Finance Interview Questions & Answers | For Entry-Level Roles!

hey everyone eric here in this video we're going 
to discuss finance interview questions and answers   for entry-level roles like internships and 
analyst positions if you don't know me already   i've worked in finance for the last eight 
years with startups starting as an intern and   now working in executive roles so i've both been 
interviewed and interviewed candidates many times   okay let's get started preparing your mindset 
the reason we prepare for interviews is not to   know the answer to every question in advance 
it's to think about why we want this role   and what are all the experiences in our lives that 
led up to this moment these are the answers that   i would give to the following questions but it 
doesn't mean they're necessarily the best or the   right answers okay first question what is the goal 
of finance so the core thing that finance does is   that it allocates capital that's whether you're 
on the investment side like investment banking or   corporate finance like running a company finance 
people invest capital and so in order to do that   you need to create plans and projections about the 
future to try to identify the best opportunities   and then what is a good opportunity generally the 
best opportunities will be good for shareholders   so you'll make money they'll be good for 
employees and they'll make the customers happy   all of these three things need to happen at the 
same time or else the whole thing stops working if   employees are unhappy or if customers are unhappy 
shareholders won't make money so it's all about   allocating capital towards the best opportunities 
next question can you describe a financial model   and walk through one that you built okay so a 
financial model predicts the future it predicts   the revenues the expenses and the profitability of 
an overall company in the future so it's basically   a guess about what will happen but it gives you 
the opportunity to see it before you do it so that   you can make changes to your plan so one simple 
financial model i built and i included a link to   this down below it's called how to build a basic 
financial model really really simple but would   help you understand these concepts so i'll walk 
through that it was a company that made chairs   and i looked at the total number of chairs that 
we made and then i multiplied that by price to   get our revenue i looked at the manufacturing 
cost per chair to get the overall costs   and then i calculated our other expenses so we 
had payroll we had some marketing so i could   understand our overall operating profit and then 
finally in the years where we had positive profits   because some years we had negative profits 
while we were scaling up the company when   we finally did turn a profit i calculated taxes 
and subtracted that from your operating profit   to get to the net income so that's how i built 
a basic financial model for this chair company   walk through the main sections of a p&l 
p&l is income statement by the way so   you have a few main sections on the p&l you 
start with gross revenue and from gross revenue   that's just the price times all of the everything 
that you sold you subtract discounts and refunds   that gives you net revenue net revenue is 
basically all the money that you actually   collected the next section is called cost of goods 
sold or cost of sales same thing different names   but same thing this is where you put all of 
your direct costs that are directly related to   making your product so if it's a physical 
product it's like your materials cost   your manufacturing costs if it's a tech product a 
lot of times there there aren't a lot of costs um   in terms of the cost of sales there will be some 
like server costs and some technology stuff but   whatever directly goes into supporting your 
product and then your net revenue minus your   cost of goods sold is your gross profit which 
is like the profit margin at the product level   below your gross profit you have your operating 
expenses these are more of your fixed costs so   you'll have the payroll of the management team 
you also have marketing goes in your operating   expenses and things like rent consultants 
insurance all of these kind of things are   in your operating expenses and then your 
gross profit minus your operating expenses   gives you your operating profit this is also known 
as earnings before interest and taxes or ebit   um from your ebit you finally have one last 
section of expenses and that's interest and taxes   so interest is any interest you're paying 
on any debt that the company has you put it   there on the income statement and taxes you 
calculate based on your ebit to figure out   okay what percent of your income do you need 
to pay to the government in taxes and then   you subtract those from your ebit and you get your 
net income so that's how an income statement works   what are the three main financial statements and 
what do they show okay the three main financial   statements are the income statement the balance 
sheet and the cash flow statement the income   statement shows you all the money you made and 
all the money you spent on your core operations   the balance sheet shows you everything that you 
own and everything that you owe it's as simple   as that the cash flow statement shows you all 
of the ways the cash came into the company and   left the company so cash comes in and leaves from 
operations cash comes in and leaves from investing   so the company investing its own money into say 
factories or other companies and then the third   way is from financing and that's the situation 
where outside investors actually invest into   our company so maybe they're lending us money or 
buying shares of our business so there's three   main ways that the cash comes comes and goes from 
the company how would you evaluate the financial   health of a company so there isn't like an exact 
right answer on this one but if i was looking   at a company and i didn't know anything about 
the company i'd say how much cash does it have   then i'd say how much debt does it have and 
then i would say you know i would look at how   much revenue it generates but more importantly 
i would look at if the revenue is increasing   i'd look at the trends over the last couple 
years to see okay is the company growing   or is the company shrinking if it has a lot of 
debt but it's growing a lot maybe it'll be easy   to pay that debt off but if it has a lot of 
debt and it's shrinking then the company is   probably in a terrible position um from there 
i'd probably just look at the net income to   see like how profitable is the company and 
