22+ TOP Financial Analyst Interview Questions & Answers
1. Define capital budgeting
Capital budgeting is a project selection exercise performed by the business enterprise. It uses the concept of present value to select the projects. Tools like pay back period, net present value, internal rate of return, profitability index to select projects are used.
2. What is capital market?
Capital market is the source from which the long term money is raised. It is used for setting up the sustained growth of companies. The stock exchange is also the part of capital market as it helps the traders to maintain the liquidity of investments. Capital market is distinct from money market like banks and lending institutions as they provide short term finance.
3. What is ratio analysis?
Ratio analysis is a technique of financial analysis. It is used to evaluate the financial condition and performance of a business concern. It is basically used to workout the profitability, solvency, analyzing financial statement and comparative analysis of the performance. Ratio analysis simplifies accounting information and workouts the operating efficiency. It also helps in determining short term financial position.
4. What is payback period?
Payback period is the time duration that is required to recoup the investment committed to a project. Business enterprises use stipulated pay back period which acts as a standard for screening the project.
5. What are your educational qualifications?
The position does not require specific qualifications. However, a management degree is an added advantage. Tell about your knowledge in the finance sector. You can also mention about your knowledge about the various tools such as MS office, Visio, OLAP, SQL etc. These are surely a plus point. You should be comfortable in using them to extract information and gain knowledge from the data bases. Also mention about any awards or recognitions that you have received in your earlier work area.
6. What is working capital?
Working capital is defined as current assets minus current liabilities; it tells the financial statement user how much cash is tied up in the business through items such as receivables and inventories and also how much cash is going to be needed to pay off short term obligations in the next 12 months.
7. How is the income statement linked to the balance sheet?
Net income flows into retained earnings.
8. 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.
9. Tell me something about yourself. When did you make your first financial analysis in life?
You would surely come across this question when you appear for the financial analyst interview. To start with, introduce yourself in brief, including your educational and professional background. Try and avoid speaking about personal aspects, unless asked. Keep your introduction session very short and to the point. While answering the next question about the very first financial analysis in your life, try using your imagination. You will surely recall some financial analysis in your personal life, and explain it to the prospective employer so that it sounds interesting. Make sure that you do not tell a long story, but limit it to short time.
10. Why have you chosen the career of a financial analyst? What according to you makes a good financial analyst?
Answering this question demands honesty as well as technical knowledge. You can mention your liking towards numbers and money while answering the first question. Financial analysis is a challenging job that requires performing responsible duties and thus, you can also say that you like taking on challenges to accomplish your goals. The interviewer wants to check whether you possess the analytical skills required for the job of a financial analyst. Do not forget to mention that you have the capability to find out the best within a huge amount of data and the ability to transfer it to your final decisions about what and how to buy for the company.
11. Tell me some key responsibilities of a financial analyst.
Define the term ‘financial analyst’ first and then start enunciating the key responsibilities. Financial analysts evaluate and analyze a company’s financial situation. They prepare recommendations in order to help a company invest, manage, and spend the company funds. They should have expertise in analysis of different fields such as budget, credit, investment, money market, ratings, risk, security, tax, and wall street.
12. Why have you chosen our company?
Emphasize on the name, good reputation in market, challenging environment, and one or two other points about the company that you really feel would help you impress the prospective employer. It is advisable to do some homework about the company before you appear for the interview. Research thoroughly to obtain as much information as possible about that company through the Internet and other available resources.
13. From your point of view, what are the key characteristics of a good financial analyst?
This depends purely on your philosophy. However, you can mention that the most important quality of an ideal financial analyst is to be able to take the right and quick decisions before others make it out. Other attributes of a typical financial analyst are the ability to read the income statement, balance sheet, and cash flow statement. Apart from these traits, a financial analyst also has to extrapolate the past performance of the company in order to estimate the future performance.
14. Are you familiar with ad hoc analysis?
Ad hoc analysis is a purely technical term and thus, you should be able to answer this question confidently. Ad hoc analysis is a business intelligence process designed specially to answer a single, specific business question. The product of ad hoc analysis involves a statistical model, analytic report, or other type of data summary.
It is used to create an unique report, and go deeper into the static report, to find out more about accounts, transactions, and records. Some people also use this process to obtain more data for the already existing data covered by static reports.
15. What do you consider as the biggest mistake ever when it comes to transactions in financial markets?
It would be great if you support your answer to this question with an example. While giving an example, you are supposed to focus not only on the mistake but also on what you learnt from that experience.
16. Tell us as a Financial Analyst how will you construe data concerning investment programs?
“Well interpreting financial data is one of the main tasks of “Financial Analyst”. For interpreting data affecting investment programs one should have the deep knowledge of current trends in business practices, price, yield, stability and economic influences and have the ability to develop forecast reports, spreadsheets and statistical software packages.”
17. Define price, yields, stability economic influences, future trends and investment risks?
“Basically these are the key factors that will affect any investment decision. As a financial analyst one has to collect and interpret data related to current price, return on investment, current and future trends, and economic conditions to forecast the associate risks with any investment decision.”
18. What is ratio analysis?
“It’s a quantitative analysis of information in a company’s financial statements. This analysis helps to determine trends and exposes financial performance of a company”
19. What is a payback period?
“The Payback Period represents the amount of time that it takes for a project to recover its initial cost.”
20. Explain the concept of capital market?
“Capital markets basically a place where individuals and companies can raise long term funds by trading financial securities.”
21. Give the exact definition of marginal costing?
“Marginal Costing is a technique where only variable caosts of production are treated as costs of the product and fixed costs are classified as period costs and written off in the income statement in the period in which they are incurred.
22. What precautionary steps do you take to avoid giving wrong financial analysis?
“As a financial analyst my main role will be to provide accurate financial analysis for this I always keep myself up dated with the changing macro and micro conditions that may affect our company in long run and short run too.”