MUST-KNOW Finance Interview Question & Answers

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 video that will cover the most common 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 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 video 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 finance if you're   liking this video 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 video   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 video 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

Channel: Kenji Explains

Views: 107,706

Keywords: finance interview questions, investment banking interview questions, financial analyst interview questions, finance questions, valuation questions, dcf interview questions, walk me through a dcf, multiples valuation questions, financial analyst questions, investment banking questions, interview questions in finance, common finance questions, common accouting questions, brainteaser questions, brainteasers interview questions, financial analyst interview questions and answers

Id: hZALF58_qsY

Length: 8min 51sec (531 seconds)

Published: Sun Jun 26 2022