Accounting & Finance Interview Questions and Answers

Working capital is current assets minus current liabilities. It measures the short term liquidity available to run day to day operations.

Current assets include cash, receivables and inventory. Current liabilities include payables, short term debt and accrued expenses. A positive figure means the business can cover its near term obligations. A negative figure can signal trouble, though some models, such as subscription businesses collecting upfront, run negative working capital deliberately.

It matters because even profitable companies fail when they cannot pay bills on time. Working capital reveals how long cash is tied up. The cash conversion cycle, days inventory plus days receivable minus days payable, shows where it is stuck.

I improve it by collecting receivables faster, managing inventory tightly and negotiating supplier terms, without damaging customer or supplier relationships. It is a key input to cash flow forecasting.

Gross margin is revenue minus cost of goods sold, divided by revenue. It measures how much is left after the direct costs of delivering what you sell, such as materials, hosting or delivery.

Net margin is net profit divided by revenue, after all operating expenses, interest, tax and depreciation. It measures overall profitability.

The difference is what sits between them: sales and marketing, research and development, administration and finance costs. A company can have a strong gross margin and a weak net margin if it overspends on overheads, or a modest gross margin and healthy net margin if it is very efficient.

I look at both. Gross margin shows the underlying economics of the product and is useful for comparing businesses in the same industry. Net margin shows whether the whole operation makes money, and trends matter more than any single period.