If you have completed your bachelor’s or master’s in Finance or Accounting, you should be ready for the questions asked in interviews. Apart from personality, the interviewer will check your technical knowledge for the post. Therefore, the basic financial concepts are important for any finance related job interview. This article will talk about common Interview Questions for Finance Jobs.
How many types of financial statements and their functions?
There are three types of financial statements, which are named as balance sheet, income statement, and cash flow statement. firstly, The balance sheet shows the net worth of the company. It describes the financial position of a company -at a certain point in time. Secondly, The income statement shows the net income of the company. It shows the company’s performance in a given period. lastly, the cash flow statement talks about the inflow and outflow of the cash. It generally talks about the cash used in operating, investing and financing activities.
What is NPV?
Net present value (NPV) talks about the present value of future cash follows. It follows the concept of the Time value of money. If someone borrows $100 from you, he promises to give you back $150 after a year. In this case, you will calculate the net present value by calculating the present value of $150 and then subtracting the initial outflow from it. If the NPV is positive then this investment is beneficial and if it is negative then it is not favourable.
What is the Internal Rate of Return?
The internal rate of return is useful to access the profitability of investments. It is a discount rate at which the net present value of a project is equal to zero. If the internal rate of return is the greater weighted average cost of capital then it is favourable. The weighted average cost of capital is the least return company expects to earn from a project.
What are Retained Earnings?
When a company gets to profit in net income, it has two options. Either to distribute it as dividends or to hold it for future investments. If a company holds the net income for future investment then it is called retained earnings.
What is a Bull and Bear market?
The upwards and downwards trends of the stock market are called bull and bear markets. If the stock market is going upwards for months or years then it is called a bear market. But, if the stock market is going downwards for months or years then it is called a bear market. There is a general proposition that if stock markets drop by 20% then it is a bear market.
Which statement talks about the overall health of the company?
The cash flow statement is the only type of financial statement which can be used to access the overall health of the company. It portrays how the company is generating and utilizing its cash.
What is the cash and accrual basis of accounting?
Both types of accounting have their pros and cons. Cash basis of accounting is a much simpler method and used by small and cash-based businesses. In cash base accounting, revenue is recorded when cash is received, and expense is recorded when cash is paid. On the contrary, in the accrual basis of accounting, revenue is reported when it is earned, and expense is reported when it is incurred.
What is the difference between accounting and auditing?
Accounting talks about the recording of daily business transactions. but, auditing deals with the checking of transactions. Auditing checks whether the transactions were recorded correctly or not.
What is double-entry?
The double entry in accounting is an entry which satisfies the equation of accounting. It means every debit entry will have a credit entry.
What are Depreciation and Accumulated depreciation?
Depreciation is the decrease in the value of an asset, as it is being used. There are many types of depreciation. Commonly used are the straight-line method and double decline method. Accumulated depreciation identifies the total depreciation of an asset -at a given period. Accumulated depreciation is also called contra asset account. It is subtracted from the balance sheet, under its asset header, to identify the correct book value of an asset.
To conclude, if you have completed your degree and now applying for jobs then these common interview questions for finance jobs are must to prepare. Apart from these financial concepts, you should also be well versed in financial tools like Microsoft Excel. If you want to learn more about excel then you can read article on top 5 excel skills.