JAGANNATH UNIVERSITY

Faculty of Business Studies

Department of Accounting & Information Systems (AIS)
BBA Program
14th Batch
Basic Interview questions [Financial Sttaement Analysis]
Sample Question-Viva
=========================================================================

Here are accounting interview questions for fresher as well as experienced candidates to get
their dream job.
================================================================

1. What is the difference between basic shares outstanding and diluted shares
outstanding?
Basic shares outstanding are the number of common shares held by all shareholders.
Diluted shares outstanding further include the shares that would be held if all
convertibles of that company were exercised and converted into shares. These
convertibles include, amongst other things, options, warrants, capital notes and other
convertibles.

2. What are current and non-current assets? Can you name a few examples?

Simply put, current assets are all assets which lives are estimated not to exceed 12
months. These could be cash (which is not limited in its useful life), items held for
trading purposes, accounts receivables or inventory.

An asset classifies as non-current if it has a use to the company of more than 12 months.
These can be long-term financial investments, PP&E, and intangible assets.

3. What are the sources of data for a financial analyst?

The main sources of financial data are a company’s balance sheet, income statement and
cash flow statement. The balance sheet provides the assets and liabilities of a company,
the income statement provides the “bottom line” for a company for a fixed period of
time, and the cash flow statement outlines how much money the company has
generated over that period of time. All these statements provide the data which is
analysed by financial analysts.

4. What are the components of a balance sheet? Why should they be analysed?

Balance sheets provide an outline of a company’s assets and liabilities in the form of
resources, whether physical or financial, that the company possesses. Assets refer to
both current and noncurrent assets. This includes cash and cashable assets as well as
fixed assets like property and intangible assets like patents and copyrights. The
liabilities section includes current liabilities, which are due within a year, and long-term
liabilities.
Financial analysts need to look at the total number of assets and accounts to determine
the strength of the company. Similarly, the presence of liabilities indicates possible debt
and expenses, which need to be taken into account during financial analysis.
5. What is financial modelling?

Financial modelling is the quantitative analysis of a company’s earnings and expenses,

where the resulting numbers represent aspects of the company’s operations. Financial
models are built using spreadsheets, and are useful in imagining real world situations
and assessing the effects of financial strategies, corporate decisions or economic policies
in the near future.

To support your answer further, you may provide any real world examples of effective
financial models to demonstrate in-depth knowledge. You may use any popular
examples you have studied or talk about models you may have worked on in your
professional past.

6. What is the function of fundamental analysis?

Fundamental analysis finds out the value of a business by looking at data from financial
statements and using ratio analysis. Financial analysts use ratios along with a close
review of the company’s economic situation, and arrive at the intrinsic value for the
security.

7. What does technical analysis do?

Technical analysis focuses on using statistics to track trends in prices and markets.
Instead of analysing security values like fundamental analysis does, technical analysis
looks at patterns and phenomena to derive information about the market.

8. What is ROI? Why would you consider ROI while evaluating potential
investments?

ROI refers to Return on Investment, which is a metric used to evaluate the profitability
of an investment. ROI is calculated by dividing the return of an investment by the cost
of the investment, and then expressing the result as a ratio or percentage. Financial
analysts consider the ROI of an investment to gauge potential profits or losses. If the
ROI for an investment is net positive, an analyst like me may give the green signal to
the company’s management.

9. How can you evaluate a company’s financial health?

The main pointers of a company’s financial health are its liquidity, leverage and
profitability. Liquidity indicates the availability of cash and other relevant assets to
cover current expenses and debt, while leverage refers to the proportion of investor
money versus money contributed by creditors. Profitability, as the term suggests, refers
to the financial return earned against the money invested.

10. Can you give me the formula for the acid test ratio?

The acid test ratio, or the quick assets ratio, is used to measure the liquidity of a
company by calculating the proportion of its quick assets against any maturing debts.
The formula for it is: Total Current Assets – Inventories / Total Current Liabilities.
Alternatively, one can divide the sum of all liquid assets by total current liabilities.
11. What is the debt to equity ratio?

The debt to equity ratio is an essential metric used in corporate finance, related to risk
and leveraging. It measures the degree to which a company’s operations are funded
through debt as compared to its own funds. It also indicates the company’s ability to
cover all outstanding debts using shareholder equity in case of a downturn. The debt to
equity ratio is calculated by dividing total liabilities by its total shareholder equity.

12. What is ROE and what is it generally used for?

ROE is the return on equity ratio, which can also be called the Net Income/Owners’
Equity. This is usually recommended by financial analysts to evaluate a company’s
profitability levels. The ratio shows how the company is using equity investment, and
also works as a metric to compare with industry standards or competition.

13. How would you define horizontal analysis?

Horizontal analysis is a comparative financial statement which shows changes in

corresponding items over a period of time. It compares statements for two or more
periods, and is a good tool to observe and analyse contemporary trends.

14. Why do you want to be a financial analyst?

An interviewer might ask this question to learn more about you and your career goals.
Your answer should give an in-depth explanation as to why you want to be a financial
analyst.

15.What would you say is your greatest strength that could benefit your career as a
financial analyst?

By asking this question, an employer might be trying to understand how your current
professional abilities could be useful as a financial analyst. Your answer should identify
a strength of yours that directly relates to this career. You could also include an example
to maximize the impact of your statement.

16. What Is The Difference Between Vertical Analysis And Horizontal Analysis?

Vertical analysis reports each amount on a financial statement as a percentage of

another item. For example, the vertical analysis of the balance sheet means every
amount on the balance sheet is restated to be a percentage of total assets. If inventory is
$100,000 and total assets are $400,000 then inventory is presented as 25 ($100,000
divided by $400,000). If cash is $8,000 then it will be presented as 2 ($8,000 divided by
$400,000). The total of the assets will now add up to 100. If the accounts payable are
$88,000 they will be presented as 22 ($88,000 divided by $400,000). If owner's equity is
$240,000 it will be presented as 60 ($240,000 divided by $400,000). The restated amounts
from the vertical analysis of the balance sheet will be presented as a common-size
balance sheet. A common-size balance sheet allows you to compare your company's
balance sheet to another company's balance sheet or to the average for its industry.

Vertical analysis of an income statement results in every income statement amount

being presented as a percentage of sales. If sales were $1,000,000 they would be restated
to be 100 ($1,000,000 divided by $1,000,000). If the cost of goods sold is $780,000 it will
be presented as 78 ($780,000 divided by sales of $1,000,000). If interest expense is
$50,000 it will be presented as 5 ($50,000 divided by $1,000,000). The restated amounts
are known as a common-size income statement. A common-size income statement
allows you to compare your company's income statement to another company's or to
the industry average.

Horizontal analysis looks at amounts on the financial statements over the past years.
For example, the amount of cash reported on the balance sheet at December 31 of 2012,
2011, 2010, 2009, and 2008 will be expressed as a percentage of the December 31, 2008
amount. Instead of dollar amounts you might see 134, 125, 110, 103, and 100. This shows
that the amount of cash at the end of 2012 is 134% of the amount it was at the end of
2008. The same analysis will be done for each item on the balance sheet and for each
item on the income statement. This allows you to see how each item has changed in
relationship to the changes in other items. Horizontal analysis is also referred to as
trend analysis.

Vertical analysis, horizontal analysis and financial ratios are part of financial statement
analysis.

17. What Is The Debt To Total Assets Ratio?

The debt to total assets ratio is an indicator of financial leverage. It tells you the
percentage of total assets that were financed by creditors, liabilities, debt.

The debt to total assets ratio is calculated by dividing a corporation's total liabilities by
its total assets. Let's assume that a corporation has $100 million in assets, $40 million in
liabilities, and $60 million in stockholders' equity. Its debt to total assets ratio will be 0.4
($40 million of liabilities divided by $100 million of assets), or 0.4 to 1. In this example,
the debt to total assets ratio tells you that 40% of the corporation's assets are financed by
the creditors or debt (and therefore 60% is financed by the owners). A higher percentage
indicates more leverage and more risk.

Another ratio, the debt to equity ratio, is often used instead of the debt to total assets
ratio. The debt to equity ratio uses the same inputs but provides a different view. Using
the information above, the debt to equity ratio will be .67 to 1 ($40 million of liabilities
divided by $60 million of stockholders' equity).

18. What Is The Difference Between Gross Margin And Contribution Margin?

Gross Margin is the Gross Profit as a percentage of Net Sales. The calculation of the
Gross Profit is: Sales minus Cost of Goods Sold. The Cost of Goods Sold consists of the
fixed and variable product costs, but it excludes all of the selling and administrative
expenses.

Contribution Margin is Net Sales minus the variable product costs and the variable
period expenses. The Contribution Margin Ratio is the Contribution Margin as a
percentage of Net Sales.

Let's illustrate the difference between gross margin and contribution margin with the
following information: company had Net Sales of $600,000 during the past year. Its
inventory of goods was the same quantity at the beginning and at the end of year. Its
Cost of Goods Sold consisted of $120,000 of variable costs and $200,000 of fixed costs. Its
selling and administrative expenses were $40,000 of variable and $150,000 of fixed
expenses.
19. What Is The Days' Sales In Accounts Receivable Ratio?

The days' sales in accounts receivable ratio, also known as the number of days of
receivables, tells you the average number of days it takes to collect an account
receivable. Since the days' sales in accounts receivable is an average, you need to be
careful when using it.

The calculation for determining the days' sales in accounts receivable is the number of
days in the year (usually 360 or 365 days is used) divided by the accounts receivable
turnover ratio for a specific year. If a company's accounts receivable turnover ratio was
10, then the days' sales in accounts receivable is 36 days (360 days divided by the
turnover ratio of 10).

Since the accounts receivable turnover ratio used in the days' sales in accounts
receivable was based on 1) the credit sales during a one-year time period, and 2) the
average accounts receivable balances during that one-year period, the 36 days
calculated above is an average. It is possible that within the accounts receivable there
are some accounts which are 120 days or more past due. This information might be
hidden by the average, because the average included some accounts that paid early.
Therefore, it is best to review an aging of accounts receivable by customer to
understand the detail behind the days' sales in accounts receivable ratio.

20. What Is The Quick Ratio?

The quick ratio is a financial ratio used to gauge a company's liquidity. The quick ratio
is also known as the acid test ratio. The quick ratio compares the total amount of cash +
marketable securities + accounts receivable to the amount of current liabilities. If a
company has cash + marketable securities + accounts receivable with a total of
$1,000,000 and the company's total amount of current liabilities is$1,200,000, its quick
ratio is 0.83 to 1. ($1,000,000 divided by $1,200,000 = 0.83) The quick ratio differs from
the current ratio in that some current assets are excluded from the quick ratio. The most
significant current asset that is excluded is inventory. The reason is that inventory
might not turn to cash quickly.

21. What Is The Accounts Receivable Turnover Ratio?

The financial ratio accounts receivable turnover is a company's annual sales divided by
the company's average balance in its Accounts Receivable account during the same
period of time.

For example, if a company’s sales for the most recent year were $6,000,000 and its
average balance in Accounts Receivable for the same twelve months was $600,000, its
accounts receivable turnover ratio is 10. This indicates that on average the company’s
accounts receivables turned over 10 times during the year, or approximately every 36
days (360 or 365 days per year divided by the turnover of 10).

Whether the accounts receivable turnover ratio of 10 is good or bad depends on the
company's past ratios, the average for other companies in the same industry, and by the
specific credit terms given to this company's customers.

It is important to note that the accounts receivable turnover ratio is an average, and
averages can hide important details. For example, some past due receivables could be
"hidden" or offset by receivables that have paid faster than the average. If you have
access to the company's details, you should review a detailed aging of accounts
receivable to detect slow paying accounts.

22. What Is The Current Ratio?

The current ratio is a financial ratio that shows the proportion of current assets to
current liabilities. The current ratio is used as an indicator of a company's liquidity. In
other words, a large amount of current assets in relationship to a small amount of
current liabilities provides some assurance that the obligations coming due will be paid.

If a company's current assets amount to $600,000 and its current liabilities are $200,000
the current ratio is 3:1. If the current assets are $600,000 and the current liabilities are
$500,000 the current ratio is 1.2:1. Obviously a larger current ratio is better than a
smaller ratio. Some people feel that a current ratio that is less than 1:1 indicates
insolvency.

It is wise to compare a company's current ratio to that of other companies in the same
industry. You are also wise to look at the trend of the current ratio for a given company
over time. Is the current ratio improving over time, or is it deteriorating?

