Are you preparing for a finance interview? Whether you are applying for a role as a finance executive, investment banker, financial analyst, or in corporate finance, interviews can be overwhelming. Consider practicing how to answer finance interview questions to improve your problem-solving skills and strengthen your ability to respond clearly and concisely so you can perform well in your finance interview. If you want to make a good impression on the interviewer, keep practicing common interview questions to help you build your confidence and speak fluently while answering a question.
In this blog, we will discuss the most common finance interview questions from basic to advanced level job interviews with sample answers, along with tips to help you prepare confidently.
Table of Contents
Basic Finance Interview Questions
Here are the most asked basic finance interview questions for freshers. Additionally, you can find tips on how to answer them effectively:
1. What do you like about finance?
I like finance because it offers a dynamic environment that combines critical thinking with strategic problem-solving. Professionals in finance roles play a crucial role in shaping business strategies, advising on investments, and managing financial risks. Moreover, finance offers a wide range of career opportunities such as investment banking, corporate finance, financial planning and analysis, and financial analysts.
2. Why do you want to work in finance?
I want to work in the finance industry because it is constantly evolving with new technologies, financial products, and changes in regulatory policy. When you start working in a finance role, it not only provides the tools to assess and predict market trends but also empowers you with the knowledge to make informed decisions and suggestions that can help businesses and economies grow.
3. What do you understand by working capital?
The working capital measures a company’s ability to pay off its current liabilities using its current assets. In short, it measures the liquidity of a company. The formula for calculating the working capital of a company is:
If a company has low working capital, it may face a higher risk of liquidity problems.
4. What are the three main financial statements?
The three main financial statements are:
a) Income Statement: The income statement presents gains, losses, revenues, and expenses of a company over a particular period, typically monthly, quarterly, or annually. It shows the company’s net income or loss by deducting expenses and losses from revenues and gains.
b) Balance Sheet: A balance sheet serves as a foundation for calculating investors’ returns but also for assessing a company’s financial position. It shows a company’s liabilities, assets, and equity of shareholders.
c) Cash Flow Statement: To track a company’s cash movements and assess liquidity, it is a handy tool. It provides insights into the sources and uses of cash resulting from operating, investing, and financing activities.
5. What is a cash flow statement? Explain.
A cash flow statement is a helpful tool that tracks and manages the finances of a company. It monitors both inflow and outflow of cash and cash equivalents resulting from operating, investing, and financing activities. It helps to assess a company’s ability to generate cash, meet its financial obligations, and support its operational requirements.
6. What is the importance of a balance sheet, and how do you analyse it?
A balance sheet helps to evaluate the capital structure of a business as well as calculate the rate of return for its investors. It keeps a financial record of a business’s liabilities, assets, and shareholders’ equity at a particular date. Further, you can get ratios from the balance sheet by dividing one item on the balance sheet by another. These ratios provide you with important information about a company’s efficiency, liquidity, and solvency. Some of the ratios that you can obtain are: current ratio, quick ratio, debt-to-equity ratio, asset turnover ratio, etc.
7. What does the inventory turnover ratio show?
An inventory turnover ratio shows how many times a company sells and replaces its stock within a specific period, indicating how efficiently a business handles its inventory. A high inventory turnover ratio means that the business has efficient inventory management, good sales, and lower holding costs.
8. What is the net worth of a company?
The difference between a company’s total assets and liabilities is the net worth of the company. In simpler terms, it is the worth of the company after paying all debts.
9. What is ROE, or return on equity?
The return on equity (ROE) metric provides investors with a clear view of a company’s performance in handling shareholders’ equity and how that contributes to the company’s profitability. It analyses the financial health of a company by revealing how much profit a company generated with investors’ capital.
Formula for calculating ROE:
10. What are Sensex and Nifty?
The Indian stock market has two main benchmark indices: Nifty and Sensex. Nifty’s full form is National Stock Exchange Fifty and is the equity benchmark index of the National Stock Exchange (NSE). Nifty 50 includes the top 50 companies listed on the NSE. On the other hand, Sensex, also known as S&P BSE Sensex, is the market index of the Bombay Stock Exchange (BSE).
11. List the basic accounting principles
Some of the basic accounting principles are:
- Business entity principle
- Accounting period principle
- Cost principle
- Revenue recognition principle
- Full disclosure principle
12. What is the difference between cash and accrual accounting?
The following are the differences between cash and accrual accounting:
| Point of Distinction |
Cash Accounting |
Accrual Accounting |
| Transaction record |
Records transactions only when cash is exchanged. |
Records transactions when they are earned or incurred, even if cash hasn’t been exchanged. |
| Accounts maintained |
Entries are made in two accounts: Cash A/c and Nominal A/c. |
Entries are made in three accounts: Accounts Payable or Receivable, Cash A/c, and Nominal A/c. |
13. What is a Stock Split and Stock Dividend?
When a company distributes additional shares to existing shareholders, it’s called a stock dividend, whereas when it divides the existing shares into multiple shares, it’s called a stock split.
