Corporate Finance Interview Questions and Answers
I'm new to the corporate finance world and have final round interviews coming up. The first round was primarily fit and a 'do you know our biz model' type thing. Now obviously I'll need to have some strategic questions up my sleeve since the ppl I'm talking to have been there for a decade or more. Was wondering what type of standard questions you guys always have lined up and if you have any suggestions. Also, does it matter if I discuss the firm's biz model more as a whole as opposed to the focus of the FP&A group (revenue focused) I'm interviewing for? I was thinking about discussing pricing and competitive positioning for sure.
While I'm interviewing with more senior ppl in this round, I figure there might be some technicals. I looked online for a question guide and found this a list: https://www2.mccombs.utexas.edu/Students/GFA/IB%20Interviewing/Finance%….
Certainly some are a little self explanatory, but there are some I was wondering how people would approach the answer in an interview so I thought I would post them here. If anyone has seen all of these questions answered somewhere on this site (I know I've seen some in the doc answered previously) and I'm duplicating a post, please let me know.
interview questions for corporate finance jobs with answers
The questions below were posed by the OP and answered by user @sharpie19".
- What are the ways a company can manipulate cash flows?
- Assume that you have a significant amount of inventory on hand. What control measures could you put in place to ensure employees aren't running off with your inventory?
"There are three ways to account for oil exploration costs: The FIRST is to write-off all exploration costs as incurred, the SECOND is to capitalize successful explorations and write off the rest, and the THIRD is to capitalize all exploration costs. Which one results in the lowest Net Income, the highest Book Value, and the highest Cash Flow?"
- Your company's weighted-average cost of capital is 12 percent. You believe the company should make a particular investment, but its internal rate of return is only 10 percent. What logical arguments would you use to convince your boss to make the investment despite its low return? Is it possible that making investments with returns below capital costs will create value? If so, how?
- Net income (1st year) is higher (capitalizing costs merely delays expense recognition for future periods)
- Net income (future years) is lower (overall net income for both capitalizing and expensing is the same)
- Book Value of equity is higher (BV equity is affected from retained earnings from income statement)
- Cash flow from operating activities is higher
- Cash flow from investing activities is lower
- If you want to assess the health of a company and you could choose between looking at 3 years of income statements or 3 years of balance sheets, which would you choose and why?
Revenue and expense recognition: Management can either defer or accelerate certain expenses and revenues based on cash vs accrual method of accounting (for example: sales contracts, deferred taxes, bad debt expense, warranty expense, returns).
Depreciation expense: management can decide on useful life and ending salvage value
Capitalizing expenses as oppose to expensing them: affects balance sheet and income statement.
Inventory assumptions: LIFO, FIFO, weighted average inventory accounting methods change cost of goods sold, which changes how much inventory you will have on hand as well as Net Income. This is important because if you use LIFO the less Net Income you have the less taxes you pay (in an inflationary environment).
Pension expense assumptions such as discount rate, compensation growth rate and expected rate of return.
When forecasting managers and accountants have significant leeway over basic assumptions used: cost of capital, rate of growth, taxes etc (pretty much everything is a guess)
If you capitalize these costs as opposed to expensing them:
Certain investments might increase the intangible value of assets of the company. For example you might undergo a marketing campaign that won't make you money, but doing so creates brand awareness and identity which will help you sell products in the future. Or you could convince your boss that future benefits will outweigh current costs because of new expanding markets that haven't developed yet.
Answer: If you want to assess the health of a company you should look at 3 years of balance sheet data. It's easier to derive income statements from 3 years of BS data than going the other way. Also with balance sheet data you can calculate all sorts of ratios and measures indicating the financial health of a company. Using BS data will give you a better idea of you're using the assets efficiently.
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