Finance and banking interviews test your understanding of financial statements, valuation, markets and the Indian banking system. These questions suit roles in banking, financial analysis, investment banking, equity research and credit, from freshers to experienced candidates.
Fundamentals, definitions and simple scenarios. Good for freshers and warm-ups.
The income statement shows revenue, expenses and profit for a period. The balance sheet shows assets, liabilities and equity at a point in time. The cash flow statement shows cash moving in and out across operating, investing and financing activities. Net profit flows into retained earnings on the balance sheet and is the starting point of the cash flow statement, whose ending cash equals the cash on the balance sheet.
Money available today is worth more than the same amount in the future, because today's money can be invested to earn a return, and inflation reduces future purchasing power. That is why future cash flows are discounted: Present Value = Future Value / (1 + r)ⁿ, where r is the discount rate and n the number of periods. It underpins loan EMIs, bond pricing and business valuation.
Debt is borrowed money: the company must pay interest and repay the principal, but owners keep full control, and interest is tax-deductible, so debt is usually cheaper. Too much debt raises financial risk. Equity means selling ownership: there is no repayment obligation, but existing owners are diluted, and equity is more expensive because shareholders expect higher returns for their higher risk.
A mutual fund pools money from many investors and is managed by a professional fund manager who invests it in stocks, bonds or other securities according to the scheme's objective. In India mutual funds are regulated by SEBI. NAV, the Net Asset Value per unit, is the fund's total assets minus liabilities, divided by the number of units, and is declared every business day. Investors can invest a lump sum or through a SIP.
Applied problems, trade-offs and questions about your own projects.
Working capital is current assets minus current liabilities, and it shows whether a business can meet its short-term obligations. The working capital cycle is inventory days plus receivable days minus payable days: how long cash is tied up in operations. A profitable company can still run out of cash if its working capital is poorly managed, so analysts watch it closely.
Net Present Value is the sum of a project's future cash flows discounted at the cost of capital, minus the initial investment; a positive NPV means the project adds value. The Internal Rate of Return is the discount rate at which NPV equals zero; a project is acceptable if its IRR is above the cost of capital. When choosing between projects, NPV is more reliable, because IRR can mislead with unusual cash flow patterns or projects of different sizes.
The repo rate is the rate at which the Reserve Bank of India lends short-term money to banks against government securities. It is set by the Monetary Policy Committee. Raising the repo rate makes borrowing costlier for banks, which pass this on through higher loan rates, slowing demand and controlling inflation. Cutting it does the opposite to support growth. The reverse repo rate and other tools fine-tune liquidity.
Under RBI norms, a loan becomes a non-performing asset when interest or principal remains overdue for more than 90 days. NPAs are then classified as substandard, doubtful or loss assets depending on how long they have been non-performing, and banks must set aside provisions against them. High NPAs reduce a bank's profits and its capital available for new lending, which is why NPA ratios are a key measure of asset quality.
System design, deep internals, leadership and tough follow-ups.
The main methods are discounted cash flow (DCF), which forecasts free cash flows, discounts them at the WACC and adds a terminal value; comparable company analysis, using multiples like P/E or EV/EBITDA of similar listed companies; and precedent transactions, using multiples paid in past acquisitions. I usually use more than one method, compare the results, and run sensitivity analysis on key assumptions like the growth rate and discount rate.
The Weighted Average Cost of Capital is the average return a company must earn for all its investors, weighted by how much of its capital is equity and how much is debt, ideally using market values. Cost of equity is usually estimated with CAPM: risk-free rate plus beta times the market risk premium. Cost of debt is taken after tax, since interest is tax-deductible. WACC is used as the discount rate in a DCF valuation.
I use the five Cs of credit. Character: promoter background and repayment history, including credit bureau reports such as CIBIL. Capacity: cash flows, the debt service coverage ratio and interest coverage. Capital: net worth and leverage, such as debt to equity. Collateral: the security offered and its value. Conditions: the industry outlook, the purpose of the loan and economic factors. I also review audited financials and bank statements, and look for warning signs like falling margins or stretched working capital.
Income statement: operating profit falls by ₹100, tax falls by ₹25, so net income falls by ₹75. Cash flow statement: net income is down ₹75, but depreciation is a non-cash expense and is added back (+₹100), so operating cash flow rises by ₹25, the tax saved. Balance sheet: fixed assets fall by ₹100 and cash rises by ₹25, so total assets fall by ₹75; on the other side, retained earnings fall by ₹75. Both sides still balance.