14. Tell me about a time you worked under pressure.
In such a type of question, you can use the STAR method:
- Situation: Tell them about the details of the situation and the pressure you faced.
- Task: Explain your role in that situation and what was needed to achieve it.
- Action: Describe in detail the action you took to address the pressure.
- Result: Lastly, highlight the outcome and how your action led to an effective solution.
This method especially helps structure answers for behavioural questions.
15. What are your strengths and weaknesses?
When discussing your strengths and weaknesses in a finance interview, focus on skills aligned with job requirements and frame weaknesses as an area for development. For example, in strengths you can mention teamwork, problem solving, adaptability, etc., while in weaknesses you can mention being overly detail-oriented and issues with public speaking.
Intermediate Finance Interview Questions
Here are the most asked questions in finance interviews, intermediate level. Additionally, you can find tips on how to answer them effectively:
16. What happens to the financial statements when depreciation increases by ₹10?
The financial statements are affected as follows when depreciation increases by ₹10: an increase in depreciation reduces net income, i.e., the income statement, but increases the cash flow from operations, i.e., cash flow statement, since it is a non-cash expense. It impacts the Balance Sheet as well, reducing asset value and equity.
17. If we purchase an asset, what would be its impact on our various financial statements?
On the balance sheet, the purchase will increase the assets, while on the year-end income statement, this asset will have depreciation. On the cash flow statement, this asset purchase will be counted as an investment activity.
18. What are the three main financial statements, and how are they connected?
The three main financial statements are the income statement, balance sheet, and cash flow statement. The three statements are interlinked as the retained earnings calculated from the Income Statement are recorded in the Stockholders’ Equity section of the Balance Sheet, and changes in the Balance Sheet’s current asset and liability accounts are also used to calculate the Cash Flow Statement’s operating activities section. Overall, these three financial statements provide a detailed view of a company’s financial position.
19. What are the advantages of funding operations by issuing equity rather than debt for a company?
A company might issue equity to lower its risk factor, as equity financing is less risky compared to debt financing. The advantage of issuing equity is that there is no liability to repay the equity capital, and with its help, a company gains valuable stability, providing financial flexibility and lower fixed obligations.
20. What are the different ways you can value a company, and how would you value ours?
There are three main approaches to valuing a company:
- Discounted Cash Flow (DCF) Analysis
- Comparable Company Analysis (Comps)
- Precedent Transactions
If I were valuing your company, I would begin with a Discounted Cash Flow model to calculate the true value based on projected cash flows. I then verify this with trading multiples of industry peers (Comparable Company Analysis) and latest purchases in your sector (Precedent Transactions) to get a valuation estimate. I would also consider your company’s growth prospects, competitive advantages, and current performance metrics.
21. What does a high P/E ratio indicate for a company’s future?
A high P/E ratio may simply indicate high future growth expectations, though it could also mean the stock is overpriced and its price may fall in the future.
22. What are the common multiples used in valuation?
The common multiples used in valuation are Price-to-Earnings (P/E), Price-to-Book (P/B), Price-to-Sales (P/S), as well as EV/Revenue and EV/EBITDA.
23. What does having negative working capital mean?
A negative working capital can indicate efficient operations as well as potential liquidity issues. This happens when a company’s current liabilities exceed its current assets. It is normal in some industries, like retail, where operations are funded by suppliers.
24. If cash collected from customers is not yet recorded as revenue, what happens to it?
If cash collected from customers is not recorded as revenue, it usually goes into “Deferred Revenue” on the liability section of the balance sheet. It happens because the company got the payment but hadn’t delivered the goods or services to the customer, creating an obligation.
25. What are the key market and economic indicators you monitor as a financial analyst?
As a financial analyst, the key market and economic indicators I monitor are:
- Inflation Rate
- Interest Rate
- Gross Domestic Product
- Stock Market Indexes
- Consumer Price Index
- Volatility Index
- Credit Growth
- Forex Reserves and Exchange Rates Movements
- Valuation Ratios (P/E ratio, P/B ratio)
26. Walk me through how you would build a simple financial model to forecast revenue.
These are the 8 steps I would use to build a simple financial model to forecast revenue:
- Understanding the business model: Identifying key revenue drivers (examples: units sold × price).
- Collecting past data: Using the past 3-4 years of sales, pricing, and growth trends.
