Finance interview cheat sheet
Short explanations of the concepts that come up across finance roles.
Statements and operating performance
- Accounting equation
Assets = liabilities + equity. Borrowing cash adds an asset and a liability, leaving equity unchanged at origination.
Review the lesson- Accrual accounting
Recognise qualifying activity in the relevant period. Invoicing and collecting can happen later.
Review the lesson- Profit versus operating cash
Reconcile profit through noncash items and changes in operating working capital. Rising receivables typically absorb cash.
Review the lesson- Gross margin, EBIT and EBITDA
Gross margin divides gross profit by revenue. EBIT is earnings before interest and tax. EBITDA adds back depreciation and amortisation and excludes reinvestment needs.
- Working capital days
Cash conversion cycle = inventory days + collection days − payable days. Use the matching base for each days calculation.
Review the lesson- Break-even volume
Fixed costs ÷ contribution per unit, assuming one product and stable costs in the relevant range.
Review the lesson
Cash flow and valuation
- Time value and NPV
Discount future cash flows at a risk- and currency-consistent rate, then include the initial outlay. Positive NPV indicates value added under the inputs.
Review the lesson- Free cash flow to the firm
After-tax operating profit + depreciation − capex − increase in operating working capital, with other relevant adjustments.
Review the lesson- WACC
Combine the cost of equity and after-tax debt cost using weights appropriate to the target capital structure.
Review the lesson- Enterprise and equity value
Enterprise value measures operations. Bridge to shareholders by accounting for debt, excess cash and other non-operating or senior claims.
Review the lesson- Comparable multiples
Match enterprise value to operating measures and equity value to equity-holder measures. Keep period, accounting scope and growth comparable.
Review the lesson- Coverage
Interest coverage looks at interest. DSCR includes principal using the agreed definition of available cash and debt service.
Review the lesson
Risk returns and interview arithmetic
- Basis points
100 basis points equal one percentage point. A yield moving from 7.00% to 7.25% rose 25 basis points.
- Weighted averages
Multiply each outcome by its weight and sum. Check weights add to 100% and use a consistent basis.
Review the lesson- Compounding and real returns
Multiply period growth factors. Divide the nominal wealth factor by the inflation factor to get real growth.
Review the lesson- Bond prices and yields
For a plain fixed-rate bond with unchanged cash flows, higher required yield reduces present value.
Review the lesson- Diversification
Portfolio risk depends on weights, individual risk and co-movement. More holdings can still leave one dominant exposure.
Review the lesson- Stress test
Choose a plausible or informative shock, reprice affected exposures and explain the resulting cash or loss impact.
Review the lesson
How to structure an answer
- Define the metric in plain language and say why it matters.
- State the inputs, period, units and one assumption.
- Show the calculation or decision logic, then interpret the result.
- Name a limitation and the next check you would run.
For a behavioural question, use a real example. State the situation and your task, describe your own actions, and give a concrete result and what you learned.