The composition of the current assets is also an important factor. If the current assets
are predominantly in cash, marketable securities, and collectible accounts receivable,
that is more comforting than having the majority of the current assets in slow-moving
inventory.

23. What Is Working Capital?

Working capital is the amount of a company's current assets minus the amount of its
current liabilities. For example, if a company's balance sheet dated June 30 reports total
current assets of $323,000 and total current liabilities of $310,000 the company's working
capital on June 30 was $13,000. If another company has total current assets of $210,000
and total current liabilities of $60,000 its working capital is $150,000.

The adequacy of a company's working capital depends on the industry in which it

competes, its relationship with its customers and suppliers, and more. Here are some
additional factors to consider:

The types of current assets and how quickly they can be converted to cash. If the
majority of the company's current assets are cash and cash equivalents and marketable
investments, a smaller amount of working capital may be sufficient. However, if the
current assets include slow-moving inventory items, a greater amount of working
capital will be needed.
The nature of the company's sales and how customers pay. If a company has very
consistent sales via the Internet and its customers pay with credit cards at the time they
place the order, a small amount of working capital may be sufficient. On the other hand,
a company in an industry where the credit terms are net 60 days and its suppliers must
be paid in 30 days, the company will need a greater amount of working capital.
The existence of an approved credit line and no borrowing. An approved credit line and
no borrowing allows a company to operate comfortably with a small amount of
working capital.

24. What Is The Average Collection Period?

The average collection period is the average number of days between 1) the date that a
credit sale is made, and 2) the date that the money is received from the customer. The
average collection period is also referred to as the days' sales in accounts receivable.

The average collection period can be calculated as follows: 365 days in a year divided
by the accounts receivable turnover ratio. Assuming that a company has an accounts
receivable turnover ratio of 10 times per year, the average collection period is 36.5 days
(365 divided by 10).

An alternate way to calculate the average collection period is: the average accounts
receivable balance divided by average credit sales per day.

25. What Are Pro Forma Financial Statements?

A pro forma financial statement is one based on certain assumptions and projections.

For example, a corporation might want to see the effects of three different financing
options. Therefore, it prepares projected balance sheets, income statements, and
statements of cash flows. These projected financial statements are referred to as pro
forma financial statements.

26. What Are Accounting Ratios?

Accounting ratios (also known as financial ratios) are considered to be part of financial
statement analysis. Accounting ratios usually relate one financial statement amount to
another. For example, the inventory turnover ratio divides a company's cost of goods
sold for a recent year by the cost of its inventory on hand during that year.

For a company with current assets of $300,000 and current liabilities of $150,000 its
current ratio is $300,000 to $150,000, or 2 to 1, or 2:1. This ratio of 2:1 can then be
compared to other companies in its industry regardless of size or it can be compared to
the company's ratio from an earlier year.

Other examples of accounting ratios include:

Quick ratio
Current ratio
Debt to equity ratio
Acid-test ratio
Contribution margin ratio
Interest coverage ratio
Debt to total assets ratio
Gross margin ratio
Return on assets ratio
Profit margin (after tax) ratio
Total assets turnover ratio
Fixed asset turnover ratio
Times interest earned ratio
Liquidity ratio
Working capital ratio
Dividend payout ratio
Free cash flow ratio
27. What Is The Times Interest Earned Ratio?

The times interest earned ratio is an indicator of a company's ability to meet the interest
payments on its debt. The times interest earned calculation is a corporation's income
before interest and income tax expense, divided by interest expense.

To illustrate the times interest earned ratio, let's assume that a corporation's net income
after tax was $500,000; its interest expense was $200,000; and its income tax expense was
$300,000. Given these assumptions, the corporation's income before interest and income
tax expense is $1,000,000 (net income of $500,000 + interest expense of $200,000 +
income tax expense of $300,000). Since the interest expense was $200,000, the
corporation's times interest earned is 5 ($1,000,000 divided by $200,000).

The higher the times interest earned ratio, the more likely it is that the corporation will
be able to meet its interest payments.

28. What Is Trend Analysis?

In the analysis of financial information, trend analysis is the presentation of amounts as

a percentage of a base year.

If I want to see the trend of a company's revenues, net income, and number of clients
during the years 2006 through 2012, trend analysis will present 2006 as the base year
and the 2006 amounts will be restated to be 100. The amounts for the years 2007
through 2012 will be presented as the percentages of the 2006 amounts. In other words,
each year's amounts will be divided by the 2006 amounts and the resulting percentage
will be presented. For example, revenues for the years 2006 through 2012 might have
been $31,691,000; $40,930,000; $50,704,00; $63,891,000; $79,341,000; $101,154,000;
$120,200,000. These revenue amounts will be restated to be 100, 129, 160, 202, 250, 319,
and 379.

29. What Is Window Dressing?

Window dressing refers to actions taken or not taken prior to issuing financial
statements in order to improve the appearance of the financial statements.

Here is an example of window dressing. A company operates throughout the year with
a negative balance in its general ledger Cash account. (Its balance at the bank is positive
due to the time it takes for its checks to clear its bank account.) Since the financial
statements report the Cash amount appearing in its general ledger account, the financial
statements would report a negative amount of Cash. However, the company does not
want its December 31 balance sheet to report a negative cash balance, since it will be
reviewed by many outsiders. To avoid reporting a negative cash balance the company
does not make the payments for amounts that should be paid between December 26
and December 31. This postponement of payments allows its book amount of Cash to
temporarily be a positive amount. Then on January 2, the company issues checks for all
of the amounts that normally would have been paid at the end of December.

30. What Is The Operating Cycle?

The operating cycle is also known as the cash conversion cycle. In the context of a
manufacturer the operating cycle has been described as the amount of time that it takes
for a manufacturer's cash to be converted into products plus the time it takes for those
products to be sold and turned back into cash. In other words, the manufacturer's
operating cycle involves:

paying for the raw materials needed in its products

paying for the labor and overhead costs needed to convert the raw materials into
products
holding the finished products in inventory until they are sold
waiting for the customers' cash payments for the products that have been sold Some
calculate the operating cycle to be the sum of:
the days' sales in inventory (365 days/inventory turnover ratio), plus
the average collection period (365 days/accounts receivable turnover ratio)

31. What Is The Days' Sales In Inventory Ratio?

The days' sales in inventory tells you the average number of days that it took to sell the
average inventory held during the specified one-year period. You can also think of it as
the number of days of sales that was held in inventory during the specified year. The
calculation of the days' sales in inventory is: the number of days in a year (365 or 360
days) divided by the inventory turnover ratio.

For example, if a company had an inventory turnover ratio of 9, the company's

inventory turned over 9 times during the year. If we use 360 as the number of days in
the year, the company had (on average) 40 days of inventory on hand during the year
(360 days divided by the inventory turnover ratio of 9).

Since the inventory turnover ratio reflects the average amount of inventory during the
year, and since sales usually fluctuate during the year, the days' sales in inventory is an
approximation.

32. What Is The Inventory Turnover Ratio?

The calculation for the inventory turnover ratio is: Cost of Goods Sold for a Year
divided by Average Inventory during the same 12 months.

To illustrate the inventory turnover ratio, let’s assume 1) that during the most recent
year a company’s Cost of Goods Sold was $3,600,000, and 2) the company’s average cost
in its Inventory account during the same 12 months was calculated to be $400,000. The
company’s inventory turnover ratio is 9 ($3,600,000 divided by $400,000) or 9 times.

The higher the inventory turnover ratio, the better, provided you are able to fill
customers' orders on time. It would be foolish to lose customers because you didn't
carry sufficient inventory quantities.

A company's inventory turnover ratio should be compared to 1) its previous ratios, 2)

its planned ratio, and 3) the industry average.

33.What Is The Book Value Per Share Of Stock?

If a corporation does not have preferred stock outstanding, the book value per share of
stock is a corporation's total amount of stockholders' equity divided by the number of
common shares of stock outstanding on that date.

For example, if a corporation without preferred stock has stockholders' equity on

December 31 of $12,421,000 and it has 1,000,000 shares of common stock outstanding on
that date, its book value per share is $12.42.

Keep in mind that the book value per share will not be the same as the market value per
share. One reason is that a corporation's stockholders' equity is simply the difference
between the total amount of assets reported on the balance sheet and the total amount
of liabilities reported. Noncurrent assets are generally reported at original cost less
accumulated depreciation and some valuable assets such as trade names might not be
listed on the balance sheet.

34. What Is The Difference Between Income And Profit?

Some people intend for the terms income and profit to have the same meaning. For
example, the income statement was commonly referred to as the profit and loss (P&L)
statement. When a company is profitable, we mean that the company has a positive net
income.

To aid in understanding these terms, the word "net" is often added. Hence, we often see
the terms net income and net profit. This communicates that the amounts are the
remainder after expenses have been deducted. For example, a company's profit margin
is often listed as the net profit margin (which is defined as the company's net income
divided by its net sales). The word "net" also helps to distinguish a company's net profit
from its gross profit, and its net profit margin from its gross profit margin.

Some people use the term income to mean revenues. For example, a bank or an
individual will often refer to the interest they earn on bond investments as interest
income or investment income. A retailer will refer to the sales of merchandise as
revenues, but the revenues from secondary activities will be reported as other income
or nonoperating income.

It is wise to keep in mind that different meanings are not unusual among people,
businesses and countries.

35. What Is The Working Capital Turnover Ratio?

The working capital turnover ratio is also referred to as net sales to working capital. It
indicates a company's effectiveness in using its working capital.

The working capital turnover ratio is calculated as follows: net annual sales divided by
the average amount of working capital during the same 12 month period.

For example, if a company's net sales for a recent year were $2,400,000 and its average
amount of working capital during the year was $400,000, its working capital turnover
ratio was 6 ($2,400,000 divided by $400,000).

Working capital is defined as the total amount of current assets minus the total amount
of current liabilities. As indicated above, you should use the average amount of
working capital for the year of the net sales.

As with most financial ratios, you should compare the working capital turnover ratio to
other companies in the same industry and to the same company's past and planned
working capital turnover ratio.
36. What Is The Debt To Equity Ratio?

The debt to equity ratio or debt-equity ratio is calculated by dividing a corporation's

total liabilities by the total amount of stockholders' equity: (Liabilities/Stockholders'
Equity):1.

A corporation with $1,200,000 of liabilities and $2,000,000 of stockholders' equity will

have a debt to equity ratio of 0.6:1. A corporation with total liabilities of $1,200,000 and
stockholders' equity of $400,000 will have a debt to equity ratio of 3:1.

Generally, the higher the ratio of debt to equity, the greater is the risk for the
corporation's creditors and its prospective creditors.

37. What Is A Liquidity Ratio?

A liquidity ratio is an indicator of whether a company's current assets will be sufficient

to meet the company's obligations when they become due.

The liquidity ratios include the current ratio and the acid test or quick ratio. The current
ratio and quick ratio are also referred to as solvency ratios. Working capital is an
important indicator of liquidity or solvency, even though it is not technically a ratio.

Liquidity ratios sometimes include the accounts receivable turnover ratio and the
inventory turnover ratio. These two ratios are also classified as activity ratios.

38. What Are The Reasons For High Inventory Days?

The days sales in inventory is high when the inventory turnover is low.

Since inventory turnover is associated with sales and average inventory, changes in
either sales or inventory can cause a high amount of inventory days.

For example, if a company has maintained its inventory quantities, but economic factors
cause a significant drop in its sales, the company's inventory days will increase
dramatically.

If a retailer increases its inventory in order to generate additional sales, but sales do not
increase, there will also be an increase in the number of inventory days.

39. How Can Working Capital Be Improved?

Working capital can be improved by 1) earning profits, 2) issuing common stock or

preferred stock for cash, 3) replacing short-term debt with long-term debt, 4) selling
long-term assets for cash, 5) settling short-term debts for less than the stated amounts,
and 6) collecting more of the accounts receivables than was anticipated and then
reducing the balance required in the current asset account Allowance for Doubtful
Accounts.

I am sure there are additional ways to increase working capital. The concept is to
increase the amount of current assets and/or to decrease the amount of current
liabilities.
40. What Is The Difference Between Cash Flow And Free Cash Flow?

A corporation's cash flow from operations is available from the first section of the
statement of cash flows. Usually the calculation begins with the accrual accounting net
income followed by adding back depreciation expense and then adjusting for the
changes in the balances of current assets and current liabilities.

