The transformative impact of technology on financial services worldwide has led to fundamental changes in their workforce demands. Today recruiters look to secure a talent pool that is innovative, has the technical knowledge, and business acumen, and comes equipped with sufficient awareness of the recruiting company and its products. Let’s understand further what finance companies are currently seeking in candidates and how best to prepare for a finance interview across diverse domains.
8 Basic Finance Technical Interview Questions
What is EBITDA?
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a commonly accepted parameter to measure long-term corporate profitability and also a yardstick for company valuation.
When do You Use an LBO Model?
The Leveraged Buyout (LBO) model has three primary uses:
- When a public company becomes private
- When businesses undergo changes in ownership
- When selling a portion of an existing business
Tell Me the Value of an Enterprise
Enterprise value is an estimate of the potential cost of purchasing a company in the present market conditions. It is the sum of market capitalization, outstanding debt, stock value, minority interest, and other cash equivalents.
Give Me a Quick Overview of the Income Statement
The income statement of a company is a detailed account of all its revenues, profits, and expenses. Its four main elements are revenue, gains, losses, and expenses.
Can a Company Have a Negative Book Equity Value?
Yes, it can. When a company has a negative book equity value it simply means that its liabilities exceed its assets. This happens when a company becomes insolvent due to both outstanding shares and share prices reaching negative values.
What is WACC and How Does It Calculate?
Weighted Average Cost of Capital, or WACC, refers to the average after-tax capital cost of businesses. It can also be defined as the average rate at which a company pays its shareholders to finance its assets. The formula to calculate WAAC is:
WAAC = [(E/V) x Re] + [(D/V) x Rd x (1 – Tc)], where E represents the market value of the firm’s equity, D means the market value of the firm’s debt, V is the combined equity and debt, Re is the cost of equity, Rd represents the cost of debt, and Tc is the corporate tax rate.
Tell Me About Beta
Beta is a measure to track the volatility of a stock or a portfolio against the overall stock market. A higher beta means greater risks but also significantly high returns for companies.
Beginner-Level Finance Interview Questions
What do You Know about Capital Markets?
A capital market is a space for buyers and sellers involved in trading financial securities. From individuals to institutional investors, anyone can participate in capital markets that usually comprise the stock market, foreign exchange market, and bond market.
How Can a Company Go Bankrupt Even if it Shows Positive Net Income?
It can happen when companies’ liabilities cost more than their assets. Despite positive cash flow, the company would be unable to run an ongoing business without financial aid from investors leading to true bankruptcy.
Intermediate-Level Finance Interview Questions and Answers
What is Hedging?
Hedging is a risk management strategy to insure against a potentially negative financial event. Investors opting to hedge purchase an asset to mitigate the risks of loss from another. Theoretically, the value of a hedge goes up when investment values go down, curtailing the impact of the loss.
What is Preference Capital?
Preference capital is a collection of funds raised from issuing preference shares. Preference shares are shares with dividends paid in advance to shareholders before the issuance of common stock dividends. The advantages of preference shares for companies include no legal obligation on their part to pay out dividends to the preferred stakeholders. It is also considered a part of the net company worth, thus increasing its creditworthiness.
Advanced-Level Finance Interview Questions and Answers
How do You Distinguish Between Accrual and Cash-based Accounting?
Cash-based accounting refers to acknowledging the total set of economic transactions as and when the money actually changes hands between the parties. The accrual basis of accounting deals with recognizing expenses when they are billed (before being paid) and is based on anticipation of the earned revenues and incurred expenses. Small businesses usually undertake cash-based accounting while publicly traded companies and extensive corporations prefer accrual accounting.
What are the Primary Reasons Behind Acquisitions and Mergers?
The most relevant reasons behind mergers and acquisitions are:
- Value creation: Companies merge to increase the value of their shares.
- Obtaining assets: Companies often buy assets that take a long time to develop, such as access to new technology which is not possible to get without merging.
- Diversifying operations: Companies merge to seek out new ventures and divert their resources into novel fields.
Tips to Prepare for Finance Interview
- Do thorough research about the company you are applying to. Understand their stated goals and organizational culture.
- An active and updated LinkedIn profile multiplies your credibility as recruiters increasingly use it to judge candidates’ potential.
- Usher in discussions with your prospective employer about the long-term financial ideas that the specific company might be invested in.
- The finance industry’s vast range of portfolios demands knowledge across different domains. Candidates with a multidimensional grasp of the sector have a better chance of getting hired.
You can use these finance interview pointers to help you prepare for future prospects and become competitive in a booming market. Apart from that, you can also upskill by signing up for online finance courses on Emeritus in association with the most reputed global universities.
By Bishwadeep Mitra
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