8 Corporate Finance Interview Questions With Sample Answers

Updated 14 March 2023

Corporate finance professionals handle a business's day-to-day finances, including budgeting, accounts preparation, loan payments and investment decisions. They ensure a company's financial well-being by planning and implementing the right strategies to reduce risks while maximising profitability. Reviewing common interview questions and answers can help you succeed in the interview and begin your career in the field. In this article, we share a few corporate finance interview questions, discuss why hiring managers ask them and also share tips on structuring your responses during the interview.

Corporate Finance Interview Questions With Sample Answers

Here are a few corporate finance interview questions that you can expect in an upcoming interview:

1. If you were to choose only one statement to review the overall health of a company, which one would you use and why?

There are four main financial statements, namely income statements, cash flow statements, balance sheets and shareholder equity statements. These four documents help corporate accountants monitor and track the economic well-being of a business. There is no one correct answer to this question. You can choose any one statement and provide a reasonable justification for your choice.

Example: "While the four main financial documents are equally important, if I were to choose only one, I would use the cash flow statement, as it gives the complete picture of how much cash a business generates. While the income statement tells us whether the company made a profit and the balance sheet provides information about the company's assets and liabilities, the cash flow statement tells us whether the company generated cash during a specific period. We can use it to plan budgets and operational expenses for the upcoming quarter."

2. Which is better, equity or debt?

There is a common misconception that debt financing is better as it is cheaper. The interviewer might ask challenging questions like these to evaluate your critical thinking and logical reasoning skills. You can provide a good answer by highlighting the tradeoffs between debt and equity financing and a justification for choosing one over another.

Example: 'The right solution when considering debt vs. equity financing depends on the business's current needs and future plans. That said, debt financing has several advantages over equity financing. By choosing equity financing, a business gives up partial or complete control over future decision-making. Debt financing also offers the advantage of easier liquidation. The business needs to consider all the pros and cons before making a decision.'

3. What happens to the income statement if the inventory goes up by ₹10,000?

The interviewer might ask trick questions like this to check your in-depth corporate financing and accounting knowledge. A change in inventory does not impact the income statement, as we record inventory only in the balance sheet and cash flow statements.

Example: 'As inventory is an asset, we include its ending balance in the current asset section of the company's balance sheet. We also include it as an outgoing cash flow in the cash flow statement. We do not record the change in inventory in the income statement, as it does not impact the income.'

4. Can you give an example of when negative working capital is an advantage?

The interviewer might ask questions like these to test your lateral thinking capabilities. Usually, negative working capital is detrimental to a business as it indicates that the company's current liabilities exceed its existing assets. That said, there are situations where negative working capital is an advantage, as it means business efficiency.

Example: 'A good example of negative working capital being an advantage are businesses like retail, grocery and restaurants. For example, at a restaurant, customers pay for their purchases upfront and inventory moves quickly. But suppliers extend a credit facility usually of 30 days. This means the restaurant generates cash earlier than it pays suppliers. Negative working capital is an advantage here.'

5. A company purchases a piece of machinery. Can you walk me through the impact of this purchase on the three financial statements?

The interviewer might ask explanatory questions like these to test your working knowledge of corporate finance. You can structure your answer by providing a step-by-step explanation of the various accounting procedures when purchasing machinery.

Example: 'Initially, there is no impact of the purchase on the income statement. The balance sheet goes up, and we note the purchase as property, plant & equipment (PPE) outflow in the cash flow statement. Over the machinery's life, depreciation reduces the net income in the income statement, while the retained earnings go down in the balance sheet. Since depreciation is a non-cash expense that reduces net income, we add it back to the cash flow statement.'

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6. If you were the Chief Financial Officer (CFO) of our company, what would your top priorities be?

The interviewer might ask hypothetical questions like these to test your high-level decision-making and business management skills. You can prepare for this question by reviewing the company's current and previous financial statements. This helps you identify any scope of improvement. You can highlight what you have researched and the steps to rectify it in your answer.

Example: "I recently reviewed the company's financial statements and noticed that the company incurred a huge loss due to the nationwide lockdowns in 2020 and 2021. My biggest priority as the CFO would be to future-proof the business so that there is no economic growth slowdown, even when supply chain disruptions occur. I would start by focusing on building a positive current account so that the business can continue operations even when supplies fall. My other priorities would be risk management and the generation of alternative income sources to make the business sustainable in the long run."

7. Can you give examples of why corporate accountants do not rely solely on positive cash flows to evaluate a company's fiscal health?

When the interviewer asks this question, they are looking for candidates to demonstrate their deep-thinking skills. Generally, positive cash flows indicate a healthy financial track record. But they are not always the case. You can share examples of when positive cash flows might not represent the company's fiscal health accurately.

Example: 'A company might show positive cash flow but still be in grave trouble. The warning signs to look for include selling off inventory, delaying payables and lack of revenue opportunities in the pipeline. Sometimes a company might show positive net income, despite the deterioration of working capital like lowering accounts payable and increasing accounts receivable. These signs indicate fiscal mismanagement and could even cause the company to go bankrupt.'

8. How would you explain the differences between a stock split and stock dividend to a team member who is not aware of financial terms?

The interviewer might ask this question to evaluate your communication skills. In your response, you can showcase your information to explain complex financial topics stage by stage. You can include relevant examples to make your answer clear.

Example: 'Cash dividend means the company pays cash to shareholders. If a company does not have enough cash reserves to pay dividends, it can allot additional shares to shareholders as dividend payments. This is known as a stock dividend. A stock split is when a company splits its stocks into two or more pieces. A company might split the stock to increase liquidity or to reduce the price of a unit, to allow more investors to buy the shares.'

Tips To Prepare For A Corporate Finance Interview

The following tips can help you prepare for an upcoming finance interview:

Be aware of the different types of questions. Generally, corporate finance interviews have two question types such as behavioural and technical questions.
Prepare for behavioural questions. Behavioural questions relate to your soft skills such as leadership, critical thinking, commitment to the role and ability to work with a team. You can prepare for these questions by choosing five to seven examples of previous workplace situations that you can use to highlight your skills.
Prepare for technical questions. Technical questions evaluate your proficiency in accounting and finance concepts. You can prepare for these questions by using online tutorials, videos, books or other resources.
Provide well-thought-out answers. Before you provide an answer, plan and structure your response in your mind for a couple of seconds. This strategy helps you provide a cohesive and well-thought answer.
Use specific examples wherever possible. This helps in providing an impressive answer and helps in differentiating your responses from that of other candidates.
Do your research. Research the company and role to personalise your responses. You can read news stories about the company and browse its website and social media pages to learn more about it.