probably some cash flow metrics like maybe   operating cash flow to see how much cash is the 
business actually generating from its operations   and if i looked at all those things i would 
have a pretty good idea of this the overall   financial health of a company and i would 
know sort of from there what to look at next   what is cash versus accrual accounting okay so 
accrual accounting follows something called the   matching principle and pretty much all accounting 
is done based on the accrual accounting method   not the cash method not the cash based 
accounting so accrual based accounting   has this rule and it says you need to 
match your revenues and your expenses with   the time that you provide your product 
or service it sounds like it makes sense   right but it's it's more complicated than 
that and let me explain through an example   let's say that we're a car company that takes a 
couple months to deliver the car like tesla right   now if you order a tesla you're gonna have to wait 
a number of months before you can get it because   there's so many orders so let's say you pay tesla 
in january for the car you send them the money   tesla receives the money in january and they 
say we can't deliver your car until april the   accrual-based accounting method would say okay 
you received this money in january tesla you can't   report it as revenue you can't put the revenue on 
your income statement until you actually deliver   the product or service until you deliver that car 
so tesla would actually have to wait until april   to put the revenue on their income statement they 
would collect the cash but they couldn't report it   and they would also correspondingly have to take 
all those costs associated with the car and report   them in april too even if they spent the money 
earlier and so that follows the matching principle   you need to match the revenue and the cost with 
the timing of delivering the product or service   and this is very relevant with other 
companies like they run events like if you're   like if you were having a concert for instance 
you'd be selling all these tickets in advance   but you can't actually say that you earned that 
revenue until you put the concert on so that's the   accrual-based accounting method cash based would 
just be that you report anything when the cash   actually comes in or leaves the company and so 
that's used less but you'll see that sometimes   as well what's something interesting that's 
happened in the capital markets recently   so the only way you can prep for a question 
like this is to actually follow the capital   markets like you can't have a canned answer 
because these kinds of things are changing all   the time but i'll give you sort of like uh what 
i would answer if someone asked me that today   it's december 2020 just as a reference point um 
but if you're preparing for an interview it'll   be sometime in the future and the situation 
will be different so um in 2020 right now   the coronavirus pandemic is is going on in 
the world and something interesting for me   that's happened in the capital markets is we 
were following all the tech companies and their   market share so a lot of these businesses 
that do like e-commerce are competing for   in-person customers who usually go in person and 
they're trying to get them to go online right   and there were projections around what their 
market share would be in five years or sometimes   even 10 years out from now and we were expecting 
okay it's going to take 10 years to get you know   four more or ten more percentage points of market 
share when the pandemic hit we saw many of these   companies take that market share in one month so 
like jumped 10 years into the future immediately   because all the customers were forced 
to shop with them and that caused like a   massive massive increase in the valuations 
of these companies which is fascinating   and it's caused a complete disruption um 
across financial markets and this split between   winners and losers which is very very dramatic 
and it reflects the way that the world is actually   functioning and we don't know to what extent the 
world will return back to something like before   or after the pandemic or people will continue 
behaving in the same way after the pandemic   so obviously the most interesting thing for me 
is market share and businesses that have taken   physical infrastructure and made it digital and 
are distributing their products in a way that's   easier for people to buy things now that 
they're sort of locked inside and finally   i would recommend that you ask your interviewer 
a question i always ask interviewers questions   sometimes tough questions and actually a couple 
times i've asked an interviewer a question and   received an answer that made me really concerned 
and i've pulled out of the interview process   so it's an opportunity for the company to 
interview you but also for you to interview   the company because you're going to be spending 
a lot of your life at this place if they hire you   so you want to make sure that it's the right 
fit so one thing that i like to ask is what   is the goal of finance at this company that's 
going to tell you about sort of like how your   department would fit into the ecosystem and 
sort of what's what's the mission of the team   also i would ask a specific person what's 
something you've done on the finance team   that you're proud of that'll tell you about 
the values and sort of the ethics of the person   and if the thing that they say they're proud of 
you think that's really interesting and great as   well you they would probably be a good mentor 
for you but if you completely disagree or you   think it's really boring or something like 
that then you should be skeptical so those   are some example questions but sometimes i also 
ask questions like do you like your job things   like this are you happy here because sometimes 
people will give you a really honest answer   so i hope these questions gave you some good 
background and got you thinking about how to   answer finance interview questions for entry level 
roles also if you like this video please subscribe   to my channel click the bell and enable the alerts 
notifications so that you don't miss any of my new   videos when they come out i also included down 
below in the description some links to some   other videos like how to build a basic financial 
model as well as some other finance videos that i   recommend that you study and understand before you 
go into your sort of entry level finance interview   anyway i hope this was helpful for 
you and see you in the next video

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