- Selecting a forecasting approach: Top down (market size × market share) and bottom up ( units sold × price).
- Defining revenue formula: Example – Revenue = Customers × orders per customer × average selling price.
- Setting key assumptions: Customer growth rate, order frequency, and price changes.
- Building the model: Organizing it in a time series and linking all inputs to an assumption table.
- Testing and validating: Checking for unrealistic assumptions and errors.
- Visualizing output: Adding simple charts to show revenue trends.
Advanced Finance Interview Questions
Here are the most asked finance related interview questions, advanced level. Additionally, you can find tips on how to answer them effectively:
27. How do you value a company?
Valuing a company is a process of finding its economic value using various financial tools and models. I value a company by analysing its financial performance and applying valuation methods:
- Discounted Cash Flow (DCF): It estimates future cash flows and discounts them to present value.
- Comparable Company Analysis: Compares with similar public companies using valuation metrics like P/B, P/E, etc.
- Precedent Transactions: This method uses valuation data from similar past acquisitions.
- Asset-Based Valuation: Difference between total assets and liabilities of a company.
- Market Capitalisation: Multiply the share price by the total outstanding shares for public companies.
28. How does the DCF model method differ from the comparable company analysis method?
The difference between the DCF model and the Comparable Company Analysis method is as follows:
| Point of Distinction |
DCF Model |
Comparable Company Analysis Method |
| Valuation Approach |
The DCF model determines a company’s intrinsic value on the basis of its projected future cash flows and discount rate. |
It provides a valuation on the basis of the market prices of similar companies. |
| Data Dependency |
It relies on company-specific forecasts. |
It relies on peer group market data. |
| Strengths |
Over time, it captures intrinsic value. |
It reflects current market situations. |
29. How do you calculate terminal value?
To calculate terminal value, I use the formula:
Here,
- FCF_(n+1) refers to the free cash flow for the year after the last projected year (year n+1). FCF in the year after the projection period.
- WACC is the weighted average cost of capital.
- g is the assumed long-term, stable growth rate of free cash flow.
30. What is the discount rate you should use in an unlevered DCF analysis?
The weighted average cost of capital (WACC) is the proper discount rate to use for an unlevered DCF.
FCFF matches with WACC as FCFFs are the cash flows that belong to both debt and equity providers.
The discount rate, i.e., the cost of capital, needs to include all providers of capital, both debt and equity, which the WACC does. On the contrary, the cost of equity would be the right discount rate for a levered DCF.
The weighted average cost of capital (WACC) formula is:
31. What is Free Cash Flow to Firm?
The total cash flow a firm generates from its operations is known as free cash flow to the firm (FCFF). It is available to all investors after accounting for all taxes, investments, and expenses.
32. What is Beta, and why would you unlever it?
Beta is a measure of how much an asset’s returns move with the market. It shows how sensitive the returns of an investment are.
Unlevered beta, also known as asset beta, calculates the market risk of the company without the impact of debt. ‘Unlevering’ a beta eliminates the financial effects of leverage, thus identifying the company-specific risks.
Formula to calculate unlevered Beta:
33. Which is more expensive: the cost of debt or the cost of equity?
The cost of equity is more expensive than the cost of debt. Equity is the risk of investors; hence, they demand a higher return, making it more expensive. And because debt is less risky for creditors due to the fixed repayments and their preference over equity holders in case of liquidation. Additionally, debt interest payments are eligible for tax deduction, lowering the cost.
34. Can you explain the liquidation valuation method?
By valuing all tangible assets and subtracting the liabilities of a company from its financial report, the liquidation value can be calculated. In simpler terms, subtracting the liabilities from the assets will give investors the liquidation value. It is basically the “floor” value, showing the minimum worth of the company if it were to discontinue operations. This method focuses on tangible assets like inventory, real estate, and equipment, with intangible assets like brand recognition and patents often excluded.
35. How would you perform a sensitivity analysis in a valuation method?
Sensitivity analysis is used to evaluate how a valuation of a stock can be impacted by various risk factors in the model’s inputs. Specifically, it examines how changes in key assumptions, like terminal growth rates, discount rates, and the margin of safety, impact the overall stock’s valuation.
Steps to Perform Sensitivity Analysis in Valuation:
Step 1: Choosing the Valuation Method
Most commonly used in DCF analysis, but also useful for comps or LBO models.
Step 2: Identifying Key Assumptions (Drivers)
Typical variables include:
- Discount rate (WACC)
- Terminal growth rate
- EBITDA margin
- Revenue growth rate
- Exit multiple (for terminal value)
Step 3: Defining a Range of Values
For each variable, create a realistic range. For example:
- WACC: 8% to 12%
- Terminal growth rate: 1% to 3%
- Revenue growth: 5% to 10%
Step 4: Building Sensitivity Tables
Using Excel data tables or modeling tools to calculate how changes in assumptions impact the result (e.g., enterprise value or equity value).
Common formats:
- One-way sensitivity table: Change one input, observe how the valuation responds.
- Two-way sensitivity table: Change two inputs together (e.g., WACC vs terminal growth rate).
Sample Sensitivity Table: (Enterprise Value in Millions)
| WACC Terminal Growth |
1.0% |
2.0% |
3.0% |
| 8.0% |
120M |
130M |
145M |
| 9.0% |
110M |
120M |
135M |
| 10.0% |
100M |
110M |
125M |
Step 5: Interpreting Results
- Identifying which variables have the largest impact on value.
- Using the range of outcomes to guide decision-making or risk analysis.
These insights are extremely helpful during investment decision-making or risk planning.
Why Are Finance Interviews Challenging?
Finance interview questions can be challenging, highly technical, and very different from traditional job interviews. For freshers, it might be quite overwhelming. To crack a finance interview, you require a strong understanding of financial concepts and the ability to apply them in difficult scenarios.
The main intention behind these interviews is to test the candidate’s response under pressure and ability to explain complex problems easily. For cracking a finance interview, it is important to prepare for both accounting and finance interview questions.
Tips to Prepare for a Finance Interview
To get a job in the finance industry, you must have a strategic approach. Here are tips to prepare for your interview for a finance role:
- Carefully read the job description: It provides you with a roadmap for your interview preparation. You can anticipate the possible questions based on the roles and responsibilities mentioned in the job description.
- Know about the company: It’s better to know about the company well before the interview process. Understand its products and services, competitors, recent news, company culture, industry, employee reviews, etc. This will help you to see whether the company fits your requirements or not, as well as prepare you for the basic interview questions, like ‘Tell me what you know about the company’.
- Role-related knowledge: Check whether the job role, responsibilities, and the company’s needs align with your skills, experience, and knowledge or not. It is not just looking at how well you might fit the current role you are interviewing for, but future growth potential as well.
- Practice common and technical questions: You can start practicing basic finance questions for interview, including behavioral and technical questions. You can practice the finance interview questions and answers in front of a mirror or with a person to boost your confidence and communication skills.
- Follow financial news & market trends: Being up to date with the news and market trends can help you prepare for finance interviews well. Keep yourself informed about the policy changes, their influence on the market, and market conditions.
- Listen to the interviewer’s questions carefully: Listen to the finance interview questions asked by the interviewer carefully before answering. Take a moment to properly frame your answer and try to avoid asking them to repeat the question.
- Ask questions: In the end, if the interviewer asks “Do you have any questions?”, ask them questions like how my day-to-day work would look, or what the key performance indicators (KPIs) to this role, etc. This shows your keenness for the position.
You can also get free downloadable finance interview questions and answers pdf online.
Conclusion
The job interview process can be quite overwhelming and time-consuming for a candidate. However, thorough preparation for the interview can take you one step closer to your dream job. These finance interview questions test more than just knowledge: they check how well you can apply concepts, communicate clearly, and think critically in difficult scenarios. Practice these finance interview questions with answers with other relevant questions to your job role, and remember that confidence and preparation are key to cracking your next finance interview.
Finance Interview Questions – FAQs
Frequently Asked Questions
1. What are the most discussed finance interview questions and answers?
Generally, questions asked in finance interview depend on your experience level and the role you are applying for. For freshers, the questions are quite basic, assessing their theoretical knowledge and clarity of concepts, while for experienced candidates, they ask more of practical or real-life situation-based questions.
2. What are the three basic questions of accounting and finance interview questions?
The three basic questions of accounting and finance interview questions are about the working capital process, the cash flow statement, and the three main financial statements.
3. What soft skills are assessed in finance related interview questions and answers?
During a finance interview questions and answers, candidates are assessed based on their communication skills, analytical skills, and problem-solving skills, alongside their technical knowledge.
4. What are the three C's in finance?
Character, Capacity, and Capital (Collateral) are the three C’s that are widely used for evaluating potential borrowers’ creditworthiness.
5. Where can I find the top finance interview questions for freshers?
Our blog includes the top finance interview questions for freshers, covering all important concepts, accounting basics, and tips to prepare well before the interview.
6. How can I prepare for B.Com interview questions in finance?
You can effectively prepare for the B.Com finance interview questions by mastering the fundamental finance concepts, researching well about the company, practicing common finance questions, and enhancing your knowledge and skills.