Free cash flow is often defined as the cash flow from operations (or net cash flows from
operating activities) minus the cash necessary for capital expenditures. Occasionally,
dividends to stockholders are also deducted.

41. What Are Turnover Ratios?

In accounting, turnover ratios are the financial ratios in which an annual income
statement amount is divided by the average balance of an asset (or group of assets)
throughout the year. Turnover ratios include:

accounts receivable turnover ratio

inventory turnover ratio
total assets turnover ratio
fixed assets turnover ratio
working capital turnover ratio

42. What Is Leverage?

In accounting and finance, leverage refers to the use of a significant amount of debt
and/or credit to purchase an asset, operate a company, acquire another company, etc.

Generally the cost of borrowed money is much less than the cost of obtaining additional
stockholders' equity. As a result, it is usually wise for a corporation to use some debt
and leverage. Perhaps this is one of the reasons that leverage is also known as trading
on equity.

Financial ratios such as debt to equity and debt to total assets are indicators of a
corporation's use of leverage. In these ratios debt is the total amount of all liabilities
(current and noncurrent). This means that a corporation's debt includes bonds payable,
loans from banks, loans from others, accounts payable, and all other amounts owed.

43. What Is The Debt Ratio?

The debt ratio is also known as the debt to asset ratio or the total debt to total assets
ratio. The calculation of the debt ratio is: Total Liabilities divided by Total Assets. The
debt ratio indicates the percentage of the total asset amounts stated on the balance sheet
that is owed to creditors. A high debt ratio indicates that a corporation has a high level
of financial leverage.

44. What are Financial Statements of a company and what do they tell about a
company?

Ans. Financial Statements of a company are statements, in which the company keeps a
formal record about the company’s position and performance over time. The objective
of Financial Statements
is to provide financial information about the reporting entity that is useful to exist and
potential investors, creditors, and lenders in making decisions about whether to invest,
give credit or not. There are mainly three types of financial statements
which a company prepares.
1. Income Statement
– Income Statement tells us about the performance of the company over a specific
account period. Financial performance is given in terms of revenue and expense
generated through operating and non-operating activities.
2.Balance Sheet – Balance Sheet
tells us about the position of the company at a specific point in time. Balance Sheet
consists of Assets, Liabilities and Owner’s Equity. Basic equation of Balance Sheet:
Assets = Liabilities + Owner’s Equity.
3.Cash Flow Statement – Cash Flow Statement
tells us the amount of cash inflow and outflow. Cash Flow Statement tells us how the
cash present in the balance sheet changed from last year to the current year.

45. Explain Cash Flow Statement in detail Cash Flow Statements.

Ans. Cash Flow Statement is an important financial statement that tells us about the
cash inflow and cash outflow from the company. Cash Flow can be prepared by the
Direct method and Indirect method. Generally, the company uses the Direct method for
preparing the Cash Flow Statement as seen in the annual report of the company
. The direct method starts with cash collected from customers adding interests and
dividends and then deducting cash paid to suppliers, interest paid, income tax paid.
The indirect method starts from net income and then we add back all the non-cash
charges which are depreciation and amortization expense, we also add working capital
changes.
Cash Flow Statement is categorized into three activities: Cash Flow from Operations,
Cash Flow from Investing and Cash Flow from Financing.
Cash Flow from Operations
consists of cash inflows and outflows which are generated from the company’s core
business or product. Cash Flow from Investing
consists of the cash inflows and outflows from a company in the form of investments
like purchase or sale of PP&E (property, plant & equipment). Cash Flow from Financing
consists of cash inflows and outflows generated from all the financing activities of the
company like issuance of Bonds or early retirement of Debt.

46. Explain three sources of short-term Finance used by a company

Short-term financing
is done by the company to fulfill its current cash needs. Short-term sources of finance
are required to be repaid within 12 months from the financing date. Some of the short-
term sources of financing are: Trade Credit, Unsecured Bank Loans, Bank Over-drafts,
Commercial Papers, Secured Short-term loans.Trade Credit is an agreement between a
buyer and a seller of goods. In this case, the buyer of the goods purchases the goods on
a credit i.e. the buyer pays no cash to the seller at the time of buying the goods, only to
pay at a later specified date. Trade credit is based on mutual trust that the buyer of the
goods will pay the amount of cash after a specified date Bank Overdraft is a type of
short-term credit that is offered to an individual or a business entity having a current
account which is subject to the bank’s regulation. In this case, an individual or a
business entity can withdraw cash more than what is present in the account. Interest is
charged on the amount of over-draft which is withdrawn as a credit from the bank.
Unsecured Bank Loan is a type of credit that banks are ready to give and is payable
within 12 months. The reason why it is called an unsecured bank loan is that no
collateral is required by the individual or a business entity taking this loan.
47. Define Working Capital, Net Working Capital

Working Capital is basically Current Assets minus Current Liabilities. Working capital
tells us about the amount of capital tied up to its business (daily activities) such as
account receivables, payables, inventory in hand and many more. Working capital can
also tell us the amount of cash needed to pay off the company’s obligations which have
to be paid off within 12 months.

48. What is EPS and how is it calculated?

EPS is the Earnings per Share of the company

. This is calculated for the common stockholders of the company
. As the name suggests, it is the per-share earnings of the company. It acts as an
indicator of profitability
. Calculation:
EPS = (Net Income – Preferred Dividends) / weighted average number of shares
outstanding during the year

49. Different types of EPS

Earnings Per Share

Ans. There are basically three types of EPS which an analyst can use to calculate the
company’s earnings: Basic EPS, Dilutive EPS, and Anti-Dilutive EPS.

Basic EPS
: It is useful for companies that have a simple capital structure. In other words, it can be
used to calculate earnings of the company which has no convertible securities
outstanding like convertible bonds or convertible preference shares.
Dilutive EPS: It has a dilutive characteristic attached to it. When a company has a
complex capital structure, it is better to calculate Dilutive EPS instead of Basic EPS. In
other words, when a company has convertible securities such as convertible bonds,
convertible preference shares and/or stock options which after conversion, dilutes the
earnings i.e. lower the earnings calculated for common shareholders of the company.

Anti-Dilutive EPS: This is the kind of EPS in which the convertible securities after
conversion, increases the earnings for the common shareholders of the company.

50. What is Deferred Tax Liability and why it might be created?

Ans. Deferred Tax Liability is a form of tax expense that was not paid to the income tax
authorities in the previous years but is expected to be paid in future years. This is
because of the reason that the company pays less in taxes to the income tax authorities
than what is reported as payable. For example, if a company uses a straight-line method
for charging depreciation in its income statement for shareholders but it uses a double-
declining method in the statements which are reported to income tax authorities and
therefore, the company reports a Deferred Tax Liability as the paid less than what was
payable.

51. What is Financial Modeling?

First of all, financial modeling is a quantitative analysis that is used to make a decision
or a forecast about a project generally in the asset pricing model or corporate finance.
Different hypothetical variables are used in a formula to ascertain what future holds for
a particular industry or for a particular project.
In Corporate Finance, Financial modeling means
forecasting companies financial statements like Balance Sheet, Cash Flows, and Income
Statement. These forecasts are in turn used for company valuations and financial
analysis.

52. What is a Stock Split and Stock Dividend?

A stock split is when a company splits its stock into 2 or more pieces. For example a 2
for 1 split. A company splits its stock for various reasons. One of the reasons is to make
the stock available for the investors who invest in the stock of the companies which are
inexpensive. The probability of growth for those stocks also increases. Stock Dividend is
when the company distributes additional shares in lieu of cash as dividends.

53. What is the Rights Issue?

A rights offering is an issue that is offered to the existing shareholders of the company
only and at a predetermined price. A company issues this offer when it needs to raise
money. Rights Issues might be seen as a bad sign as the company might not be able to
fulfill its future obligations through the cash generated by the operating activities of the
company. One needs to dig deeper as to why the company needs to raise the capital.

54. What is EBITDA?

In the world of finance and investments, EBITDA is highly important, making it a topic
that’s more than likely to be discussed in an interview. Speaking clearly to this concept
demonstrates that you’re solidly grounded in key financial principles. Show off your
knowledge with an answer like this:

“EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It
gives the investor a good idea of how profitable the company is, and it’s a quick metric
for the net income of an organization before certain deductions are made.”

55.Explain share capital & reserves and surpluses.

Share Capital is that portion of a company’s equity that has been obtained by issuing
share to a shareholder. The amount of share capital increases as new shares are sold to
public in exchange for cash.

Reserves and Surpluses indicate that portion of the earnings, receipt or other surplus of
the company appropriated by the management for a general or specific purpose other
than provisions for depreciation or for a known liability. Reserves are classified as:
Capital Reserve and Capital Redemption Reserve.

56. What is capitalization? What is its importance?

Capitalization is a term which has different meanings in both financial and accounting
context. Capitalization in accounting means the cost to buy an asset which is included
in the price of the asset whereas in financial terms it is the cost which is required to buy
an asset which includes price of a particular asset and it also include the retained
earnings of a company with stock debt and long term debt. There are two kinds of
capitalization which are called as Over-capitalization and another is called as Under-
capitalization. Capitalization is very import aspect in determining the value of the
company in the market which is based on the economic structure of the company. This
aspect depends on the previous records and economics of the company. This also shows
a particular behaviour of the companies structure and allows them to create a plan to do
the marketing.

57. What is capital structure? What are the principles of capital structure
management?

Capital structure is a term which is referred to be the mix of sources from which the
long term funds are required for business purposes which are raised to improve the
capital of the company. To fund an organization plan this capital structure is required
which is the combination of debt and equity. The management ensures the capital
structure accesses which are needed to fund future growth and enhance financial
performance.

The principles of capital structure management which are essentially required are as
follows:
1) Cost Principle
2) Risk Principle
3) Control Principle
4) Flexibility Principle
5) Timing Principle

58. Where do you see yourself in five years?

This question allows the recruiter to assess whether your career plan fits the position
you are applying for, and whether your ambition jives well with the succession strategy
and staff transitions they are envisioning within the organization.
Perhaps more importantly, it also shows whether you actually have a career plan
instead of just letting the current take you where it will. Finance is a highly strategic
domain and going out afield without a plan can be disastrous. Imagine a finance
professional who has a messy, deficit-driven personal finance profile and you’ll get the
idea. So speak like you are providing details of a preexisting and organic plan, instead
of sounding like it’s just wishful thinking.
Be cautious of mentioning ideas of setting up your own business. While some
employers might value entrepreneurship and actively seek the trait in candidates,
others view it as a negative when it comes to their ROI in hiring you. (more on this
later).

59. Tell me a little about yourself.

This common question is virtually guaranteed to kick off the interview, so be prepared
with an eloquent, concise response. The interviewer wants to get to know you as a
person—but they also want to know how your skills, experience, and strengths will
contribute and add value to the business. Focus on your relevant experience and how
you’ve had an impact in previous roles. You can also share something unique about
yourself to ensure the interviewer remembers you.

“I’ve been interested in finance since high school, when I was school treasurer. Since
then, I’ve focused on gaining hands-on experience throughout college, interning with
two small banks and one large investment firm. As a result, I have a variety of cross-
field experiences that allow me to see unique perspectives, from managers to CEOs and
down to the customer. Post-graduation, I want to start working toward my MBA, which
I know will only enhance my skill set.”
60. Tell me about the hurdles or obstacles you’ve overcome.

Employers use this question to get a better understanding of how you respond to
challenges or adversity. Keep your answer relevant to the role, and keep in mind that
this is a good chance to directly address anything on your resume that may be a red
flag. For instance, if you’re a student or recent grad, this would be the perfect time to
use the STAR method to address your lack of experience. Be sure to wrap up your
answer on a positive note, highlighting how you ultimately triumphed.

“One of the biggest hurdles I had to overcome was securing my first internship. It was a
very competitive position, and I was a rising junior, so most of the applicants were at
least a year older than me. However, I was determined, so I reached out to everyone I
was even vaguely connected to on LinkedIn. I talked to them about the role, and
ensured someone would at least review my application. I had recently completed a
major school project that was directly applicable to the main bullet points in the job
description, so I used this to my advantage. By linking that experience to their needs, I
showed why I would create value for the organization. I was awarded the internship,
where I was further able to prove myself.”

