We’ve compiled a list of the most common and frequently asked finance interview questions. If you want to ace your finance interview then make sure you master the answers to these challenging questions below. This guide is perfect for anyone interviewing for a financial analyst job and is based on real questions asked at global banks to make hiring decisions.
- If it were up to you, what would the budgeting process look like?
This is somewhat subjective. In my opinion, a good budget is one that has buy-in from all departments in the company, is realistic yet strives for achievement, has been risk-adjusted to allow for a margin of error, and is tied into the company’s overall strategic plan. In order to achieve this, the budget needs to be an iterative process that includes all departments. It can be zero-based (starting from scratch each time), or building off the previous year, but it depends what type of business you’re running as to which is better. It’s important to have a good budgeting / planning calendar that everyone can follow. This is an important part of how to be a world class financial analyst.
2. When should a company consider issuing debt instead of equity?
A company should always optimize its capital structure. If it has taxable income it can benefit from the tax shield of issuing debt. If the firm has immediately steady cash flows and is able to make their interest payments it may make sense to issue debt if it lowers the WACC.
3. How do you calculate the WACC?
WACC (weighted average cost of capital) is calculated by taking the percentage of debt to total capital, multiplied by the debt interest rate, multiplied by one minus the effective tax rate, plus the percentage of equity to capital, multiplied by the required return on equity.
4. What in your opinion makes a good financial model?
it’s important to have strong financial modeling fundamentals. Wherever possible model assumptions (inputs) should be in one place and distinctly colored (typically bank models use blue font for model inputs). Good Excel models also make it easy for users to understand how inputs are translated into outputs. Good Excel models also include error checks to ensure the model is working correctly (e.g. the balance sheet balances, the cash flow calculations are correct, etc.). The contain enough detail, but not too much, and they have a dashboard that clearly displays the key outputs with charts and graphs. For more, check out our complete guide to financial modeling.www.iibmindia.in