A financial analyst evaluates financial statements, develops models, and identifies investment opportunities to recommend profitable options for wealth growth. So, if you plan to apply for the financial analyst position, you must review the common finance analyst interview questions that employers may ask you regarding your work experience, education, and detailed knowledge of this industry. Preparing impressive and informative answers to these questions can help you stay calm and confident in the interview. Besides, it also increases your chance of securing a job.
In this article, we are compiling 15 sample financial analyst interview questions and answers that will help you to model successfully for the next interviews. Besides, these questions will help you to emphasize your ability to analyze complex information and to contribute your strategic insight in this field.
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Top 15 Financial Analyst Interview Questions
1. What is financial modeling?
Financial modeling is all about creating mathematical representations of the financial situation of a company to analyze the performance and make well-informed projections. It is also imperative to mention the knowledge of accounting principles and the importance of Excel proficiency.
2. What is capital structure?
In corporate finance, capital structure is the amalgamation of different external capital or funding sources for financing the businesses. The capital structure includes equity owned by debt, preferred shares, and shareholders and it is listed on the company’s balance sheet.
3. How different are variable and fixed costs?
Variable costs are the variable expenses in direct proportion to the activity level. Direct labor, sales commissions, and raw materials are some of the examples of variable costs. On the contrary, fixed costs never change with the sales volume or production level. Wages, insurance premiums, and rent are some of the instances of fixed costs.
4. How to calculate working capital?
This is one of the popular interview questions for MBA finance freshers. Working capital is a vital measure for determining a business’s ability to cover its daily functions and short-range obligations. Here the comparison is made by deducting the present liabilities from the present assets. So, a positive working capital is an indication that a business has adequate liquid resources to meet all the short-term finance obligations while the negative working capital can signify the potential issues of liquidity.
5. How important is the (P/E) Price-to-Earnings ratio?
(P/E) Price-to-Earnings ratio is a valuation metric used for weighing a business’s stock price against its earnings per share or EPS. This ratio also offers insights into the expectations of the investors about the future earning potential of a company. For instance, a higher P/E ratio signifies that the investors have high growth expectations for the business whereas a lower P/E ratio indicates undervaluation.
6. What is the valuation technique?
The valuation technique is all about calculating the value of a stock or business by employing different techniques. The common methods used in this process are Comparable Company Analysis to assess the present value corresponding to similar businesses by using metrics like EBITDA and P/E, DCF Analysis to forecast future cash flows, and Precedent Transactions to identify all the transactional values by comparing the businesses with their sold counterparts in recent times.
Also read this blog:- How to Become a Financial Analyst?
7. What are quarterly forecasting and expense models?
Quarterly forecasting is all about analyzing the expected revenue and expenses to be incurred or produced in the future. And the expense model specifies the expense categories, which are permitted on a particular type of work order. This works as the base of budget creation and helps to identify both fixed and variable costs and forecast the expected profit or loss of a business accurately.
8. What are the important assumptions made in financial forecasting?
The important assumptions in financial forecasting include gross margins, revenue growth rates, tax rates, operating expenses, and discount rates for calculating the present value.
9. What tools do you use for advanced financial modeling?
It is necessary to leverage different important tools for Business Intelligence for advanced financing modeling. These tools are namely GIDE, Oracle BI, Quantrix, Maplesoft, and Tableau.
10. What is diversification in investment portfolios?
Diversification in investment portfolios works as a strategy that decreases risk by spreading investments across different industries, asset classes, or geographic regions. Here diversification helps the investors to minimize losses in case any of the investments perform poorly while benefiting from the gains of other investments.
11. In which situations do you have to capitalize instead of expensing a purchase?
Capitalizing a purchase includes converting it into an asset on the balance sheet while contributing to the reported profits for shareholders. According to the accounting policies, things used for more than one year are depreciated and capitalized. This is an advantageous practice, especially for assets with long-term lifespans.
12. How to calculate WACC or the Weighted Average Cost of Capital?
WACC or the Weighted Average Cost Of Capital is known as the average cost of financing the operations of a business while considering the proportion of used debt and equity. Here the cost of debt and cost of equity are compared to assess the WACC based on their proportions in the capital structure of a business.
13. How to create sales reports?
Sales reports are summaries of a business’s sales activities for a particular period. These reports include information related to leads, data on revenue, sales volume, new clients, etc. So, it needs a complete understanding of the purpose and requirements to prepare this report. It can be accomplished by following the steps mentioned below:
- Identify the goals and target audience of the report
- Collect pertinent details
- Select a particular time frame
- Describe the data
- Make it appealing to the viewers
14. How to create a financial analysis report?
This is one of the frequently asked MBA finance interview questions. A financial analysis report mainly focuses on the financial strengths and shortcomings of a company. Here are the ways to prepare a report for your investors:
- Collect financial statements and other documents like cash flow statements, income statements, balance sheets, etc., and compile any financing notes, government reports (if applicable), and annual or quarterly records.
- Perform a risk assessment by identifying all the risks, documenting the risks, assessing threats regularly, evaluating all the measures for risk control, and assessing and figuring out the valuation of your business.
- Calculate ratios that help to analyze the financial health of your business.
15. What is EBITDA?
EBITDA or Earnings Before Interest, Taxes, Depreciation, and Amortization is a financial metric, which measures the operating performance of a business by excluding some expenses and focusing on the operational profitability of the business. Besides, EBITDA is often used to assess the ability of a business to generate cash while comparing the financial performance of different companies.
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Conclusion
The importance of questions asked in finance interview cannot be overstated when preparing effectively for it. A proficiency in necessary skills and a detailed understanding of key concepts can enhance the prospects of getting the coveted position. A relevant Financial Analyst course like M.Com (Financial Management) from a reputed university like Amity can enrich your skills and knowledge further while equipping you with the necessary expertise to excel in this field.
