100+ Financial Analyst Interview Questions and Answers for Freshers

Answering how to show a transaction involving cash and loan in financial statements.

• The cash purchase of an asset will be shown as a decrease in cash on the cash flow statement and as an increase in assets on the balance sheet.

• The purchase made through bank loan will be shown as an increase in liabilities on the balance sheet and as an increase in cash on the cash flow statement.

• The loan taken will be shown as an increase in liabilities on the balance sheet and as an increase...read more

Capital markets are platforms where companies and governments can raise funds through the sale of securities. Money markets are for short-term borrowing and lending.

• Capital markets are divided into primary and secondary markets

• Primary markets are where new securities are issued for the first time

• Secondary markets are where existing securities are traded among investors

• Examples of capital markets include stock exchanges and bond markets

• Money markets are for short-term borrowin...read more

Derivatives are financial contracts whose value is derived from an underlying asset or security.

• Derivatives can be used for hedging or speculation.

• Examples of derivatives include futures, options, and swaps.

• Derivatives can be traded on exchanges or over-the-counter.

• Derivatives can be complex and carry significant risk.

• Derivatives played a role in the 2008 financial crisis.

We subtract increase in current assets in cash flow statement under operating activities to adjust for cash inflows/outflows.

• Increase in current assets means cash is tied up in inventory, accounts receivable, etc.

• This reduces the amount of cash available for operating activities.

• Subtracting this increase adjusts for the cash inflows/outflows.

• Examples include increase in accounts receivable, inventory, prepaid expenses, etc.

There are different types of shares, such as common shares and preferred shares. Depreciation is the decrease in value of an asset over time.

• Common shares represent ownership in a company and give shareholders voting rights.

• Preferred shares have a fixed dividend and priority over common shares in case of liquidation.

• Depreciation is an accounting method used to allocate the cost of an asset over its useful life.

• It reflects the decrease in value of assets like buildings, vehicl...read more

The probability of getting an odd number on a single dice roll is 1/2 or 50%.

• A dice has 6 sides, 3 of which are odd numbers (1, 3, 5).

• Each side has an equal chance of landing face up.

• Therefore, the probability of getting an odd number is 3/6 or 1/2.

Ledger is a record of all financial transactions, while a statement is a summary of those transactions.

• Ledger is a detailed record of all financial transactions, including debits and credits.

• Statement is a summary of those transactions, usually presented in a standardized format.

• Ledger is used for day-to-day record keeping, while statements are used for reporting and analysis.

• Examples of ledgers include general ledger, accounts payable ledger, and accounts receivable ledger.

• E...read more

Finance is the study of how individuals, businesses, and organizations manage money and investments.

• Finance involves analyzing financial statements, managing investments, and making financial decisions.

• Examples include budgeting, forecasting, risk management, and financial planning.

• Finance also includes understanding financial markets, such as stocks, bonds, and commodities.

• Financial analysts use financial data to make recommendations and inform investment decisions.

• Finance i...read more

Depreciation is the decrease in value of tangible assets over time, while amortization is the decrease in value of intangible assets over time. Derivatives are financial instruments that derive their value from an underlying asset.

• Depreciation applies to tangible assets like buildings, machinery, and vehicles, while amortization applies to intangible assets like patents, copyrights, and trademarks.

• Depreciation and amortization are both methods of allocating the cost of an ass...read more

A cash flow statement typically has three sections: operating activities, investing activities, and financing activities.

• The first section shows cash flows from operating activities, such as sales revenue and expenses.

• The second section shows cash flows from investing activities, such as buying or selling assets.

• The third section shows cash flows from financing activities, such as issuing or repaying debt or equity.

• The net change in cash for the period is calculated by adding...read more

The Golden rule of accounting is to debit the receiver and credit the giver.

• It is a fundamental principle of accounting.

• It is used to record transactions in the correct way.

• It ensures that the accounting equation remains balanced.

• For example, when a company receives cash, it debits cash and credits the account that provided the cash.

• It is also known as the principle of reciprocity.

Prepaid expenses are written in the assets side because they represent future economic benefits.

• Prepaid expenses are expenses that have been paid in advance but have not yet been incurred.

• They represent future economic benefits that the company will receive.

• As per the accounting equation, assets = liabilities + equity, prepaid expenses are recorded as assets.

• They are gradually expensed over time as they are incurred.

Equity is generally more risky than mutual funds.

• Equity investments are subject to market volatility and can experience significant fluctuations in value.

• Mutual funds are diversified portfolios of investments, which can help to mitigate risk.

• However, some mutual funds may invest heavily in equities, making them more risky than other types of mutual funds.

• Ultimately, the level of risk depends on the specific investments within each category.

• For example, a mutual fund that inve...read more

Financial statements are interrelated as they provide different perspectives of a company's financial performance.

• The income statement shows the company's revenue, expenses, and net income, which affects the balance sheet.

• The balance sheet shows the company's assets, liabilities, and equity, which affects the cash flow statement.

• The cash flow statement shows the company's cash inflows and outflows, which affects the income statement and balance sheet.

• Changes in one statement ...read more

Negative working capital is when a company's current liabilities exceed its current assets.

• It means the company may have trouble paying its short-term debts

• It can indicate efficient management of inventory and accounts receivable

• Examples include Amazon and Walmart

• It is common in industries with high inventory turnover and short payment cycles

Quick ratio formula is (Current Assets - Inventory) / Current Liabilities.

• Quick ratio is a measure of a company's ability to meet its short-term obligations.

• It is also known as the acid-test ratio.

• The formula excludes inventory from current assets as it may not be easily converted to cash.

• A quick ratio of 1:1 or higher is considered good.

• Quick ratio = (Current Assets - Inventory) / Current Liabilities.

Financial analysts provide various services to their clients.

• Financial analysis and reporting

• Investment research and recommendations

• Risk assessment and management

• Budgeting and forecasting

• Financial modeling

• Mergers and acquisitions analysis

• Valuation of assets and companies

• Portfolio management

• Financial planning and strategy

• Client relationship management

A derivative is a financial contract whose value is derived from an underlying asset or security.

• Types of derivatives include futures, options, swaps, and forwards.

• Futures are contracts to buy or sell an asset at a predetermined price and date.

• Options give the holder the right, but not the obligation, to buy or sell an asset at a predetermined price and date.

• Swaps involve exchanging cash flows based on different financial instruments or currencies.

• Forwards are similar to futu...read more

Reconciliation is the process of comparing two sets of records to ensure they are in agreement. BRS stands for Bank Reconciliation Statement.

• Reconciliation involves comparing financial records to identify discrepancies

• BRS is a statement that compares a company's bank account balance to its financial records

• Reconciliation and BRS are important for identifying errors and fraud in financial records

• Examples of items that may need to be reconciled include bank statements, credit c...read more

FCFF, FCFE, DCF, and Enterprise Value are key financial metrics used in valuation. Growth and Maintenance Capex are important factors in calculating these metrics.

• FCFF (Free Cash Flow to Firm) is the cash flow available to all providers of capital, calculated as Operating Cash Flow - Capital Expenditures + Interest Expense * (1 - Tax Rate)

• FCFE (Free Cash Flow to Equity) is the cash flow available to equity investors, calculated as Net Income + Depreciation & Amortization - Ch...read more

Working capital is used for day-to-day operations and is sourced from current assets. Enterprise value for private companies is calculated using various methods.

• Uses of working capital include funding daily operations, managing inventory, and covering short-term liabilities.

• Sources of working capital include cash, accounts receivable, and short-term investments.

• Enterprise value for private companies can be calculated using methods such as discounted cash flow, comparable comp...read more

After a stock split, the value of options will be adjusted based on the new stock price and the split ratio.

• Value of options will be adjusted based on the new stock price and the split ratio

• Number of options will increase proportionally to the split ratio

• Strike price of options will decrease proportionally to the split ratio

To conduct competitor analysis, I would gather information on their products, pricing, marketing strategies, and financial performance.

• Identify key competitors in the industry

• Gather information on their products and services

• Analyze their pricing strategies

• Evaluate their marketing and advertising efforts

• Assess their financial performance and market share

• Compare strengths and weaknesses to our company

EBITDA is a financial metric used to evaluate a company's operating performance by excluding non-operating expenses.

• EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization.

• It provides a clearer picture of a company's profitability from its core operations.

• EBITDA is used as an alternative to net income because it excludes non-operating expenses, which can vary widely between companies.

• Investors and analysts use EBITDA to compare the operating performa...read more

A cash flow statement shows the inflows and outflows of cash for a specific period of time.

• The statement is divided into three sections: operating activities, investing activities, and financing activities.

• Operating activities include cash received from customers and cash paid to suppliers.

• Investing activities include cash spent on purchasing assets and cash received from selling assets.

• Financing activities include cash received from issuing stocks or bonds and cash paid for ...read more

Beta is a measure of a stock's volatility, required return is the minimum return an investor expects, methods include CAPM and DDM.

• Beta measures a stock's volatility in relation to the market.

• Required return is the minimum return an investor expects to compensate for the risk of an investment.

• Methods of calculating required return include Capital Asset Pricing Model (CAPM) and Dividend Discount Model (DDM).

• CAPM formula: Required Return = Risk-Free Rate + Beta * (Market Return...read more

A bond is a debt security where an investor loans money to an entity for a defined period at a fixed interest rate. A debenture is a type of bond that is not secured by collateral.

• Bonds are issued by corporations, municipalities, and governments to raise capital.

• Bonds have a fixed maturity date and pay interest at a fixed rate.

• Debentures are unsecured bonds that rely on the creditworthiness of the issuer.

• Debentures typically have a higher interest rate than secured bonds to c...read more

Goodwill is an intangible asset that represents the excess of the purchase price of a company over the fair market value of its net assets.

• Goodwill is recorded on the balance sheet when a company acquires another company for a price higher than the fair market value of its net assets.

• It represents the reputation, brand value, customer relationships, and other intangible assets of the acquired company.

• Goodwill is not amortized but is subject to impairment testing annually.

• If t...read more

A use case diagram is a visual representation of the interactions between users and a system, showing the different ways users can interact with the system.

• Use case diagrams are typically used in software development to capture the functional requirements of a system.

• They help in identifying the actors (users) and their interactions with the system.

• Use case diagrams show the various use cases or scenarios in which the system can be used.

• They are useful for communicating syste...read more

Derivatives are financial instruments whose value is derived from an underlying asset, investment banking involves providing financial services to corporations, OTC refers to over-the-counter trading, and capital markets are where securities are bought and sold.

• Derivatives are financial instruments whose value is based on an underlying asset, such as stocks, bonds, commodities, or currencies

• Investment banking involves providing financial services to corporations, such as unde...read more

A balance sheet shows a company's assets, liabilities, and equity at a specific point in time.

• The left side of the balance sheet shows the company's assets, which are resources that the company owns or controls.

• The right side of the balance sheet shows the company's liabilities, which are obligations that the company owes to others.

• The difference between the assets and liabilities is the company's equity, which represents the residual interest in the assets after deducting li...read more

Bond market is a financial market where investors buy and sell debt securities issued by corporations or governments.

• Bonds are essentially loans made by investors to issuers

• The bond market is important for companies and governments to raise capital

• Bond prices and yields are inversely related

• The bond market can be segmented by issuer, credit rating, maturity, and type of bond

• Examples of bonds include Treasury bonds, corporate bonds, municipal bonds, and high-yield bonds

Accrued income and expenses are revenues and expenses that have been earned or incurred, but not yet received or paid.

• Accrued income is revenue that has been earned but not yet received. It is recorded as a debit to an asset account and a credit to a revenue account.

• Accrued expenses are expenses that have been incurred but not yet paid. They are recorded as a debit to an expense account and a credit to a liability account.

• Accrued income and expenses are typically adjusted at ...read more

Market research for electronics products sales strategy involves analyzing consumer behavior, identifying target markets, and developing effective marketing campaigns.

• Conduct surveys and focus groups to gather data on consumer preferences and buying habits

• Analyze market trends and competitor strategies to identify opportunities and threats

• Develop targeted marketing campaigns that appeal to specific demographics and highlight unique product features

• Utilize social media and oth...read more

50% of 5 is 2.5.

• To find 50% of a number, you divide the number by 2.

• 50% of 5 = 5 / 2 = 2.5

Trade life cycle refers to the stages involved in a trade from initiation to settlement. Derivatives are financial instruments whose value is derived from an underlying asset.

• Trade life cycle includes trade initiation, trade execution, trade confirmation, trade settlement, and trade reconciliation

• Derivatives include options, futures, forwards, and swaps

• Accounting rules for derivatives involve marking to market, hedge accounting, and fair value accounting

There is no one-size-fits-all answer to which type of derivatives is the best, as it depends on individual risk tolerance, investment goals, and market conditions.

• Different types of derivatives serve different purposes - futures are good for hedging risk, options offer flexibility, swaps are useful for customizing risk exposure

• Investors should consider factors such as liquidity, leverage, and complexity when choosing derivatives

• For example, if an investor wants to hedge again...read more

Stocks and shares represent ownership in a company and can be bought and sold on the stock market.

• Stocks and shares are a way for companies to raise capital by selling ownership stakes to investors.

• Investors can buy and sell stocks and shares on stock exchanges like the New York Stock Exchange (NYSE) or NASDAQ.

• The value of stocks and shares can fluctuate based on a variety of factors, including company performance, market trends, and global events.

• Investors can earn money fro...read more

Investment banking involves providing financial advisory services, underwriting securities, and facilitating mergers and acquisitions.

• Provides financial advisory services to corporations, governments, and other institutions

• Underwrites securities such as stocks and bonds for companies looking to raise capital

• Facilitates mergers and acquisitions by advising on deals and helping with financing

• Assists clients in raising capital through debt and equity offerings

• Engages in trading ...read more

The sales strategy that uses market capture is called the market penetration strategy.

• Market penetration strategy involves aggressively promoting and selling a product in an existing market to gain a larger market share.

• This strategy may involve offering discounts, increasing advertising, or improving the product to attract more customers.

• Examples of companies that have used market penetration strategy include McDonald's, Coca-Cola, and Amazon.

Accounts receivable and accounts payable are financial terms used in business to track money owed and money owed to a company.

• Accounts receivable refers to the money owed to a company by its customers or clients for goods or services provided.

• Accounts payable refers to the money owed by a company to its suppliers or vendors for goods or services received.

• Accounts receivable appears as an asset on a company's balance sheet, representing the amount of money the company expects ...read more

Different financial reports include balance sheet, income statement, cash flow statement, and financial ratios.

• Balance sheet provides a snapshot of a company's financial position at a specific point in time.

• Income statement shows a company's revenues and expenses over a period of time.

• Cash flow statement details a company's cash inflows and outflows.

• Financial ratios help analyze a company's financial performance and health.

Managing all works requires prioritization, delegation, and effective communication.

• Create a to-do list and prioritize tasks based on urgency and importance

• Delegate tasks to team members based on their strengths and workload

• Communicate clearly and regularly with team members to ensure everyone is on the same page

• Use project management tools to track progress and deadlines

• Be flexible and adaptable to changes in priorities or unexpected challenges

Dividend is a distribution of a portion of a company's earnings to its shareholders.

• Dividends are typically paid in cash or additional shares of stock.

• Journal entry for cash dividend: Debit Retained Earnings, Credit Dividends Payable.

• Journal entry for stock dividend: Debit Retained Earnings, Credit Common Stock or Paid-in Capital.

• Dividends reduce the company's retained earnings and are recorded on the balance sheet.

• Dividends are usually declared by the company's board of dire...read more

Rolling two dice will result in a random combination of numbers between 2 and 12.

• The probability of rolling a certain number can be calculated using probability theory.

• The most common result is 7, which has a probability of 1/6.

• The least common results are 2 and 12, which each have a probability of 1/36.

• The sum of the two dice can be used in various games and gambling activities.

Debentures are long-term debt instruments issued by companies to raise capital, typically with a fixed interest rate and maturity date.

• Debentures are unsecured bonds that are backed only by the creditworthiness and reputation of the issuer.

• They pay a fixed rate of interest and have a specified maturity date when the principal amount is repaid.

• Debentures can be issued by corporations, governments, or other entities to raise funds for various purposes.

• Investors who purchase deb...read more

Futures and forward contracts are financial agreements to buy or sell an asset at a specified price on a future date.

• Futures contracts are standardized and traded on exchanges, while forward contracts are customized and traded over-the-counter.

• Both contracts involve an agreement to buy or sell an asset at a predetermined price on a future date.

• Futures contracts require daily settlement of gains and losses, while forward contracts settle at the end of the contract period.

• Examp...read more