Most commonly asked Interview Questions for MBA Accounts and Finance students and freshers can be summarized as:
Walk me through a cash flow statement?
Start with net income, go line by line through major adjustments (depreciation, changes in working capital and deferred taxes) to arrive at cash flows from operating activities.
- Mention capital expenditures, asset sales, purchase of intangible assets, and purchase/sale of investment securities to arrive at cash flow from investing activities
- Mention repurchase/issuance of debt and equity and paying out dividends to arrive at cash flow from financing activities
- Adding cash flows from operations, cash flows from investments, and cash flows from financing gets you to total change of cash
- Beginning-of-period cash balance plus change in cash allows you to arrive at end-of-period cash balance
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Is it possible for a company to show positive cash flows but be in grave trouble?
Absolutely. Two examples involve unsustainable improvements in working capital (a company is selling off inventory and delaying payable), and another example involves lack of revenues going forward in the pipeline.
What is a deferred tax liability and why might one be created?
Deferred tax liability is a tax expense amount reported on a company’s income statement that is not actually paid to the IRS in that time period, but is expected to be paid in the future. It arises because when a company actually pays less in taxes to the IRS than they show as an expense on their income statement in a reporting period.
Differences in depreciation expense between book reporting (GAAP) and IRS reporting can lead to differences in income between the two, which ultimately leads to differences in tax expense reported in the financial statements and taxes payable to the IRS.
Apart from these, these are some basic questions, for MBA Accounts and Finance students and freshers: