100+ Financial Analyst Interview Questions and Answers for Freshers

KYC stands for Know Your Customer. It is a process of verifying the identity of a customer before providing them with services.

• KYC is a regulatory requirement in many industries such as banking, insurance, and investment.

• It involves collecting and verifying personal information such as name, address, and identification documents.

• The purpose of KYC is to prevent fraud, money laundering, and terrorist financing.

• Examples of KYC procedures include asking for a government-issued I...read more

Clean price is the price of a bond excluding accrued interest, while dirty price includes accrued interest.

• Clean price is the price of a bond without any accrued interest

• Dirty price is the price of a bond including accrued interest

• Accrued interest is the interest that has accumulated on a bond since its last coupon payment

• Clean price + accrued interest = dirty price

• Dirty price is also known as the full or invoice price

TDS section 194J is related to payment of professional or technical services.

• TDS is deducted at the rate of 10% on the payment made for professional or technical services

• The threshold limit for TDS deduction under section 194J is Rs. 30,000

• The person making the payment is responsible for deducting TDS and depositing it with the government

• Examples of professional or technical services include legal, medical, engineering, accounting, and technical consultancy services

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Insurance is a contract between an individual and an insurance company to protect against financial loss.

• Insurance provides financial protection against unexpected events such as accidents, illnesses, and natural disasters.

• Types of insurance include health, life, auto, home, and business insurance.

• Insurance premiums are paid regularly to maintain coverage.

• Insurance companies use actuarial science to calculate risk and determine premiums.

• Insurance policies have terms and condi...read more

A derivative is a financial contract whose value is based on the performance of 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 specific price on a specific date

• Options give the holder the right, but not the obligation, to buy or sell an asset at a specific price on or before a specific date

• Swaps involve exchanging cash flows based on different financial instruments

• Forwards ar...read more

Capital market is a financial market where individuals and institutions trade financial securities.

• Capital market is where long-term securities like stocks and bonds are bought and sold.

• It provides a platform for companies to raise capital by issuing stocks or bonds.

• Investors can buy and sell securities in the capital market to earn returns.

• Examples of capital market include stock exchanges like NYSE and NASDAQ.

BRS stands for Bank Reconciliation Statement. It is used to reconcile the balance as per company's books with the balance as per bank statement.

• BRS is prepared to ensure that the company's records match the bank's records.

• Start by comparing the ending balance in the company's books with the ending balance in the bank statement.

• Identify and record any discrepancies such as outstanding checks, deposits in transit, bank charges, and interest earned.

• Adjust the company's records t...read more

Equity ratios are used to evaluate a company's financial health and performance by measuring its equity relative to other financial metrics.

• The formula for equity ratio is Total Equity / Total Assets.

• Equity ratios help investors and analysts assess a company's leverage and risk.

• For example, if a company has total equity of $500,000 and total assets of $1,000,000, the equity ratio would be 0.5 or 50%.

Fund accounting is an accounting principle used by non-profit organizations to track and report on funds separately.

• Fund accounting is used to track and report on funds separately, allowing non-profit organizations to demonstrate accountability and transparency.

• Each fund is treated as a separate accounting entity, with its own set of financial statements.

• Examples of funds include general funds, restricted funds, endowment funds, and capital funds.

• Fund accounting is often used...read more

Financial ratios are tools used to evaluate a company's financial performance and health.

• Liquidity ratios measure a company's ability to meet short-term obligations (ex: current ratio)

• Profitability ratios assess a company's ability to generate profits (ex: return on equity)

• Efficiency ratios evaluate how well a company utilizes its assets to generate sales (ex: asset turnover ratio)

• Leverage ratios indicate the level of debt a company has taken on (ex: debt-to-equity ratio)

The golden rules of accounting are fundamental principles that guide the recording of financial transactions.

• The first golden rule is the Debit and Credit rule, which states that for every transaction, there must be at least two accounts involved, and the total debits must equal the total credits.

• The second golden rule is the Real Account rule, which states that real accounts (assets, liabilities, and equity) increase with debits and decrease with credits.

