With the start of a new academic year, we know that finance interviews are again at the forefront of many of your minds. Here find the most publishing asked technical finance interview questions and answers across a variety of topics – accounting (in this issue), valuation, corporate finance – to get you prepared.

Walk me through a cash flow statement.

 

  • Start with net income, go line by line through major adjustments (depreciation, changes in working capital and deferred taxes) to arrive at cash flows from operating activities.
  • Mention capital expenditures, asset sales, purchase of intangible assets, and purchase/sale of investment securities to arrive at cash flow from investing activities.
  • Mention repurchase/issuance of debt and equity and paying out dividends to arrive at cash flow from financing activities.
  • Adding cash flows from operations, cash flows from investments, and cash flows from financing gets you to total change of cash.
  • Beginning-of-period cash balance plus change in cash allows you to arrive at end-of-period cash balance.

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 to 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.www.iibmindia.in

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.

Which is cheaper, debt or equity?

 

Debt is cheaper because: it is paid before equity and has collateral backing it. Debt ranks ahead of equity on liquidation of the business.  Learn more about the cost of debt and cost of capital.

There are pros and cons to financing with debt vs equity that business needs to consider… it is not automatically better use debt finance simply because it’s cheaper.  A good answer to the question may highlight the tradeoffs, if there is any followup required.