Most finance interviews open with technical questions, and the first few are almost always the same: how you would value a company, how the three financial statements connect, and what working capital is. Answer those cleanly and the conversation moves on to your experience. Answer them vaguely and the interviewer will keep pressing until they find the floor of your knowledge.
This guide covers the basic technical questions in roughly the order they arrive, with correct answers and worked numbers you can check for yourself, then the behavioral questions that follow them.
What a finance interview is testing
There are two categories of question, and they are marked in completely different ways.
- Technical questions test knowledge. There is a right answer, the interviewer already knows it, and a partial answer is visible immediately.
- Behavioral and fit questions test evidence of past behavior. There is no right answer, but there is a right structure.
The technical half usually comes first, because employers check that you can be trusted with the mechanics before they decide whether they want to work with you. It is also the half that rewards preparation most, since the question set is small and stable.
The technical questions
1. What are the ways you can value a company?
There are three standard approaches, and a strong answer names all three before going into any one of them.
Comparable company analysis. Take a set of similar listed companies and apply their trading multiples, most often EV/EBITDA or the price to earnings ratio, to the target’s own figures.
Precedent transactions. The same idea using multiples paid in actual acquisitions of similar companies. These typically sit above trading multiples, because an acquirer pays a premium for control.
Discounted cash flow. Project the company’s unlevered free cash flow, discount it at the weighted average cost of capital, add a discounted terminal value, and you arrive at enterprise value directly.
Asset based methods, such as net asset value or liquidation value, form a fourth family, and they matter mainly for asset heavy or distressed businesses.
The usual follow up is which method produces the highest value. There is no fixed answer: precedent transactions generally come out above comparables for the control premium reason above, and a DCF can land anywhere, because it is only as good as its assumptions.
Do not confuse market capitalization with the value of the company. Market cap is equity value only, the share price multiplied by the number of shares outstanding. Enterprise value adds net debt, because a buyer takes on the debt and gets the cash.
Worked example, figures in millions. A company’s shares trade at 20 and it has 50 million shares outstanding, so equity value is 20 × 50 = 1,000. It carries 300 of debt and holds 100 of cash, so net debt is 300 less 100 = 200. Enterprise value is therefore 1,000 + 200 = 1,200.
If that same company reports EBITDA of 110, its EV/EBITDA multiple is 1,200 ÷ 110 = 10.9 times. Being able to run that calculation out loud is worth more than reciting the definition.
2. Walk me through the three financial statements
Answer with the links between them rather than three separate definitions, because the links are what the question is really asking about.
The income statement runs from revenue down to net income over a period. The balance sheet is a snapshot at a point in time, in which assets equal liabilities plus shareholders’ equity. The cash flow statement reconciles net income to the actual movement in cash over the same period.
They join at three points:
- Net income is the starting line of the cash flow statement, and it flows into retained earnings within equity on the balance sheet.
- Depreciation reduces net income on the income statement, is added back on the cash flow statement because no cash left the business, and reduces net property, plant and equipment on the balance sheet.
- The bottom line of the cash flow statement, the net change in cash, updates the cash balance on the balance sheet.
3. Talk me through a cash flow statement
Three sections, in order.
Cash from operations. Start with net income, add back non cash charges such as depreciation, amortization and stock based compensation, then adjust for changes in working capital.
Cash from investing. Capital expenditure, acquisitions, and purchases or disposals of investments.
Cash from financing. Debt raised or repaid, equity issued or bought back, and dividends paid.
Add the three together and you have the net change in cash for the period.
The part candidates get wrong is the working capital adjustment, so state the rule explicitly: an increase in a current asset is a use of cash, and an increase in a current liability is a source of cash. Receivables rising because customers have not yet paid reduces cash from operations. Payables rising because you have not yet paid suppliers increases it.
4. If depreciation increases by 10, what happens to the three statements?
This is the standard follow up, and it tests mechanism rather than memory. Say the tax rate you are assuming out loud before you start. Assume 25% here.
Income statement. Operating income falls by 10, pre-tax income falls by 10, and net income falls by 10 × (1 - 0.25) = 7.5.
Cash flow statement. Net income is 7.5 lower, but the full 10 of depreciation is added back, so cash from operations rises by 10 - 7.5 = 2.5. Cash increases by 2.5.
Balance sheet. Cash is up 2.5 and net property, plant and equipment is down 10, so total assets fall by 7.5. Retained earnings fall by 7.5 through net income, so equity falls by 7.5 as well. Both sides move by the same amount and the balance sheet balances.
Change the tax rate and every number changes with it, which is precisely what the interviewer is checking you understand.
5. What is working capital, and why does an increase in it reduce cash?
Working capital is current assets minus current liabilities. In plain terms it is the cash tied up in running the business day to day: money sitting in inventory and in unpaid customer invoices, less the money you are still holding back from suppliers.
Worked example. Current assets are 120 and current liabilities are 80, so working capital is 120 - 80 = 40. A year later receivables and inventory have grown, so current assets are 150 while current liabilities are 95, giving working capital of 150 - 95 = 55. Working capital has increased by 55 - 40 = 15, and that 15 is cash the business has had to fund, so it is deducted within cash from operations.
The reverse is worth knowing too. Businesses that collect from customers before they pay their suppliers, such as subscription and some retail models, can run negative working capital, which releases cash as they grow.
6. Can a company show positive cash flow and still be in serious trouble?
Yes, because cash can rise for reasons that will not repeat. The red flags are:
- Cash raised by selling assets or a division, which shrinks the earning base
- New borrowing, or a drawdown on a revolving facility, which is cash today and an obligation tomorrow
- Stretching payables, which is borrowing from suppliers and eventually reverses
- A one off release of working capital, such as running inventory down to a level that will have to be rebuilt
Underneath any of those, look at the debt maturity profile. A company can be comfortably cash generative this quarter and unable to refinance a maturity next year.
