9 Popular Finance Interview Questions

Q.1: What is working capital? Current assets Current Liabilities = Working capital. To explain further, it is a financial statement which tells the user how much cash is being spent in the business, on various items needed for routine business. Q.2: How is it possible for a company to show positive income even thought the company is bankrupt? There are two (sadly) simple ways to do that. One is to increase accounts receivable and the other is to lower accounts payable. (Hint: never do it or youll be caught and legally prosecuted!) Q.3: How is the income statement linked to the balance sheet of the company? One major way that the income statement is linked to the balance sheet is that the net income flows into preserved earnings. Q.4: Why are the increases in accounts receivable in the cash reduction on the cash flow statement? The cash flow statement starts with net income. So the increase in accounts receivable is like an adjustment to the net income. This is to reflect the company never actually received those funds. Q.5: What is goodwill? Goodwill is an asset which is cannot be touched, but it has a wider value than it appears. It captures excess of the purchase price over the fair market value of any business. Q.6: How is the cash flow of any company?

Initially, the net income has to be taken in consideration. Then, proceeding to the major adjustments like depreciation, working capital etc. They are used to arrive at cash flows from operational activities which usually includes

Mentioning of capital expenditures, sales and purchase of assets as well as investment stories Mentioning the repurchase and paying out the debts Adding cash flows from operations Making note of beginning of the cash balance and end of the cash balance

Q.7: What are deferred tax assets and liabilities? Why they should be created?

Deferred Assets They arise when a company actually pays more in taxes than they show as an expense on their income and expenditure list in a reporting period. They should be created for recognition of revenue, expenses and operating losses. It is good way to keep track of all these Deferred Liabilities They are expenses which are reported on a companys income and expenditure list which are not actually paid but they are expected to be paid in near future

This should be created to keep track of the difference between the companys books and IRS reporting or financial reporting. Q.8: What is capitalization? How important is it? It is a term with diverse meanings in both financial and accounting contexts. In accounting, it means the cost to buy any assets which is included in price of asset. But in terms of finance, it is the cost which is required to buy an asset; it includes the price of asset with the retained earnings of the company. Capitalization is very important aspect in determining the value of the company in the market. Q.9: Give me few objectives of cost accounting. 1. Facilitating cost control. 2. Determining Cost control. 3. Preparation of financial statements and many more. Good luck!