help with the tax shield. Also, a company should go for debt if it has a steady cash flow as this ensures that interest amounts are paid on time. This would help the company reduce its weighted average cost of capital.
If a company cannot recover money from debtors and pay current liabilities on time, the situation may result in negative working capital. Industries such as grocery retail and restaurants are often negative working capital but in a good way. They get paid by customers in advance, but they don’t need to pay creditors as quickly. These businesses have low amounts of inventory and accounts receivable, so negative working capital works in their favor.
When a company converts its illiquid assets into securities to sell to investors, it is a Securitization. The underwriting process usually involves a lot of financial engineering. One of the most common examples of Securitization is mortgage backed securities (MBS).
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A common difference between a clean price and a dirty price is that the accrued interest is not included in the clean bond price, while the interest payment is included in a dirty price.
A type of systematic risk, interest rate risk refers to the uncertainty in the general level of interest rates.
The balance sheet usually helps to calculate the different types of ratios. Thus, it helps to assess the health of the company in a better way.
If you could only use one financial statement, it should be Cash Flow. It gives a true picture of the money a company is generating. It’s worth noting that you can also choose income statement or balance sheet as an answer. But, you will have to give a proper justification for that.
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The main difference between a future and a forward contract is that the futures contracts are determined by the exchanges. On the other hand, a buyer or seller can modify advance contracts.
Companies use capital budgeting to assess the feasibility and long-term profitability of an investment project. The three most common capital budgeting methods used by companies to select a project are the payback period, the internal rate of return (IRR), and the net present value (NPV).
We can say that the three financial statements are dependent on each other. The net income figure from the income statement goes into the cash flow statement and the balance sheet. The closing cash balance in the balance sheet comes from the adjustments made to last year’s closing balance for operating, investing and financing activities. Also, we add the depreciation figure from the income statement to the capital expenditure in the Cash Flow statement. In addition, the depreciation figure also comes in the balance sheet.
The above list of corporate finance interview questions is not an exhaustive list. Instead, they are popular corporate finance interview questions based on recent interviewee feedback. So, an ambitious candidate must study thoroughly to clear his concepts. This would help them answer all corporate finance interview questions correctly.
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Sanjay Borad is the founder and CEO. He is passionate about keeping things simple and easy. Running this blog since 2009 and trying to explain “Financial Management Concepts in Layman’s Terms”. Want to ace your next interview and land the open job you’ve been looking for? Here are 20 tips to help you prepare.
From researching the company to handling some key interview questions, make sure you make a great impression and ace your next job interview by following these 20 tips.
Want to ace your next interview and land that open job you’ve been looking for? Here are 20 tips to help you prepare.
1. Research the industry and the company. An interviewer may ask how you see his company’s position in its industry, who are the company’s competitors, what are its competitive advantages, and what is the best way forward. For this reason, try to avoid trying to thoroughly research a dozen different industries. Focus your job search on a few industries instead.
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2. Explain your “selling points” and why you want the job. Be prepared to go into each interview with three or five key selling points in mind, such as what makes you the best candidate for the job. Prepare an example of each selling point (“I have good communication skills. For example, I convinced a whole group…”). And be ready to tell the interviewer why you want the job – including what interests you, what rewards it offers that you value, and what skills you need. If an interviewer doesn’t think you’re really interested in the job, they won’t give you a try – no matter how good you are!
3. Anticipate the interviewer’s concerns and doubts. There are always more job applicants than there are openings. So interviewers are looking for ways to screen people out. Put yourself in their shoes and ask yourself why they wouldn’t want to hire you (“I don’t have this,” “I’m not that,” etc.). Then prepare your defense: “I know you might think that I might not be the best fit for this job because of [the doubt]. But you should know [why the interviewer shouldn’t be too worried].”
4. Prepare for common interview questions. Every “how to interview” book contains a list of a hundred or more “common interview questions”. (You might wonder how long those interviews are if there are so many common questions!) So how do you prepare? Choose any list and think about the questions you are most likely to have, taking into account your age and status (about to graduate, looking for a summer internship). Then prepare your answers so you don’t have to fumble for them during the interview itself.
5. Organize your questions for the interviewer. Come to the interview with some smart questions for the interviewer that show your knowledge of the company as well as your seriousness. Interviewers always ask if you have any questions, and no matter what, you should already have one or two. If you say, “No, not really,” he or she may conclude that you are not all that interested in the job or company. A good multipurpose question is, “If you could design the ideal candidate for this job from the ground up, what would he or she look like?”
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If you have a series of interviews with the same
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