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

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