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%20....

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.

  1. What are the ways a company can manipulate cash flows?
  2. 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.

  3. 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?"
  4. 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)

  5. 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?
  6. If you capitalize these costs as opposed to expensing them:

    1. Net income (1st year) is higher (capitalizing costs merely delays expense recognition for future periods)
    2. Net income (future years) is lower (overall net income for both capitalizing and expensing is the same)
    3. Book Value of equity is higher (BV equity is affected from retained earnings from income statement)
    4. Cash flow from operating activities is higher
    5. Cash flow from investing activities is lower

    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.

  7. 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?
  8. 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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Comments (30)

Apr 6, 2013

Manipulating Cash Flows:
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 don't want employees steeling your stuff you should keep track of how much goods are sold and purchased so that: purchases - COGS = ending inventory - beginning inventory

If you capitalize these costs as opposed to expensing them:
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

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.

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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Apr 21, 2013

For investments that make a lower rate or return than the hurdle rate, one needs to explore the option value in the decision as well. e.g. In the oil and gas world, if you are trying to evaluate getting into a new play but the IRR is below the hurdle rate now, but if you add the option value the future IRR's could be higher coz:
(1) commodity prices may go higher
(2) costs may go lower
(3) technology may improve and lower costs or enhance returns
etc

Apr 21, 2013

bump

Apr 21, 2013

bump

Apr 21, 2013

bump

Apr 21, 2013

BUMP

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Apr 21, 2013

If it is for an FP&A analyst role than it will mostly be fit questions from my experience. And be able to talk in depth about the experiences on your resume.

I had no technical question in mine. Can depend on the interviewer though.

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Apr 21, 2013

CorpFin, traditionally, is less concerned about your technical knowledge in entry level interviews. They are going to mold you to do finance the way they want it.

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Apr 21, 2013
tgcohen:

I actually really want this position as I've been told by numerous Alumni that going from an Analyst outside banking to banking is MUCH easier

It's definitely possible, but it's far from easy...

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Apr 21, 2013
dublin:
tgcohen:

I actually really want this position as I've been told by numerous Alumni that going from an Analyst outside banking to banking is MUCH easier

It's definitely possible, but it's far from easy...

Especially in this economy...

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Apr 21, 2013

A few sample questions from my prior interviews (Most are much easier than you'd get at even a MM IB firm).

How does an inventory write down affect the three statements?

How do you record PPE and why is this important?

Why [this company]?

Walk me through an NPV. What are sunk costs?

Tell me about a time when you were in a team that was not successful.

Tell me about a time when you were in a team that faced a big challenge. How did you succeed?

If you were our CFO, what would keep you up at night?

Name three challenges facing our company.

Know yourself, and more importantly, know the industry. I spent a large amount of time reading articles on the industry from WSJ, IBTimes, etc. Never hurts to review your accounting either. You will always get one or two questions and the worst thing you can say is, "I don't know."

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Apr 21, 2013

You are looking for either:

http://www.wallstreetoasis.com/forums/corporate-fi...

or

http://www.wallstreetoasis.com/forums/the-other-ro...

(both of which are within the top 10 threads on this forum, if your questions aren't answered there, then ask them)

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Apr 21, 2013

Hey JFinanceQs, I'm the WSO Monkey Bot and I'm here since nobody responded to your topic! Bummer...could just be unlucky but one of these topics will help shed some light:

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Or maybe the following WSO members have something to say: @leahnguyn @kevoliu93 @Shriya24

If those topics were completely useless, don't blame me, blame my programmers...

Apr 21, 2013

When I was asked this question for a F500 copr fin position, I answered it by addressing:
-Main products/services
-Recent developments
-Future developments/deals/products/etc that they may have been exploring or things you might've seen in the paper

Apr 21, 2013

Absolutely. If you go into an interview with GE for example and respond "you um...make dishwashers I think" then it'll be a major negative. Talk about their major sectors - medical devices, power generation, ge capital, etc. It is absolutely expected that you know the very basics about the company you are interviewing with, and can definately be brownie points if you can talk more intelligently about the company/business than the next candidate.

Apr 21, 2013

In my opinion, the interviewer wants to know if you understand how the company makes money. Knowing that GE Capital is a revenue stream for GE would be a typical (uninteresting) answer -- but, if you're able to articulate how the main divisions of the company make money (and profit), I think that has the making for a great answer.

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Apr 21, 2013

sorry, misunderstood your corporate finance as the investment banking corp finance

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Apr 21, 2013

Damodaran offers a free online Corp. Fin class through his website and Wharton offers a free Corp. Fin class through Coursera.

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Apr 21, 2013
systematically:

I have an interview in about 2 weeks for a corporate financial analyst position. The position involves budgeting, forecasting, cash flow analysis, and bank reconciliations. Can anyone recommend any books or references that would properly prepare me for the technical questions that I might encounter?

Makes sure you understand the 3 main financial statements, and how they are connected (specific accts), as well as understand NWC.

Do you have an excel test as well?

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Apr 21, 2013

Thanks for the answers guys.

I was not told if there will be an excel test. Do you have any recommendations just in case?

Apr 21, 2013
systematically:

Thanks for the answers guys.

I was not told if there will be an excel test. Do you have any recommendations just in case?

I honestly can't remember what was on mine. It was mostly accounting based. Just know a good deal of general accounting info and you'll be good.

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Apr 21, 2013

We had a case where you essentially build a model. That's what it said, but basically it was building an income statement and balance sheet, bare bones.

Apr 21, 2013