61. How do you value a company?

The key to both pitching and advisory is valuation. To formulate the best advice for
their clients, bankers have to assess the value of the company given the different
strategic alternatives.
Be prepared in your interview to explain how the following valuation techniques work:
· Discounted cash flow (DCF)
- Comparable companies analysis
- Comparable transaction analysis

62. What are the main differences between debt and equity funding?

Investment banks help companies raise debt and equity financing. It is therefore
important that you understand the differences between these two types of funding. The
main differences are:

· Equity confers ownership, debt does not

· Debt is always repaid, equity is generally never repaid

· Debt is often secured on the companies assets, equity is unsecured

· If a company becomes insolvent, debt ranks higher than equity

63. Choose an industry, what are the drivers and current trends in this industry?

You should spend some time thinking about how corporate finance theory applies to
different companies and industries. Make sure that you have a couple of examples of
industries that you can talk about - my tip is to choose a consumer type industry which
you have had exposure to, e.g. retail or media. Think about how a business in your
chosen sector makes money and what it has to pay out in the way of costs. Then think
about combining two businesses in this sector and how a combination might enable
them to make even more money and which costs could be reduced.
64. What is major factor in using the debt capital?

A main factor in the debt capital usage is the security of assets.

65. Which bond type is far superior as compared to the ordinary bonds when
compared in the sale ability?

Convertible bonds are superior to the ordinary bonds for their sale ability.

66. List valuation method which is based on the Going concern concept

The book value method of valuation is based on the Going concern concept

67. How does the P/E ratio is relevant for the investors?

The P/E ratio is very important for the investors as it indicates if the company's shares
are underpriced or overpriced

68. A high P/E ratio indicates

A high P/E ratio indicates that the shares of the company are overpriced

69. Does increasing EPS is related to increasing the net income

No, increasing EPS does not relates to increasing the net income

70. How does the wealth of shareholders wealth increases

The wealth of shareholders wealth increases with increase in market value of the
company whose shares they hold.

71. How will you value an unlisted company?

An unlisted company is valued by using the net asset method

72. Calculate the P/E ratio for a company having a share price at $100/- and EPS being
$ 2/-
The P/E ratio for the company is 50.

73. What does a high P/E ratio signify for a company’s future?

A high P/E ratio indicates quick grow of the company in future

74. What does increased use of debt financing will lead to?

Increased use of debt financing will lead to increased fluctuations in the return on
equity and increase in the interest rate on debts.

75. Difference between broad money and narrow money

Narrow money is a category of money supply that includes all physical money like
coins and currency along with demand deposits and other liquid assets held by the
central bank. In the United States, narrow money is classified as M1 (M0 + demand
accounts).
Broad money is the most inclusive method of calculating a given country's money
supply. The money supply is the totality of assets that households and businesses can
use to make payments or to hold as short-term investments, such as currency, funds in
bank accounts, and anything of value resembling money.

76. Explain ‘financial modelling’.

Ans.
Financial modeling is a quantitative analysis commonly used for either asset pricing or general
corporate finance. It is the process wherein a company’s expenses and earnings are taken into
consideration (commonly into spreadsheets) to anticipate the impact of today’s decisions in the
future. The financial model also turns out to be a very impactful tool for the following tasks:
Estimate the valuation of any business
Compare competition
Strategic planning
Testing different scenarios
Budget planning and allocation
Measure the impacts of any changes in economic policies
Since financial modeling is one of the most important primary skills, you can also share your
experience through different financial models including the discounted cash flow (DCF) model,
initial public offering (IPO) model, leveraged buyout (LBO) model, consolidation model, etc.

76. Walk me through a ‘cash flow statement.’

Ans. This is one of the basic finance interview questions. Being one of the essential financial
statements, you’ll have to be well-prepared for this question as day in and day out you have to
use cash flow statements to successfully build a three-model statement. When a recruiter asks
this question during your interview, you can start by explaining the three main categories of
cash flow statements:
Operating activities
Investing activities
Financing activities
After calculating the total cash from all the above-listed categories, adding an opening cash
balance, and further explaining all significant adjustments, you will arrive at the total change in
cash. Mention all the necessary parts that are associated with it.
However, during the interview, the interviewer will also be looking out for something more
beyond the bookish knowledge about cash flow statements. S/he must be interested in how the
statement of cash flow is useful to a financial analyst.
Now, this could turn into your bonus point as you can walk through the intent of using the cash
flow statement, which is listed below:
Provides data and information about a firm’s liquidity status,
Helps in outlining the firm’s ability to alter cash flows status in future
Highlights the changes in account balances on the balance sheet
Helps in depicting the company’s ability to meet expansion requirements in future
Gives the estimation of available free cash flow

77. Is it possible for a company to have a positive cash flow but still be in serious financial
trouble?

Ans. To answer this Financial Analyst interview question you can say: Yes. There are two
examples – A company that is selling off inventory but delaying payables will show positive
cash flow for a while even though it is in trouble A company has strong revenues for the period,
but future forecasts show that revenues will decline When you define such situations, it proves
that you are not looking at the cash flow statements; instead, you care about where the cash is
coming from or going to and mark all the points highlighting how the company is making or
losing money.

78. What do you think is the best evaluation metric for analyzing a company’s stock?

Ans.
There is no specific metric. It depends on how you put the answer and make the interviewers
understand the value of the specific parameter that you mention. The main intention of this
question is to check your critical thinking abilities and logical skills. This question also gives
you a chance to prove your capabilities in identifying potential pros and cons related to the
available investment options. It may also help you score better for the eClerx aptitude test for
financial analysts. Generally, technical analysts use some of the following types of charts to
check the stock price, which forms the basics of picking the right one:
Line charts (helps in tracking daily movements)
Bar charts (helps in tracking periodic highs and lows of stock price)
Point chart (helps in determining stock momentums)
Also, explore:

79. What is working capital, and which are the different types of working capital?

Ans. The working capital formula is best defined as current assets minus current liabilities. The
primary function of working capital is to analyze the total amount of money that you have
readily available to meet the demand of all the current expenses. Since financial analysts play a
major role in being an information mediator in capital markets, getting a true understanding of
working capital needs is very essential. Also, an analyst must stay on their toes to forecast the
actual working capital requirements, especially in the case when the company is constantly
growing or expanding. Also, you can highlight a few prior incidents when your existing
company felt the need for additional working capital, and you can even back your answer with
the ways you used to boost the working capital. Another example of proving your abilities is to
suggest the times when you and your team used the working capital data to operate current
and future needs smoothly.

80. Explain quarterly forecasting and expense models.

Ans. The analysis of expenses and revenue which is predicted to be produced or incurred in the
future is called quarterly forecasting. For this, referring to an income statement along with a
complete financial model works well. However, making a realistic model is a challenge, and
thus the role of a financial analyst comes here. As an expert, you need to model revenues with
high degrees of detail and precision. An expense model tells what expense categories are
allowed on a particular type of work order, which forms the foundation of building a budget.
Also, to make this model functional, an expense projection model is created, which helps in
identifying variable and fixed costs which forms a basis of accurately forecasting the company’s
expected profit or loss.

81. What is the difference between a journal and a ledger?

Ans.
The journal is a book where all the financial transactions are recorded for the first time. The
ledger is one that has particular accounts taken from the original journal. So in layman’s terms,
journals are the raw books that play a pivotal role in preparing the ledger. This gives us a
second conclusion that if you wrongly prepare a journal, your ledger will also be faulty.
However, here the question which the recruiter will ask during the financial analyst interview is
to understand your foundational knowledge as this, directly or indirectly relates to the
Financial Analyst job role, which is mentioned below:
Reviewing journal entries (to ensure the data is correct)
Checking the distribution work area to manage journal entries for ledgers
Ensuring that all accounting standards are met
Verifying set of subsidiaries or management segment values
Managing sub-ledger source transaction
Recurring general ledger journal entries
Reviewing financial statements and other transactions

82. Mention one difference between a P&L statement and a balance sheet?

Ans. The balance sheet summarises the financial position of a company for a specific point in
time. The P&L (profit and loss) statement shows revenues and expenses during a set period.

83. What is ‘cost accountancy’?

Ans. This is an important and most commonly asked financial analyst interview question. It is
asked by many employers to check if the candidate has some basic understanding of cost
accounting. Cost accountancy is the application of costing and cost accounting principles,
methods, and techniques to the science, art, and practice of cost control and the ascertainment of
profitability as well as the presentation of information for managerial decision-making.

84. What is NPV? Where is it used?

Ans. Net Present Value (NPV) is the difference between the present value of cash inflows and
the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability
of a projected investment or project.

85. How many financial statements are there? Name them

Ans. There are four main financial statements –

Balance sheets
Income statements
Cash flow statement
Statements of shareholders’ equity

86. What are ‘adjusting entries’?

Ans. Adjusting entries are accounting journal entries that convert a company’s accounting
records to the accrual basis of accounting. You can further highlight the different types of
adjusting entries such as accrued revenue, accrued expenses, depreciation expenses, etc.

87. Do you follow the stock market? Which stocks in particular?

Ans. You need to be very careful in answering this interview question related to financial
markets. As a financial analyst, following the stock market proves to be beneficial. Also, always
be up-to-date with the stocks.

88. What is a ‘composite cost of capital’?

Ans. Also known as the weighted average cost of capital (WACC), a composite cost of capital is
a company’s cost to borrow money given the proportional amounts of each type of debt and
equity a company has taken on.

WACC= Wd (cost of debt) + Ws (cost of stock/RE) + Wp (cost of pf. Stock)

89. What is ‘capital structure’?

Ans. The capital structure is how a firm finances its overall operations and growth by using
different sources of funds.

90. What is ‘goodwill’?

Ans. Goodwill is an asset that captures excess of the purchase price over the fair market value
of an acquired business.

91. What do you know about valuation techniques?

Ans. For calculating the valuation of a business or stocks, generally, the following three types of
valuation techniques are used:

DCF analysis – helps in forecasting future cash flows

Comparable company analysis – helps in comparing the current worth of one business when
compared to other similar businesses using P/E, EBITDA
Precedent transactions – helps in identifying the transactional values of a company by
comparing a business with other business which has been sold recently

92. What do you mean by ratio analysis?

Ans.

The ratio analysis approach is frequently used by financial analysts to get deeper insights into a
company’s overall equity analysis by using financial statements. Analysis of different ratios
helps stakeholders in measuring a company’s profitability, liquidity, operational efficiency, and
solvency status. And when these ratios are paired with other essential financial metrics, it
results in a deeper view of the financial health of the company. Analyzing ratios help in:
Examining the current performance of your company with past performance
Avoiding potential financial risks and problems
Comparing your organization with other
Making stronger and data-driven decisions
Some of the most frequently analyzed financial ratios are:
Liquidity ratios
Solvency ratios
Efficiency ratios
P/E and dividend ratios

93. What do you think are the common elements of financial analysis?

Ans. Some of the common elements of financial analysis include:

Revenue & revenue growth and income statement
Profits and net profit margin
Accounts receivables and inventory turnovers
Capital efficiency (Return on equity, debt to equity ratio)
Firm’s liquidity

94. How is Cash Flow different from Free Cash Flow (FCF)?

Ans. Free cash flows (FCF) refers to the remaining cash available for investors after considering
cash operating and investing expenditure and it is used to find a business’s current value.
However, cash flow is used to find net cash inflow from the business’s basic activities like
operating, investing, and financing. Free cash flow helps in defining business valuation which is
required by investors as it includes capital expenditure and changes in Net Working Capital.

95. As a financial analyst which factors do you constantly analyze?

Ans. For this important question for financial analyst interview, it is essential to keep data
handy for the following essential factors (depending on the business type, the metrics can
change) Risk exposure and how the business will affect the current working capital?
How to streamline finance requirements and make business processes effective?
Identifying the right opportunities based on capital and/or revenue.
How will financial decisions affect key value drivers?
Which product/ customer segment/ target audience largely affects profit margins and what
will be the future impact on margins affected by today’s choices, financial strategies, and
decisions?
Which decisions can affect our stock price?

96. Which tools do you use for advanced financial modeling?

Ans. Some of the essential business intelligence tools (BI tools) are:
Quantrix
Oracle BI
GIDE
Maplesoft

97. What is variance analysis?

Ans.
Variance analysis is the quantitative analysis of the difference between planned and actual
numbers. The sum of all variances depicts the overall over-performance or under-performance
for a particular reporting period. Companies assess the favorability for each item by comparing
actual costs to standard costs in the industry.

98. What is important to consider when deciding on capital investment?

Ans.

Before investing, you should first consider these factors:

The outlook of the management
The strategy of the competitor
Opportunities that are created by technological changes
Cash flow budget
Fiscal Incentives
Market Forecast
Other non-economic factors

99. What is EBITDA? What is left out of it?

Ans.

By asking this question, the recruiter wants to see what in-depth industry knowledge you have
about EBITDA. You can frame your answer using the following:
EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It is a
measure of a company’s overall financial performance. EBITDA can be misleading because it
does not include the cost of capital investments like property, equity, plant, and equipment.

EBITDA Formula and Calculation:

The two EBITDA formulas are:
#Method 1:
EBITDA=Net Income+Interest+Taxes+D+A
where:
D=Depreciation
A=Amortization
#Method 2:
EBITDA=Operating Profit+DE+AE

where:

DE=Depreciation expense

AE=Amortization expense

100. What are the types of financial analysis? Explain at least three.

Ans. This is a basic finance question for those intermediate in the field.

Liquidity Analysis is one of the many types. It utilizes the company’s balance sheet to gauge
whether it can fulfill short-term obligations. This is done through the use of different methods
including:

Current Ratio ( Current Ratio = Current Assets/ Current Liabilities)

Acid Test
Net Working Capital
Leverage Analysis is used for evaluating a business’s performance. This is commonly done
through finding the debt/equity ratio, DuPont analysis model, etc.

Vertical Analysis refers to checking the different components of a company’s income statement.
Each of these components is then divided by the business’s revenue. Using the result, an
enterprise should compare with other businesses in its related industry.

101.What are the advantages of raising debt over equity?

Ans.
You should ideally highlight how synchronous debt and equity are. Do mention: Raising debt
does not affect the stake of the current owner’s ownership. Debt helps in offering tax benefits to
a business. Businesses with sticky revenue can enjoy higher profits even with a minor debt.
Debt is cheaper than equity.

102. Should you increase the consumer base by 1% or price by 1%?

Ans. You should tactfully respond to this finance interview question. Do mention that the
decision primarily depends on demand and supply. As it is important to retain and increase
customers, keeping the price the same will generate more profit. By increasing the price, a
business may lose customers.

103. Give one reason why you should analyze long-term liability.

Ans. Debts greater than a year refer to long-term liability. By analyzing it, a company can know
its financial strength.

104. Why is the asset turnover ratio calculated?

Ans. When you are answering this question, do support your reasoning with a few examples. It
measures a business’s efficiency by calculating how it uses its assets to drive sales. If the ratio is
lower, it directly corresponds to the requirement of making it higher.

105.What are the components of the DuPont model and how are they calculated?

Ans. Asset turnover ratio, financial leverage, and net profit margin are the main aspects of the
DuPont model. With these, a company’s return on equity (ROE) is evaluated.

Net Profit Margin is calculated with the following steps:

Profit Margin = Net Income /Revenue

The formula for calculating the Asset Turnover Ratio is:

Asset Turnover Ratio = Net Sales (or Revenue) / Average Assets

Financial Leverage is calculated by:

Financial leverage = Average Assets / Average Equity

106. Why are dividends not a part of income statements?

Ans. Dividends are not operating expenses and do not affect the net income of a company. You
can further elaborate that a cash dividend is paid to the shareholder by a business.

107. What are data formats in Excel? Mention 3 common ones.

Ans. It is essential to know the basic data formats in Microsoft Excel, as they are used for
creating financial models. Some of the common data formats are:
Strings: These constitute a text-type format comprising letters, numbers and even punctuations.
Numbers: These are numerical values that are formatted by separating commas and using
decimal places.
Currencies: These comprise a monetary format that is made available in different currencies.

108. How can negative working capital help a business?

Ans. When an enterprise has a low inventory, it can boost its sales growth through negative
working capital. In other words, a business can generate money by selling products to the
customer before paying the bills to the supplier.

109. Mention any financial reporting software you have used before.

Ans. This financial analyst interview question tests the most required need for the role. Here the
interviewer wants to know whether you are aware of any financial reporting software that can
make statements error-free. Such type of software helps a company analyse its financial
strength and keep a check on the KPIs.
QuickBooks Online is a popular tool among financial analysts. If you have used it, you can
mention how you generate reports. Mention the following

Creating the summary of the organization.

Sum up the investments.
Cite the sources
Find out the organization’s valuation
Add risk factors and detailed results.
You may also have used other financial reporting software including FinAlyzer, Oracle Essbase,
or FactSet. Do give an overview of them while answering this financial analyst interview
question.

110. Mention the differences between NPV and IRR if you think there are any.

Ans. First of all, both are discounted cash flow methods to assess a company’s investments. IRR
stands for Internal Rate of Return and it is used to determine the profitability of future
investments using a percentage value, while NPV calculates using a dollar value.

111. What do you understand by financial benchmarking?

Ans. Benchmarking is the process to compare a company’s performance to other businesses.

Financial benchmarking is done by running a financial analysis that helps in evaluating the
efficiency of a company’s expenses.

112. What happens if NPV is less than 0 and IRR is less than the cost of capital?

Ans. In such a case, the organization should not invest in the project from the perspective of
cash flow.

113. What will be the magnitude of returns if NPV=0 and IRR=cost of capital?

Ans. The returns on such an investment will be minimum.

114. Can you tell us how assets and liabilities affect a company’s cash flow?

Ans. There are a few aspects of how a cash flow of an organization can be affected:
Change in accounts receivable
A change in inventory
Change with prepaid expenses
Depreciation factor
Change in operating liabilities

115. Why would you need to calculate depreciation?

Ans. Depreciation is a positive cash flow factor. It helps in reducing the book value of fixed
assets a company has.

116. If there is an increase in accounts receivable what will happen to the cash flow?

Ans. An increase in accounts receivable decreases cash flow. This means that customers are yet
to pay for a product, usually when they purchase on credit. Cash flow will only increase when
the company will collect the money.
117. Walk us through an investment declaration that you will show to your senior
management.

Ans. Try to avoid talking about software when you are answering this interview question for a
financial analyst. Focus on elaborating your thinking process here.

You can mention that you first try to understand the intent of an investment decision. Then you
would collate income statements, cash flow statements, and balance sheets. After collecting
financial information, you would ask senior management if there is any change required from
business partners. In the end, you may also want to suggest other investment options.

119. Why should IRR be higher than WACC?

Ans. IRR must be higher than WACC for covering the financing cost of an investment. Higher
IRR indicates the better financial performance of a project and higher returns.

120. Are debts and dividends included in the cash flow statement?

Ans. No, debt, dividends, and investments are not included in a cash flow statement.

121. What is the importance of conducting sensitivity analysis?

Ans. Sensitivity analysis is the study of how an independent variable set affects dependent
variables under specified conditions. This financial modelling tool is used for predicting the
outcome using a specified range of variables. By conducting sensitivity analysis, it becomes
easier to know the areas that need more improvement, and it validates the financial models by
testing them against many possibilities. This is how decision-making becomes more accurate.

122. What is ‘financial modelling’?

Ans: It is a quantitative analysis commonly used for either asset pricing or general corporate
finance.

123. Can you walk us through a ‘cash flow statement’?

Ans: Yes, lets start with the net income and go line by line explaining all major adjustments to
arrive at cash flow from operating activities. Here try to mention all the necessary parts that are
associated with it.

124. Is there a possibility for a company to have positive cash flow but still be in serious
financial trouble?
Yes. There are two examples to understand this: A company will show positive cash flow for a
while even though it is in trouble that is selling off inventory but delaying payables. A company
has strong revenues for the period but the future forecasts show something else.

125. What is a ‘working capital’?

Ans: It's the best defined as current assets minus current liabilities.

126. Share some of your knowledge regarding the quarterly forecasting and expense models?

Ans: The analysis of expenses and revenue which is predicted to be produced or incurred in
future is known as quarterly forecasting. On a particular type of work order an expense model
tells what expense categories are allowed.

127. What difference do a journal and a ledger hold?

Ans: The journal is a book which records all the financial transactions for the first time. While,
the ledger is one which has particular accounts taken from the original journal.

128. Give at least one difference between a p&l statement and a balance sheet?

Ans: The financial position of a company is summarised for a specific point in time in a balance
sheet. The P&L i.e. profit and loss statement shows revenues and expenses during a set period
of time.

129. How many financial statements are there? can you name them all?

Ans:
If we calculate then there are four main financial statements:
balance sheets,
income statements,
cash flow statements,
statements of shareholders’ equity.

130. Do you follow the stock market? which stocks in particular?

Ans:

You need to be cauticious while answering this question. Being a financial analyst, following
the stock market proves to be beneficial. Also, always be up-to-date with the stocks.

131. What is a ‘composite cost of capital’?

Ans:
Also known as the weighted average cost of capital abbreviated as WACC, a composite cost of
capital is a company’s cost to borrow money given the proportional amounts of each type of
debt and equity a company has taken on.
WACC= Wd (cost of debt) + Ws (cost of stock/RE) + Wp (cost of pf. Stock)

132.What is a ‘capital structure’?

Ans: A firm finances its overall operations and growth by using different sources of funds, this
whole thing is known as the Capital structure.

133. What is a ‘goodwill’?

Ans:
It is an asset that captures excess of the purchase price over fair market value of an acquired
business.

134.What are the components of the DuPont model and how are they calculated?

Ans. Asset turnover ratio, financial leverage, and net profit margin are the main aspects
of the DuPont model. With these, a company’s return on equity (ROE) is evaluated.

Net Profit Margin is calculated with the following steps:

 Profit Margin = Net Income /Revenue

The formula for calculating the Asset Turnover Ratio is:

Asset Turnover Ratio = Net Sales (or Revenue) / Average Assets

Financial Leverage is calculated by:

Financial leverage = Average Assets / Average Equity

135. Why are dividends not a part of income statements?

Ans. Dividends are not operating expenses and do not affect the net income of a
company.

You can further elaborate that a cash dividend is paid to the shareholder by a business.

136. Mention any financial reporting software you have used before.

Ans. This financial analyst interview question tests the most required need for the role. Here the
interviewer wants to know whether you are aware of any financial reporting software that can
make statements error-free. Such type of software helps a company analyse its financial
strength and keep a check on the KPIs.
QuickBooks Online is a popular tool among financial analysts. If you have used it, you can
mention how you generate reports. Mention the following
Creating the summary of the organization.
Sum up the investments.
Cite the sources
Find out the organization’s valuation
Add risk factors and detailed results.
You may also have used other financial reporting software including FinAlyzer, Oracle Essbase,
or FactSet. Do give an overview of them while answering this financial analyst interview
question.

137. Discuss some challenges of valuation analysis.

Ans. Some key challenges common while performing a valuation analysis are mentioned below.
Market volatility, because valuation is directly dependent on existing market conditions.
There is a lack of standardisation in valuation analysis, as methodologies are used and
interpreted differently
Communicating the rationale behind a valuation analysis to stakeholders is difficult at times
when interests don’t match

138. Are you familiar with the different types of financial statements?

Ans. Interviewers may ask this question to see if you have the necessary knowledge and
experience to complete financial reporting tasks. When answering, it can be helpful to mention
a few of the different types of financial statements and what they include.

Example: “Yes, I am very familiar with the different types of financial statements. As a Financial
Reporting Analyst, I have experience preparing and analyzing balance sheets, income
statements, cash flow statements, and statement of changes in equity. I understand how to
interpret these documents and use them to assess an organization’s financial health.
I also have knowledge of other financial reports such as footnotes, management discussion and
analysis, and notes to the financial statements. I know how to read and analyze these
documents to provide insight into the company’s operations and performance.”
139. What are some of the most important things you look for when analyzing a company’s
financial statements?

Ans.
This question is an opportunity to show the interviewer that you know how to use financial
statements and other data to make important decisions. Your answer should include a list of
things you look for when analyzing financial statements, such as:
Profitability Cash flow Debt levels
Example: “When analyzing a company’s financial statements, I look for several key indicators.
First, I review the income statement to assess the company’s profitability and identify any
potential areas of concern. This includes looking at revenue growth, cost of goods sold,
operating expenses, and net income.

Next, I analyze the balance sheet to get an understanding of the company’s assets and liabilities.
This helps me determine the company’s liquidity position and its ability to meet short-term
obligations. I also examine the cash flow statement to understand how much cash is coming in
and out of the business.

Lastly, I review the notes to the financial statements to gain insight into the company’s
accounting policies and practices. This helps me ensure that the financial statements are
prepared in accordance with Generally Accepted Accounting Principles (GAAP).”

140. How do you think your skills and experience make you a good fit for a financial
reporting analyst position?

Ans.
This question helps employers learn more about your qualifications and how you see yourself
fitting into their company. Use this opportunity to highlight any skills or experiences that are
relevant to the job description, such as your ability to work with numbers, attention to detail or
experience working in a team environment.

Example: “I believe my skills and experience make me an excellent fit for a financial reporting
analyst position. I have over five years of experience in the field, with a proven track record of
success. During this time, I have developed a deep understanding of accounting principles,
financial statement analysis, and corporate finance. My technical expertise includes proficiency
in Excel, QuickBooks, and other accounting software programs.

In addition to my technical knowledge, I possess strong communication and problem-solving

skills that are essential for a successful financial reporting analyst. I am able to effectively
communicate complex financial information to stakeholders in a clear and concise manner.
Furthermore, I am adept at identifying trends, analyzing data, and finding solutions to
challenging problems.”

141. What is your experience with using financial modeling software?

Ans.
This question can help the interviewer determine your experience level with financial modeling
software. Use your answer to highlight any specific skills you have using this type of software
and how they helped you complete projects more efficiently.

Example: “I have extensive experience with financial modeling software, having used it for the
past five years. I am proficient in a variety of programs such as Microsoft Excel and Access, as
well as specialized financial modeling tools like Oracle Hyperion Financial Management (HFM)
and SAP BusinessObjects.

My expertise lies in creating complex models to analyze financial data and identify trends. I
have also developed automated reports that enable me to quickly generate accurate financial
statements and other documents. My experience has allowed me to develop an understanding
of how different systems interact and how to optimize their performance.”

142. Provide an example of a time when you identified a problem with a company’s financial
statements and how you solved it.

Ans.

This question is an opportunity to show your problem-solving skills and ability to work
independently. When answering this question, it can be helpful to describe a specific situation
where you had to analyze financial statements and make recommendations for improvement.

Example: “I recently identified a problem with a company’s financial statements while working
as a Financial Reporting Analyst. The issue was that the company had not properly accounted
for certain expenses in their income statement and balance sheet. After doing some research, I
realized that these expenses should have been included in the financial statements but were
omitted due to an oversight.

To resolve this issue, I worked closely with the accounting team to ensure that all of the
necessary information was accurately recorded. I also provided guidance on how to properly
account for the expenses so that they would be reflected correctly in the financial statements.
Finally, I reviewed the updated financial statements to make sure that everything was accurate
and up-to-date.”

143.
If we were to look at your last job, what are some things you would have done differently?

Ans.
This question is a great way to see how you learn from your mistakes and use them as
opportunities for growth. When answering this question, it can be helpful to mention
something that you did in the past but have since learned more about or improved upon.
Example: “At my last job, I was a Financial Reporting Analyst and I learned a lot of valuable
lessons. If I could go back and do things differently, I would have taken more initiative in
finding ways to streamline processes and improve accuracy. I also wish that I had been more
proactive in researching new regulations and industry trends so that I could better advise the
team on how to stay compliant with changing laws. Finally, I would have worked harder to
build relationships with other departments to ensure that our financial reporting was accurate
and up-to-date.”

144. What would you do if you noticed a discrepancy in the company’s financial statements?

Ans.
This question is a great way to test your analytical skills and ability to work as part of a team.
When answering this question, it can be helpful to provide an example from a previous job
where you noticed a discrepancy in the financial statements and how you handled that
situation.
Example: “If I noticed a discrepancy in the company’s financial statements, my first step would
be to investigate and identify the source of the issue. I would then assess the impact of the
discrepancy on the overall financial picture. Once I have identified the cause and effect of the
discrepancy, I would work with management to develop an action plan for resolving it. This
could include additional research or analysis, as well as engaging external experts if necessary.
Finally, I would ensure that any corrective actions are properly documented and communicated
to all relevant stakeholders.
My experience as a Financial Reporting Analyst has taught me how important accuracy is when
it comes to reporting. I understand the importance of taking swift and effective action when
discrepancies arise, and I am confident that I can help the company resolve any issues quickly
and efficiently.”

145. How well do you communicate with others, especially when providing updates on
financial reports?

Ans.
This question can help interviewers understand how you interact with your team and other
stakeholders. Showcase your communication skills by describing a time when you had to
provide updates on financial reports or data analysis projects.
Example: “I believe that effective communication is essential when providing updates on
financial reports. I have experience in working with a variety of stakeholders, including senior
management, finance teams, and external auditors. When communicating with these groups, I
strive to be clear, concise, and accurate.
I understand the importance of keeping all parties informed throughout the process. Therefore,
I make sure to provide regular updates on progress and any changes that may occur. I also take
the time to explain complex topics in an easy-to-understand manner. Furthermore, I am always
open to feedback and questions from my colleagues.”

146. Do you have experience working with large data sets?

Ans.
This question can help the interviewer determine your experience with financial reporting and
how you might fit into their company. Use examples from past work to show that you have the
skills needed for this role.
Example: “Yes, I have extensive experience working with large data sets. During my previous
role as a Financial Reporting Analyst, I was responsible for analyzing and reporting on financial
data from multiple sources. This included consolidating data from various databases and
creating reports that provided insights into the company’s performance.
I am well-versed in using Excel to manipulate and analyze large datasets. I also have experience
using SQL to query and extract relevant information from databases. My expertise in these
areas has enabled me to quickly identify trends and anomalies within the data, which has been
invaluable in helping management make informed decisions.”

147. When reviewing financial statements, what is your process for identifying areas of
improvement?

Ans.
This question can help the interviewer understand how you approach your work and what
skills you use to complete it. Use examples from past experiences to describe how you identify
areas of improvement, analyze data and make recommendations for change.
Example: “When reviewing financial statements, my process for identifying areas of
improvement begins with a thorough understanding of the company’s current financial
position. I review the income statement, balance sheet and cash flow statement to gain an
overall picture of the company’s financial health. From there, I look for any discrepancies or
inconsistencies that could indicate potential problems.

I also use analytical tools such as trend analysis and ratio analysis to identify areas where
performance is lagging or not meeting expectations. This helps me determine which areas need
further investigation in order to identify potential solutions. Finally, I compare the company’s
financial statements to industry benchmarks to ensure they are performing at expected levels.”

146.We want to improve our internal financial processes. What processes would you
implement to make our financial reporting more efficient?

Ans.
This question is an opportunity to show your problem-solving skills and ability to make
improvements within a company. Your answer should include steps you would take to
improve the financial reporting process, including how you would implement them and when
you would do so.
Example: “I believe that there are several processes that can be implemented to make financial
reporting more efficient. First, I would suggest implementing a system of checks and balances
to ensure accuracy in the data reported. This could include double-checking all entries before
they are submitted, as well as having an independent party review reports for accuracy. Second,
I would recommend automating certain aspects of the process whenever possible. Automation
can help reduce errors and save time by eliminating manual tasks such as data entry. Finally, I
would suggest creating standard templates for financial statements so that information is
presented consistently across different departments. This will make it easier to compare results
between different periods and identify any discrepancies.”

147. Describe your experience with preparing financial forecasts.

Ans.
This question can help the interviewer determine your experience with financial forecasting and
how you use it to support your company’s goals. Use examples from past projects to explain
how you prepared forecasts, analyzed data and presented results to stakeholders.
Example: “I have extensive experience in preparing financial forecasts. During my time as a
Financial Reporting Analyst, I was responsible for creating detailed quarterly and annual
projections that were used to inform business decisions. I worked closely with the accounting
team to ensure accuracy of data inputs and assumptions. I also collaborated with other
departments such as sales and marketing to understand their strategies and incorporate them
into our financial models.
My forecasting process included gathering historical data from various sources, analyzing
trends, and making adjustments based on current market conditions. I developed sophisticated
models that incorporated multiple variables and scenarios to provide an accurate picture of
future performance. My reports provided clear insight into potential risks and opportunities so
that management could make informed decisions. Finally, I presented my findings to senior
management and stakeholders to help guide strategic planning.”

148. What makes you stand out from other candidates for this job?

Ans.
Employers ask this question to learn more about your qualifications and how you can
contribute to their company. Before your interview, make a list of the skills and experiences that
qualify you for this role. Focus on what makes you unique from other candidates and highlight
any transferable skills or certifications you have.
Example: “I believe my experience and qualifications make me an ideal candidate for this
Financial Reporting Analyst position. I have a Bachelor’s degree in Accounting, with a
concentration in Financial Reporting and Analysis. My education has given me the knowledge
and skills needed to excel in this role.
In addition to my formal education, I have over five years of professional experience working as
a Financial Reporting Analyst. During this time, I have gained valuable insights into financial
reporting processes and procedures. I am highly proficient in using various accounting software
programs such as QuickBooks, Microsoft Dynamics GP, and Oracle E-Business Suite.
Furthermore, I have excellent problem solving and analytical skills that allow me to quickly
identify issues and develop effective solutions.”

149. Which financial statements do you find the most challenging to complete?

Ans.
This question can help the interviewer understand your experience level and how you’ve
grown as a financial reporting analyst. Use examples from previous roles to explain which
statements were most challenging for you, but also highlight what steps you took to improve
your skills in this area.
Example: “I find the most challenging financial statement to complete is the Statement of Cash
Flows. This statement requires a deep understanding of how cash flows in and out of an
organization, which can be difficult to track at times. It also requires knowledge of different
accounting methods such as direct or indirect method, as well as being able to identify non-cash
transactions that need to be accounted for.
However, I have developed strong skills in this area over my years of experience. I am
comfortable with both direct and indirect methods, and I understand the importance of
accurately tracking all cash inflows and outflows. I am also familiar with the various non-cash
transactions that must be taken into account when preparing the statement. With my expertise, I
am confident that I can provide accurate and reliable financial statements.”

150. What do you think is the most important skill for a financial reporting analyst to have?

Ans.
This question can help the interviewer determine if you have the skills and abilities they’re
looking for in a financial reporting analyst. Use your answer to highlight one or two of your
strongest skills that relate to this role.
Example: “I believe the most important skill for a financial reporting analyst to have is strong
analytical and problem-solving skills. A financial reporting analyst must be able to analyze
data, identify trends, and draw conclusions from that data in order to provide accurate and
reliable reports. They also need to be able to think critically and creatively when faced with
complex problems or difficult decisions. In addition, they must be able to communicate their
findings clearly and effectively to stakeholders and other members of the organization. Finally,
it is essential for a financial reporting analyst to stay up to date on industry regulations and best
practices in order to ensure compliance and accuracy.”

151. How often do you complete financial statements?

Ans:
This question can help the interviewer understand how often you complete financial statements
and whether your experience is similar to the role they are hiring for. Use examples from your
previous job to describe how often you completed financial statements, including any specific
projects or tasks that required you to do so.
Example: “As a Financial Reporting Analyst, I understand the importance of accurate and
timely financial statements. I have experience completing financial statements on a monthly
basis for various clients. I am also familiar with quarterly and annual reporting requirements.
I take great care to ensure that all financial statements are completed accurately and in
accordance with Generally Accepted Accounting Principles (GAAP). I pay close attention to
detail when reviewing financial documents and records, ensuring accuracy and completeness.
Furthermore, I am able to quickly identify any discrepancies or errors in the data and make
corrections as needed.”
152. There is a discrepancy in the financial statements. How would you handle it?

Ans.
This question is a great way to test your analytical skills and problem-solving abilities. It also
shows the interviewer how you would handle a challenging situation in the workplace. In your
answer, explain what steps you would take to identify the discrepancy and fix it.
Example: “When it comes to discrepancies in financial statements, my first priority is to identify
the source of the discrepancy. I would review the documents carefully and look for any errors
or inconsistencies that could be causing the issue. Once I have identified the source, I will take
the necessary steps to correct it. This may involve working with other departments such as
accounting or auditing to ensure accuracy.
I also believe in taking a proactive approach when dealing with discrepancies. I would work
with management to develop processes and procedures to prevent similar issues from
occurring in the future. This could include implementing internal controls or creating more
detailed reports. By taking these measures, we can help ensure that our financial statements are
accurate and reliable.”

153. Can you explain the differences between GAAP and IFRS reporting standards?

Ans.
This question is a great way to test your knowledge of financial reporting standards. You can
use it to show the interviewer that you understand how these two accounting methods differ
and when they’re appropriate for use.
Example: “Yes, I can explain the differences between GAAP and IFRS reporting standards.
Generally Accepted Accounting Principles (GAAP) is a set of accounting rules used in the
United States while International Financial Reporting Standards (IFRS) are international
standards used by more than 100 countries around the world.
The main difference between these two sets of standards lies in their approach to accounting
principles and practices. GAAP focuses on providing detailed guidance for specific transactions
and events, while IFRS takes a more principle-based approach that allows companies to use
professional judgment when applying the standards.
Another key difference between the two is the treatment of certain items such as leases, revenue
recognition, and impairment losses. Under GAAP, lease obligations must be reported as
liabilities on the balance sheet, whereas under IFRS they may or may not be reported depending
on the type of lease. Similarly, revenue recognition under GAAP requires the use of the accrual
method, while IFRS allows for either the accrual or cash basis methods. Finally, impairment
losses under GAAP must be recognized when there is evidence of an impairment, while IFRS
requires impairment losses to be recognized when there is both evidence of an impairment and
a decline in future economic benefits.”

154. How do you ensure accuracy when preparing financial statements?

Ans.
The interviewer may ask you this question to assess your attention to detail and ensure that you
can perform the job’s responsibilities. In your answer, describe a time when you ensured
accuracy in financial reporting.
Example: “When preparing financial statements, accuracy is of the utmost importance. To
ensure accuracy, I take a multi-step approach. First, I review all source documents to make sure
they are complete and accurate. This includes verifying that all transactions have been properly
recorded in the general ledger. Next, I use analytical procedures to identify any discrepancies or
unusual items that may require further investigation. Finally, I perform detailed reconciliations
to verify that all accounts balance correctly. Throughout this process, I document my work
thoroughly so that it can be easily reviewed by management. By taking these steps, I am
confident that the financial statements I prepare will be accurate and reliable.”
155. Are you familiar with preparing audit documentation?

Ans.
This question can help the interviewer determine your experience with financial reporting and
auditing. Use examples from past work to show how you’ve helped prepare audit
documentation for your company or organization.
Example: “Yes, I am very familiar with preparing audit documentation. In my current role as a
Financial Reporting Analyst, I have been responsible for the preparation of financial statements
and other documents required by auditors. This includes gathering all necessary supporting
documents, such as contracts, invoices, and bank statements, to ensure accuracy in the reporting
process. I also have experience creating reports that are compliant with Generally Accepted
Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). My
attention to detail and ability to stay organized has allowed me to efficiently prepare audit
documentation on time and within budget.”

156. What strategies do you use to stay organized when managing multiple projects?

Ans.
This question can help the interviewer determine how you prioritize your work and manage
deadlines. Your answer should highlight your organizational skills, time management abilities
and ability to meet deadlines.
Example: “I have developed a few strategies to stay organized when managing multiple
projects. First, I prioritize tasks based on their importance and urgency. This allows me to focus
my efforts on the most important items first. Second, I create detailed project plans that include
deadlines and milestones for each task. This helps me track progress and ensure that all tasks
are completed in a timely manner. Finally, I use various software tools such as spreadsheets and
project management systems to help me keep track of all the details associated with each
project. These tools also allow me to easily communicate updates to stakeholders and
colleagues. By following these strategies, I am able to effectively manage multiple projects at
once while staying organized.”

157. Describe a time when you successfully identified cost-saving opportunities in a

company’s financial statement analysis.

Ans.
This question is an opportunity to show your problem-solving skills and ability to find cost
savings for a company. When answering this question, it can be helpful to provide specific
details about the process you used to identify the cost saving opportunities and how they
helped the company save money.
Example: “I recently worked as a Financial Reporting Analyst for a large retail company.
During my time there, I identified cost-saving opportunities in the company’s financial
statement analysis. Specifically, I noticed that certain expenses were being allocated to different
departments and not properly accounted for in the overall budget. By reallocating these
expenses, we were able to save the company thousands of dollars each month.
My approach was twofold: first, I conducted an extensive review of the company’s financial
statements to identify any discrepancies or misallocations. Then, I proposed a plan to the CFO
outlining how the expenses could be reallocated, which resulted in significant savings. Finally, I
implemented the plan and monitored its progress to ensure it was successful.”

158. Do you have experience creating presentations of financial results for senior
management?

Ans.
This question can help the interviewer understand your experience with presenting financial
information to senior management. Use examples from past experiences where you presented
financial results and helped senior managers make decisions based on those results.
Example: “Yes, I have extensive experience creating presentations of financial results for senior
management. In my current role as a Financial Reporting Analyst, I am responsible for
preparing and presenting monthly financial reports to the executive team. My presentations are
comprehensive yet concise, providing an overview of key performance indicators such as
revenue, expenses, and profits. I also include insights on trends and potential risks in order to
provide actionable recommendations for decision-making.
I understand how important it is to present complex financial data in a way that is easy to
comprehend and digest. To this end, I use visuals such as charts, graphs, and tables to illustrate
the information in a more engaging manner. Furthermore, I always ensure that the presentation
is tailored to the audience’s needs and preferences.”

159. How would you handle a difficult situation if something went wrong while preparing
financial statements?

Ans.
This question can help the interviewer determine how you respond to challenges and whether
you have the skills needed to solve problems. Use your answer to highlight your problem-
solving skills, ability to work under pressure and commitment to accuracy.
Example: “If something went wrong while preparing financial statements, I would first take a
step back and assess the situation. I would review all of the data that was used to create the
statement and try to identify where the mistake occurred. Once I have identified the source of
the error, I can then develop an action plan to correct it. This could involve going back to the
original data sources or recalculating certain figures.
I also believe in being proactive when it comes to difficult situations. To prevent similar issues
from occurring again, I would look for ways to improve processes and procedures so that errors
are less likely to happen in the future. For example, if there is a lack of clarity in the instructions
given to staff, I would suggest creating more detailed guidelines to ensure accuracy.”

160. How well do you work under tight deadlines?

Ans.
This question can help the interviewer determine how well you work independently and under
pressure. Use your answer to highlight your ability to meet deadlines, prioritize tasks and
manage your time effectively.
Example: “Working under tight deadlines is something I am very experienced with. In my
current role, I have been responsible for meeting strict deadlines on a regular basis. I
understand the importance of staying organized and prioritizing tasks in order to meet these
deadlines. I also make sure that I communicate any potential issues or delays to my manager as
soon as possible so that we can work together to find solutions. My ability to stay focused and
efficient while working under pressure has enabled me to consistently deliver high-quality
results on time.”

161. Explain the process of financial statement analysis.

Ans- The process of financial statement analysis involves reviewing and analyzing a company’s
financial statements, including the balance sheet, income statement, and cash flow statement.
This analysis includes assessing the financial health, performance, and trends of the company
by examining key financial ratios, identifying strengths and weaknesses, and evaluating the
overall financial position.

162. How do you calculate financial ratios? Which ratios are commonly used in financial
analysis?

Ans- Financial ratios are calculated by dividing one financial metric by another to provide
insights into a company’s performance and financial health. Commonly used ratios include
profitability ratios (e.g., gross profit margin, net profit margin), liquidity ratios (e.g., current
ratio, quick ratio), solvency ratios (e.g., debt-to-equity ratio, interest coverage ratio), and
efficiency ratios (e.g., asset turnover ratio, inventory turnover ratio).

163. What is the difference between cash flow and net income?

Ans- Cash flow refers to the actual cash generated or spent by a company during a specific
period, while net income is the profit or loss reported on the income statement. Cash flow
focuses on actual cash movements, including operating, investing, and financing activities,
while net income reflects revenue earned and expenses incurred, including non-cash items such
as depreciation and amortization.

164. How do you evaluate a company’s liquidity?

Ans- To evaluate a company’s liquidity, financial analysts typically assess its ability to meet
short-term obligations. Key liquidity ratios include the current ratio (current assets divided by
current liabilities) and the quick ratio (current assets minus inventory, divided by current
liabilities). A higher ratio indicates better liquidity and a greater ability to cover short-term
liabilities.

165. How would you assess a company’s profitability?

Ans- Assessing a company’s profitability involves analyzing its ability to generate profit from
its operations. Key profitability ratios include the gross profit margin (gross profit divided by
revenue), net profit margin (net income divided by revenue), and return on equity (net income
divided by shareholder’s equity). These ratios provide insights into a company’s efficiency,
profitability, and return on investment for shareholders.

166. What are the different methods of valuation?

Ans- The different methods of valuation include:

Comparable company analysis: Valuing a company based on the market multiples of similar
publicly traded companies.
Discounted cash flow (DCF) analysis: Estimating the present value of future cash flows to
determine the intrinsic value of an investment.
Asset-based valuation: Assessing a company’s net asset value by valuing its assets and
liabilities.

167. How do you calculate the present value of future cash flows?

Ans- The present value of future cash flows is calculated by discounting the expected cash
flows to their present value using an appropriate discount rate. This involves dividing each
future cash flow by a factor that represents the time value of money, considering the risk and
opportunity cost of investing in those cash flows.

168. What factors do you consider when performing a discounted cash flow (DCF) analysis?

Ans- When performing a discounted cash flow (DCF) analysis, factors to consider include:
Future cash flow projections: Estimating the amount and timing of expected cash flows.
Discount rate: Determining the appropriate rate to discount the cash flows, often based on the
company’s risk profile and the cost of capital.
Terminal value: Assessing the value of the investment at the end of the projected cash flow
period.
Sensitivity analysis: Evaluating the impact of changes in key assumptions on the overall
valuation.

169. How would you evaluate an investment opportunity?

Ans- Evaluating an investment opportunity involves assessing its potential returns, risks, and
fit with the investor’s objectives. Key steps include analyzing the financial statements,
conducting market research, evaluating industry dynamics, assessing competitive advantages,
considering potential risks, and comparing the investment’s potential return with the investor’s
required rate of return.

170. Explain the concept of beta and its significance in investment analysis.

Ans- Beta is a measure of a stock’s volatility or systematic risk in relation to the overall market.
It signifies the sensitivity of a stock’s returns to fluctuations in the market. A beta of 1 indicates
that the stock tends to move in line with the market, while a beta greater than 1 suggests higher
volatility and a beta less than 1 indicates lower volatility. Beta is significant in investment
analysis as it helps investors assess the level of risk associated with a particular stock and make
informed decisions about portfolio diversification and risk management.

171. Describe the steps involved in building a financial model

Ans- Steps involved in building a financial model:

Define the purpose and scope of the model.
Gather relevant data and information.
Identify key assumptions and variables.
Structure the model by creating a logical flow of inputs, calculations, and outputs.
Build formulas and equations to perform calculations.
Validate and test the model by comparing it with historical data or known outcomes.
Sensitivity analysis to assess the impact of changes in variables.
Document the model, including assumptions, formulas, and methodology.
Review and validate the model with stakeholders.

172. What are some common challenges in financial modeling, and how do you overcome
them?

Ans- Some common challenges in financial modeling include data availability and quality, the
complexity of financial instruments and markets, assumptions and inputs, and model
validation. To overcome these challenges, you can ensure data accuracy and consistency, use
robust modeling techniques, validate assumptions with experts, and perform rigorous
sensitivity analyses and stress testing.

173. Walk me through a discounted cash flow (DCF) model.

Ans- A discounted cash flow (DCF) model is a financial valuation method used to estimate the
value of an investment based on its future cash flows. It involves projecting the cash flows
expected to be generated by the investment over a specific period and then discounting those
cash flows back to their present value using a discount rate. The discounted cash flows are then
summed up to determine the investment’s net present value (NPV), which represents its
intrinsic value. The DCF model assumes that the value of money decreases over time and that
future cash flows are riskier than immediate ones.
174. How would you handle circular references in a financial model?

Ans- Circular references in a financial model can be resolved by using iterative calculations.
One approach is to enable iterative calculations in the spreadsheet software and set a maximum
number of iterations. By providing initial estimates for the circular references and allowing the
software to iterate, the model can converge to a solution. Alternatively, you can use a goal-
seeking function to break the circular reference loop by specifying a target output value for one
of the interdependent cells.

175. What is EBITDA? What is left out of it?

Ans- EBITDA is a financial metric that measures a company’s earnings before deducting
interest, taxes, depreciation, and amortization. It excludes these factors to provide a clearer view
of a company’s core operating performance.

176. How do you stay updated with the latest industry trends and developments?

Ans:
Ans- As a financial analyst, staying updated with the latest industry trends and developments
is crucial. To do so, I employ several strategies. Firstly, I regularly read industry-specific
publications, such as financial journals, news websites, and reports from reputable research
firms. These sources provide valuable insights into market dynamics, emerging trends,
regulatory changes, and key events impacting the industry. Secondly, I actively participate in
professional networks, attend conferences, and engage in industry forums to connect with
industry experts and exchange knowledge. Lastly, I utilize social media platforms, such as
LinkedIn and Twitter, to follow thought leaders, join relevant groups, and stay informed about
the latest discussions and developments in the industry.

177. What sources do you rely on for conducting market research?

Ans:
Ans- When conducting market research, I rely on a combination of primary and secondary
sources. For primary research, I engage in activities such as conducting surveys, interviews, or
focus groups with industry professionals, customers, or key stakeholders. This allows me to
gather firsthand information and insights directly from the market. Additionally, I rely on
secondary sources, including industry reports, market research studies, financial databases,
government publications, and regulatory filings. These sources provide comprehensive data,
statistics, and analysis on market size, growth rates, competitive landscape, customer behavior,
and other relevant factors.

178. Discuss a time when your industry knowledge influenced a financial decision.

Ans- One specific instance where my industry knowledge influenced a financial decision was
during a company’s expansion planning. The company was considering entering a new market
segment that appeared lucrative but had inherent risks due to changing regulations. My
extensive knowledge of the industry allowed me to identify potential regulatory challenges and
assess the impact on the company’s financial performance. I conducted in-depth research on the
regulatory environment, analyzed historical precedents, and consulted with industry experts to
gain a holistic understanding of the risks involved. Based on this analysis, I presented a
comprehensive risk-reward assessment to the executive team, highlighting the potential
financial gains but also the regulatory uncertainties.
179. How do you effectively communicate complex financial concepts to non-financial
stakeholders?

Ans- To effectively communicate complex financial concepts to non-financial stakeholders, it’s

important to use clear and concise language. Avoid jargon and technical terms, and instead
focus on explaining the concepts in simple terms that anyone can understand. Visual aids such
as charts, graphs, and diagrams can also be helpful in conveying information. Additionally, it’s
important to listen actively to the stakeholders’ concerns and questions and tailor your
explanations to address their specific needs and interests.

180. Share an example of a presentation you gave to senior management or clients.

Ans- I presented a comprehensive analysis of a potential investment opportunity, including

market conditions, financial viability, projected cash flows, and risk assessment, to senior
management. The presentation highlighted the benefits and risks of acquiring a new
manufacturing facility and aided in their decision-making process.

181. How do you ensure accuracy in your financial analysis and reporting?

Ans- To ensure accuracy in my financial analysis and reporting, I follow a systematic approach.
First, I gather all relevant data and sources, ensuring their reliability and integrity. Then, I
meticulously review and verify the data for any inconsistencies or errors. Next, I employ
various financial analysis techniques, such as ratio analysis and trend analysis, to cross-validate
my findings. Additionally, I consistently update my knowledge of accounting principles and
financial regulations to ensure compliance. Finally, I seek feedback and collaborate with
colleagues or supervisors for peer review, enhancing the accuracy of my analysis and reporting.

182. Describe a situation where a minor error had significant consequences and how you
handled it.

Ans- In a previous role, I made a minor error in a financial model that had significant
consequences. I immediately took responsibility, informed my supervisor, and corrected the
mistake. I presented updated accurate figures to stakeholders, apologized for the oversight, and
implemented a review process to prevent future errors.

183. How do you manage multiple financial projects with competing deadlines?

Ans- To manage multiple financial projects with competing deadlines, I would prioritize tasks
based on their urgency and impact on the overall goals of the organization. I would create a
detailed project plan with clear timelines and milestones and regularly track progress to ensure
that each project stays on schedule.

184. How do you work with cross-functional teams to gather necessary financial information?

Ans- As a financial analyst, I collaborate closely with cross-functional teams to gather the
necessary financial information. I establish effective communication channels and build
relationships with stakeholders from different departments such as accounting, operations,
sales, and marketing. By actively engaging in meetings, discussions, and workshops, I ensure a
clear understanding of their specific needs and requirements. I leverage my financial expertise
to translate their objectives into financial metrics and data points that align with their goals.

185. Describe a challenging financial problem you faced and how you resolved it
Ans- I faced a challenging financial problem related to optimizing working capital
management. I analyzed the cash conversion cycle, streamlined inventory management,
improved accounts receivable processes, negotiated favorable supplier terms, and implemented
a cash flow forecasting model to resolve the issue.

186. How do you handle unexpected changes or uncertainties in financial analysis?

Ans- When facing unexpected changes or uncertainties in financial analysis, I adapt by

gathering information, assessing the impact, and adjusting my analysis accordingly. I stay calm,
consider different scenarios, and communicate effectively with stakeholders.

187. How do you manage multiple financial projects with competing deadlines?

Ans- To manage multiple financial projects with competing deadlines, I prioritize tasks based
on urgency, break projects into smaller tasks, communicate effectively, and use project
management tools to track progress and allocate resources efficiently.

188. Share a situation where you had to reprioritize tasks to meet a crucial deadline.

Ans:
Ans- In a previous role as a financial analyst, I faced a tight deadline on a high-priority project.
When a critical data source was delayed, I quickly reassessed tasks, delegated where possible,
and communicated a revised plan to meet the deadline without compromising quality. This
experience highlighted the importance of flexibility, communication, and strategic decision-
making in meeting crucial deadlines.

189. Describe a situation where you had to handle a tight deadline for a financial analysis
report. How did you prioritize your tasks and ensure timely completion?

Ans- When faced with a tight deadline for a financial analysis report, I prioritized tasks by
identifying critical components, delegating non-essential tasks, and creating a timeline. By
working diligently, I delivered the report on time, meeting all requirements.

190. Can you share an experience where you had to deal with a challenging client or
stakeholder during a financial analysis project? How did you handle the situation and
maintain a positive relationship?
Ans:

Ans- In a previous financial analysis project, I encountered a challenging client with unrealistic
cost expectations. To maintain a positive relationship, I actively listened to their concerns,
scheduling regular meetings, and provided alternative cost-saving options while emphasizing
the need for accuracy. By ensuring transparency and collaborative decision-making, we reached
a successful outcome that strengthened our relationship.

191. What do you mean by working capital? Explain the various types.

Ans:
The working capital formula best defines current assets minus current liabilities. The primary
function of working capital is to analyse the total amount of money you have readily available
to meet the demand of all the current expenses.

Types of Working Capital

Permanent Working Capital

Regular Working Capital
Reserve Margin Working Capital
Variable Working Capital
Seasonal Variable Working Capital
Special Variable Working Capital
Gross Working Capital
Net Working Capital
*Financial analysts play a significant role in being information mediators in capital markets, so
understanding working capital needs is essential. Also, analysts must stay on their toes to
forecast the actual working capital requirements, significantly when the company is constantly
growing or expanding. Also, you can highlight a few prior incidents when your existing
company felt the need for additional working capital. You can even back your answer with the
ways you used to boost the working capital.

192. How do assets and liabilities affect a company’s cash flow?

Ans:
There are a few aspects of how a cash flow of an organisation can be affected:
Change in accounts receivable
Change in inventory
Change in prepaid expenses
Depreciation factor
Change in operating liabilities

193. Explain why you should analyse long-term liability.

Ans:
Debts outstanding for more than a year refer to long-term liability. By analysing it, a company
can know its financial strength.

194. What are the components of the DuPont model, and how do you calculate them?

Ans:
Asset turnover ratio, financial leverage, and net profit margin are the main aspects of the
DuPont model. A company’s return on equity (ROE) is evaluated with these.

Net Profit Margin is calculated with the following steps:

Profit Margin = Net Income/Revenue

The formula for calculating the Asset Turnover Ratio is:

Asset Turnover Ratio = Net Sales (or Revenue) / Average Assets

Financial Leverage is calculated by:

Financial leverage = Average Assets / Average Equity

195. How are the income, balance, and cash flow statements related?

Ans:
The three financial statements are linked to net income, calculated on the income statement
(after the deduction of all expenses from the company’s income). The income statement’s
bottom line is the net income. Net income is linked to the balance sheet and the cash flow
statement. Net income transfers into stockholders’ equity via cash flows on the balance sheet.
Net income is the first line on the cash flow statement since it determines cash flows from
business activities.

196. Differentiate between cash flow and free cash flow.

Ans:
Free Cash Flow refers to the remaining cash available for investors after considering money for
operating and investing expenses. It is used to find the value of a business in its current
position. Free cash flow helps in defining the business valuation required by investors. It
includes capital expenditure and changes in Net Working Capital.

On the other hand, cash flow is used to find cash inflow in various business activities, for
example, operating, investing, and financing.

197. What is CAPM?

Ans:
The Capital Asset Pricing Model (CAPM) estimates the expected return on an investment given
its systematic risk. The cost of equity – i.e. the required rate of return for equity holders – is
calculated using the CAPM.

CAPM Formula
Per the capital asset pricing model (CAPM), the cost of equity – i.e. the expected return by
common shareholders – is equal to the risk-free rate (rf) plus the product of beta and the equity
risk premium (ERP).

Expected Return (Ke) = rf + β (rm – rf)

Where:

Ke → Cost of Equity (or Expected Return)

rf → Risk-Free Rate
β → Beta
(rm – rf) → Equity Risk Premium (ERP)

198. How Does the Capital Asset Pricing Model Work (CAPM)?

Ans:
The capital asset pricing model (CAPM) is a fundamental method in corporate finance used to
determine the required rate of return on an investment given its risk profile.

The CAPM establishes a relationship between the risk and expected return by an investor using
three key variables:

Risk-Free Rate (rf)

Beta (β) of the Underlying Asset (or Security)
Equity Risk Premium (ERP)
Before delving into the core components of the capital asset pricing model (CAPM) theory, we’ll
quickly review the discount rate concept under the context of valuation.

The discount rate represents the “hurdle rate” – i.e. the minimum rate of return – corresponding
to the risk profile of an investment, which could refer to share issuances by a publicly-traded
company or a proposed project that a corporation is under consideration on whether to
proceed.

199. What are the Assumptions of the CAPM?

Ans:
Under Modern Portfolio Theory (MPT), there are two core assumptions that underpin the
capital asset pricing model (CAPM):

Competitive, Efficient Markets → The financial markets are competitive and efficient in terms of
information collection, which impacts the pricing of securities in the markets – identifying
mispricings in the market is becoming increasingly challenging.
Rational Investors in Markets → The participants in the financial markets are assumed to be
rational, risk-averse investors for the most part.
The cost of equity (ke) is most commonly estimated using the capital asset pricing model
(CAPM), which connects the expected return on a security (or portfolio of securities) to their
sensitiv

To perform a cash flow oriented valuation on a company, the implied instrinsic value equals the
sum of its future cash flows discounted to their present value (PV) using an appropriate
discount rate.

Under the specific context of equity investors, the discount rate that pertains to solely common
shareholders is referred to as the “cost of equity” — which is the required rate of return to
equity investors that the capital asset pricing model is used to calculate.

The unlevered free cash flows, or free cash flow to firm (FCFF), is generated by a company and
discounted using the weighted average cost of capital (WACC), whereas levered free cash
flows, or free cash flow to equity (FCFE) is discounted using the cost of equity (ke).

Free Cash Flow to Firm (FCFF) → Weighted Average Cost of Capital (WACC)
Free Cash Flow to Equity (FCFE) → Cost of Equity (Ke)
But regardless of the type of cash flow being discounted, the cost of equity (ke) serves an
integral role in either approach because it is an input in the WACC formula.

200. How do you forecast free cash flow?

Ans:
Free cash flow to the firm (a.k.a. “unlevered free cash flow”) is the preferred approach when
valuing equities using the DCF method.

The formula to calculate FCFF is: FCFF = EBIT x (1 – Tax%) + Depreciation & Amortization –
Net Capital Expenditure – Increase in Working Capital

You can also calculate the free cash flow to equity, which is the amount of cash available to
equity investors after paying off debt, interest, and investment required to keep the company
operating.

It can be calculated using the formula: FCFE = Cash from operations – Capital Expenditures +
Net Debt Issued