7. How can a company show positive net income but go bankrupt?
Net income is an accrual measure. Revenue is recognized when it is earned rather than when it is collected, and costs are matched against it, so reported profit can sit alongside an empty bank account.
The usual routes are rapid growth funded entirely out of working capital, a large debt repayment falling due, a major customer defaulting on a receivable, or a covenant breach that allows lenders to demand early repayment.
Questions 6 and 7 are two sides of the same point, and it is worth saying it plainly in the interview: profit is a matter of timing and judgment, cash is not.
8. What do you know about capital markets?
Capital markets are where organizations raise long term funding by issuing securities, and where those securities are subsequently traded.
Split the answer two ways. By instrument: equity markets, where a company sells ownership, and debt markets, where it borrows at a defined rate and term. By stage: the primary market, where a security is sold by the issuer and the proceeds go to the issuer, and the secondary market, where investors trade with each other and the issuer receives nothing further. Money markets, for borrowing under a year, sit alongside these rather than within them.
If you are interviewing for a capital markets team specifically, be ready to talk about what has been driving issuance recently, drawing on what you have actually read rather than on a memorized statistic.
9. Walk me through a DCF
Five steps, in order:
- Project unlevered free cash flow over a forecast period, typically five to ten years. Unlevered free cash flow is EBIT × (1 - tax rate), plus depreciation and amortization, minus capital expenditure, minus the increase in working capital.
- Discount each year’s cash flow at the weighted average cost of capital.
- Calculate a terminal value covering everything beyond the forecast period, using either a perpetuity growth formula or an exit multiple.
- Discount that terminal value back as well, and add it to the sum of the discounted forecast cash flows. The total is enterprise value.
- Subtract net debt to reach equity value, then divide by diluted shares for a value per share.
Worked example of the discounting itself. A cash flow of 100 received in one year, discounted at 10%, is worth 100 ÷ 1.10 = 90.9 today. The same 100 received in two years is worth 100 ÷ 1.21 = 82.6.
Worked example of a terminal value. If the final forecast year produces free cash flow of 100, long run growth is assumed at 2%, and the discount rate is 10%, the perpetuity growth formula gives 100 × 1.02 ÷ (0.10 - 0.02) = 102 ÷ 0.08 = 1,275. That figure sits at the end of the final forecast year, so it still has to be discounted back to today before you add it in. Forgetting that last step is the most common DCF slip in interviews.
10. Brain teasers and mental arithmetic
Some finance interviews, particularly in trading and parts of banking, include brain teasers. They test whether you slow down and check an intuitive answer, not whether you know a trick.
The classic example: a bat and a ball cost 110 pence together, and the bat costs 100 pence more than the ball. How much is the ball? Almost everyone answers 10 pence, which would make the bat 110 pence and the pair 120 pence. Let the ball be x, so x + (x + 100) = 110, which gives 2x = 10 and x = 5. The ball costs 5 pence and the bat 105 pence.
Estimation questions work the same way. State your assumptions out loud, do the arithmetic in visible steps, and sanity check the size of the answer at the end. The method is what is being marked, not the number.
The behavioral questions
Behavioral questions are scored on structure and evidence. Use STAR: Situation in a sentence, Task in a sentence, Action in the first person and in sequence, Result quantified wherever you can. Most weak answers fail in the action, where “we” replaces “I” and the interviewer cannot tell what the candidate personally did.
Tell me about a time you had to analyze and present complex data
Choose an example where the analysis changed a decision. Say what the data was, how you checked it, what you found, and how you presented it to people who had not seen the underlying numbers. Keep the focus on your method and your judgment rather than on the subject matter, and finish with what the audience did as a result.
What is your experience with financial modeling?
Financial modeling is the practice of building a structured representation of a company’s financials, usually in a spreadsheet, and using it to forecast performance under stated assumptions. The common types are the three statement model, the discounted cash flow model, and merger and acquisition models.
Be precise about what you have built yourself as opposed to what you have used. Say which model types, how they were structured, and which assumptions you owned. Many employers now set a modeling exercise as part of the process, so an overstated answer is easy to expose.
Describe a situation where you had to make a difficult financial decision
Here the interviewer is assessing logical reasoning and situational judgment as much as finance knowledge. Set out the options you had, the numbers and risks attached to each, why you chose the one you did, and what you would do differently now. Showing that you weighed a trade off deliberately matters more than showing that the decision happened to turn out well.
Tell me about a time you led or worked on a project as part of a team
Give the role you held, the goal, what you personally contributed, and what made the outcome work. A project that went badly can still be a strong answer, provided you can say what you learned from it and what you changed afterwards.
Why are you interested in working in finance?
Answer concretely. A specific origin, such as a piece of analysis you did or a market event you followed closely, is far more convincing than a general interest in numbers. Connect it to the particular role, because corporate finance, markets and control functions attract different people for different reasons, and the interviewer wants to hear that you know which one you have applied to.
Prepare in the right order
Work through the ten technical questions above until you can answer each one out loud without notes. Reading an answer and saying it under pressure are not the same skill, and the gap between them is where most preparation quietly fails.
Then research the employer. Read the most recent annual report or results release and be ready to comment on one thing you found in it, since that is what separates a prepared candidate from a well drilled one.
Many finance employers also test before or alongside the interview. Numerical reasoning tests are close to universal for graduate and analyst roles, and financial reasoning tests go further, setting the questions in the context of accounts and financial data. Both are timed tightly enough that familiarity with the format matters as much as the underlying arithmetic.