• The third golden rul...read more

Capital market is where long-term securities are bought and sold, while money market deals with short-term debt securities.

• Capital market involves trading of long-term securities like stocks and bonds

• Money market deals with short-term debt securities like treasury bills and commercial paper

• Capital market helps in raising long-term funds for companies and governments

• Money market provides short-term liquidity and financing options for businesses and financial institutions

RBI has issued various guidelines for KYC to prevent money laundering and terrorist financing.

• RBI has made it mandatory for banks to follow KYC guidelines for all their customers.

• The guidelines require banks to verify the identity and address of their customers.

• Banks are also required to obtain information about the customer's occupation and source of income.

• RBI has also issued guidelines for simplified KYC for low-risk customers.

• Banks are required to periodically update thei...read more

Investment banking is a type of financial service that helps companies and governments raise capital by underwriting and selling securities.

• Investment banks act as intermediaries between issuers of securities and investors.

• They provide services such as underwriting, mergers and acquisitions, and securities trading.

• Examples of investment banks include Goldman Sachs, JPMorgan Chase, and Morgan Stanley.

A derivative is a financial contract whose value is derived from the performance of an underlying asset, index, or entity.

• Derivatives can be used for hedging, speculation, or arbitrage.

• Common types of derivatives include options, futures, forwards, and swaps.

• Derivatives allow investors to take on risk or hedge against risk without owning the underlying asset.

• The value of a derivative is based on the expected future price movements of the underlying asset.

• Derivatives are trade...read more

Core in a company refers to the central operations or main business activities that drive revenue and profitability.

• Core calculations in a company typically involve analyzing key financial metrics related to its main business operations.

• This can include assessing revenue streams, profit margins, cost structures, and return on investment in core business activities.

• Examples of core calculations may include determining the contribution margin of a product line or analyzing the ...read more

Weighted Average Cost of Capital (WACC) is the average rate of return a company expects to compensate all its investors.

• WACC is calculated by taking the weighted average of the cost of equity and the cost of debt of a company.

• It is used to evaluate the cost of financing for a company and is often used in valuation models such as discounted cash flow (DCF).

• WACC takes into account the proportion of each type of capital (equity, debt) in a company's capital structure.

• For example...read more

Money market deals with short-term debt securities, while equity market deals with stocks and ownership in companies.

• Money market involves short-term borrowing and lending, typically with maturities of one year or less.

• Equity market involves buying and selling ownership shares of publicly traded companies.

• Money market securities include Treasury bills, commercial paper, and certificates of deposit.

• Equity market securities include common stocks, preferred stocks, and exchange-...read more

Yes, I have a good understanding of business.

• I have a degree in business administration.

• I have worked in finance and accounting roles for several years.

• I have experience analyzing financial statements and making recommendations based on the data.

• I am familiar with various business models and strategies.

• I keep up-to-date with industry trends and news.

• I have worked with various businesses, including startups and established corporations.

Capital market is where long-term securities like stocks and bonds are bought and sold. Bonds are debt securities issued by corporations or governments. Debentures are unsecured bonds backed by the creditworthiness of the issuer.

• Capital market is a financial market where long-term securities like stocks and bonds are bought and sold

• Bonds are debt securities issued by corporations or governments to raise capital, with a fixed interest rate and maturity date

• Debentures are unsec...read more

A balance sheet is a financial statement that provides a snapshot of a company's assets, liabilities, and shareholders' equity at a specific point in time. BRS stands for Bank Reconciliation Statement.

• Balance sheet is a summary of a company's financial position

• It shows the company's assets, liabilities, and shareholders' equity

• Assets include cash, inventory, property, and investments

• Liabilities include debts, loans, and obligations

• Shareholders' equity represents the company's...read more

Trade Life Cycle is the process of a trade from initiation to settlement.

• Trade initiation

• Order routing

• Execution

• Confirmation

• Clearing and settlement

• Trade reporting

Repo is a financial transaction where one party sells securities to another party with an agreement to buy them back at a later date.

• Repo stands for repurchase agreement.

• It is a short-term borrowing mechanism used by banks and other financial institutions.

• The party selling the securities is known as the 'seller' or 'borrower', while the party buying the securities is known as the 'buyer' or 'lender'.

• The interest rate on a repo transaction is known as the 'repo rate'.

• Example: ...read more

Stock market is a platform where buying, selling, and issuing of shares of publicly-held companies take place.

• Stock market is a place where investors can buy and sell shares of publicly traded companies.

• It provides a platform for companies to raise capital by issuing stocks to the public.

• Stock prices are determined by supply and demand, as well as various economic factors.

• Examples of stock markets include the New York Stock Exchange (NYSE) and NASDAQ.

KYC stands for Know Your Customer and includes various types such as basic KYC, enhanced KYC, and ongoing KYC.

• Basic KYC involves verifying customer identity through documents like ID proof and address proof.

• Enhanced KYC includes additional verification steps like in-person verification or biometric authentication.

• Ongoing KYC involves regularly updating customer information to ensure compliance with regulations.

• Examples of KYC documents include passport, driver's license, util...read more

Regulators in India oversee various sectors including finance, securities, telecommunications, and more.

• Securities and Exchange Board of India (SEBI) regulates the securities market

• Reserve Bank of India (RBI) regulates the banking sector

• Telecom Regulatory Authority of India (TRAI) regulates the telecommunications industry

• Insurance Regulatory and Development Authority of India (IRDAI) regulates the insurance sector

Methods of valuation include discounted cash flow, comparable company analysis, precedent transactions, and asset-based valuation.

• Discounted cash flow (DCF) - estimates the value of an investment based on its future cash flows

• Comparable company analysis - compares the target company to similar publicly traded companies

• Precedent transactions - looks at the prices paid for similar companies in the past

• Asset-based valuation - values a company based on its assets and liabilities

Debt is money borrowed by a company or individual that must be repaid with interest. Equity is ownership in a company.

• Debt is a liability that must be paid back with interest

• Equity represents ownership in a company

• Debt holders have priority over equity holders in case of bankruptcy

• Examples of debt include loans, bonds, and mortgages

• Examples of equity include stocks and shares

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

• Dividends are typically paid in cash, but can also be paid in the form of additional shares of stock.

• Dividends are usually paid on a regular basis, such as quarterly or annually.

• Companies may choose to reinvest their earnings instead of paying dividends to shareholders.

• Dividend yield is a measure of how much a company pays out in dividends relative to its stock price.

A bond is a debt investment where an investor loans money to an entity which borrows the funds for a defined period at a fixed interest rate.

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

• Types of bonds include government bonds, corporate bonds, municipal bonds, and convertible bonds.

• Government bonds are issued by national governments and are considered low-risk investments.

• Corporate bonds are issued by companies to raise ca...read more

Sustainable finance refers to financial activities that promote sustainable development and environmental responsibility.

• Involves investing in companies with strong environmental, social, and governance (ESG) practices

• Encourages the integration of ESG factors into investment decisions

• Includes green bonds, social impact investing, and sustainable investing strategies

• Aims to support long-term economic growth while minimizing negative impacts on society and the environment

Derivatives are financial instruments whose value is derived from an underlying asset or group of assets.

• Derivatives can be used for hedging, speculation, or arbitrage.

• Common types of derivatives include options, futures, forwards, and swaps.

• Derivatives allow investors to take on risk or hedge against risk without owning the underlying asset.

• They are often used in financial markets to manage risk and leverage investment opportunities.

Fixed income securities are debt instruments that pay a fixed interest rate over a specific period of time.

• Fixed income securities are also known as bonds.

• They are issued by governments, corporations, and other entities to raise capital.

• Investors receive regular interest payments until the bond matures, at which point they receive the principal amount.

• The interest rate on fixed income securities is determined by the creditworthiness of the issuer and the prevailing market int...read more

Derivatives are financial contracts that derive their value from an underlying asset or security.

• Derivatives can be used for hedging or speculation.

• Common types of derivatives include options, futures, and swaps.

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

• Derivatives played a role in the 2008 financial crisis.

• Derivatives can be complex and carry significant risk.

A share is a unit of ownership in a company that represents a portion of the company's assets and earnings.

• Shares are bought and sold on stock exchanges.

• Shareholders have the right to vote on company decisions and receive dividends.

• The value of a share can fluctuate based on market demand and the company's performance.

• Companies can issue different types of shares, such as common shares and preferred shares.

Financial statements are formal records of the financial activities and position of a business, person, or other entity.

• Financial statements include the balance sheet, income statement, and cash flow statement.

• They provide information on the financial health and performance of a company.

• Balance sheet shows assets, liabilities, and equity at a specific point in time.

• Income statement shows revenues, expenses, and profits over a period of time.

• Cash flow statement shows the inflo...read more

Maths is essential for financial analysis as it provides the foundation for statistical analysis and financial modeling.

• Maths helps in understanding complex financial data and making informed decisions.

• It enables financial analysts to calculate ratios, perform trend analysis, and forecast future performance.

• Maths is also crucial for risk management and portfolio optimization.

• For example, calculus is used to calculate the optimal portfolio mix of assets.

• Linear algebra is used ...read more

Trad life cycle refers to the traditional life cycle of a financial product or service, including its stages from inception to maturity.

• The traditional life cycle typically includes stages such as product development, market introduction, growth, maturity, and decline.

• During the product development stage, the financial analyst may be involved in conducting market research, analyzing competitors, and developing financial models.

• In the market introduction stage, the analyst may...read more

Secured loan is a type of loan that is backed by collateral, reducing the risk for the lender.

• Secured loan requires collateral, such as a house or car, to secure the loan

• If the borrower fails to repay the loan, the lender can take possession of the collateral

• Interest rates on secured loans are typically lower than unsecured loans due to reduced risk for the lender

Dividend is a portion of a company's profits paid to shareholders as a return on their investment.

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

• It is usually paid in cash, but can also be in the form of stock or property

• Dividend amount is decided by the company's board of directors

• Dividend yield is the percentage of the current stock price that is paid out as dividends

• Example: Apple Inc. paid a dividend of $0.82 per share in May 2021

Account payables are amounts owed by a company to its suppliers or vendors for goods or services purchased on credit.

• Account payables represent a company's short-term liabilities

• They are typically recorded as current liabilities on the balance sheet

• Companies often have terms for payment, such as net 30 or net 60, which indicate when the payment is due

• Examples include invoices from suppliers for raw materials, utilities, or services rendered

Equity derivatives are financial instruments whose value is based on the price of an underlying equity security.

• Equity derivatives allow investors to speculate on the price movements of individual stocks or stock indices.

• Common types of equity derivatives include options, futures, and swaps.

• These instruments can be used for hedging, speculation, or arbitrage purposes.

• The value of equity derivatives is derived from the price of the underlying equity security.

• Investors can use ...read more

Different ways to value a company include discounted cash flow, comparable company analysis, precedent transactions, and asset-based valuation.

• Discounted cash flow (DCF) analysis estimates the value of a company based on its future cash flows.

• Comparable company analysis (CCA) compares the company to similar publicly traded companies to determine its value.

• Precedent transactions analysis looks at the prices paid for similar companies in the past to determine a company's value....read more

Investment banks perform various functions such as underwriting, M&A advisory, sales and trading, research, and asset management.

• Underwriting: helping companies issue securities and managing the process of selling them to investors

• M&A advisory: advising companies on mergers and acquisitions

• Sales and trading: buying and selling securities on behalf of clients

• Research: providing analysis and recommendations on companies and industries

• Asset management: managing investment portfo...read more

Derivatives are financial contracts that derive their value from an underlying asset or security.

• Derivatives can be used for hedging or speculation.

• Examples include futures, options, swaps, and forwards.

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

• Derivatives can be complex and involve high levels of risk.

• They are widely used in the financial industry.

The 3 way matching concept ensures that the purchase order, invoice, and receiving report match before payment is made.

• The purchase order is created by the buyer and includes details such as quantity, price, and delivery date.

• The receiving report is created by the receiver and confirms that the goods have been received and are in good condition.

• The invoice is created by the seller and includes details such as the price and quantity of goods delivered.

• All three documents must ...read more