600+ Financial Analyst Interview Questions and Answers

Journal entry for salary expense with 10% TDS

• Debit Salary Expense account for the gross salary amount

• Credit TDS Payable account for the TDS amount

• Credit Cash/Bank account for the net salary amount

• Example: Debit Salary Expense account for $10,000, Credit TDS Payable account for $1,000, Credit Cash/Bank account for $9,000

• Ensure to record the entry at the end of the month or the payment period

Cash flow is the movement of money in and out of a business, financial statements are reports showing a company's financial performance, EBITDA is calculated by adding back interest, taxes, depreciation, and amortization, financial ratios are used to analyze a company's financial health.

• Cash flow is the net amount of cash and cash equivalents being transferred into and out of a business.

• Financial statements are formal records of a company's financial activities, including the...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.

Price-to-earnings (P/E) ratio is used to evaluate the share.

• P/E ratio compares the current market price of a share to its earnings per share (EPS).

• It helps investors determine if a stock is overvalued or undervalued.

• A high P/E ratio may indicate that the stock is overvalued, while a low P/E ratio may indicate that the stock is undervalued.

• For example, if a company has a P/E ratio of 20, it means that investors are willing to pay $20 for every $1 of earnings.

• However, P/E ratio...read more

Questions related to GST refund, GSTR 1, classification of expenditures, input credit, golden rules of accounting, and fictitious assets.

• GST refund procedure involves filing GSTR 1 with necessary details.

• Expenditures are classified into capital and revenue expenditure based on their nature and usage.

• Input credit on treat provided to employees cannot be availed as it is not a business expense.

• Input credit on purchase of motor vehicle for office purpose can be availed as it is ...read more

A new litigation liability can negatively impact the enterprise value.

• Litigation liability can lead to financial losses for the company

• It can also damage the company's reputation and affect future earnings

• The impact on enterprise value depends on the severity of the liability and the company's ability to manage it

• Investors may also perceive the company as riskier, leading to a decrease in stock price

• Examples include lawsuits related to product defects, environmental damage, o...read more

The two financial statements I would pick are the income statement and the balance sheet.

• The income statement shows a company's revenue, expenses, and net income over a period of time.

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

• Both statements are important for analyzing a company's financial health and performance.

• For example, the income statement can help determine if a company is profitable, while the balance sheet can sh...read more

Ratios like gross margin, inventory turnover, and return on assets are used to evaluate a manufacturing unit.

• Gross margin ratio measures the profitability of the manufacturing unit by comparing the revenue and cost of goods sold.

• Inventory turnover ratio measures how efficiently the manufacturing unit is managing its inventory.

• Return on assets ratio measures how effectively the manufacturing unit is using its assets to generate profits.

• Other ratios like debt-to-equity ratio, c...read more

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.

No, social media influencers are here to stay.

• Social media has become an integral part of our lives and will continue to be so.

• Influencers have a huge impact on consumer behavior and brand marketing.

• The industry is constantly evolving and adapting to changes.

• Influencers are diversifying their content and expanding their reach.

• Brands are investing more in influencer marketing than ever before.

• Examples: Kylie Jenner, PewDiePie, Huda Kattan, etc.

Corporate actions are events initiated by a company that can affect its stock price and shareholders.

• Types of corporate actions include stock splits, dividends, mergers and acquisitions, spin-offs, and rights issues.

• Stock splits involve dividing existing shares into multiple shares to increase liquidity and affordability.

• Dividends are payments made to shareholders from a company's profits.

• Mergers and acquisitions involve the combination of two or more companies.

• Spin-offs occu...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

A mutual fund is a type of investment vehicle that pools money from multiple investors to invest in stocks, bonds, or other assets.

• Mutual funds are managed by professional fund managers.

• Investors buy shares in the mutual fund and the value of their investment is determined by the performance of the underlying assets.

• Types of mutual funds include equity funds, bond funds, money market funds, and balanced funds.

• Equity funds invest in stocks, bond funds invest in bonds, money ma...read more

A demat account is an electronic account that holds shares and securities in a digital format.

• Demat account stands for dematerialized account.

• It eliminates the need for physical share certificates.

• It allows for easy and secure trading of shares and securities.

• It is mandatory for trading in the stock market.

• Examples of demat account providers include HDFC Bank, ICICI Bank, and Kotak Securities.

Yes, I am following the euro zone crisis closely.

• The crisis began in 2009 with Greece's debt crisis and has since spread to other countries in the euro zone.

• The European Central Bank has implemented various measures to address the crisis, including quantitative easing and low interest rates.

• Brexit has also added to the uncertainty in the euro zone.

• Recent updates include the approval of a €750 billion recovery fund to help member states recover from the COVID-19 pandemic.

• There...read more

Forecasting revenue of a new product requires market research, analysis of competition, and estimation of demand.

• Conduct market research to identify potential customers and their needs

• Analyze competition to understand their pricing, marketing, and sales strategies

• Estimate demand based on market size, target audience, and pricing

• Consider external factors such as economic conditions and industry trends

• Use financial models such as discounted cash flow analysis or revenue forecas...read more

Finance is the study of money management and investment decisions. It involves analyzing financial data to make informed decisions.

• Finance is the management of money and investments

• It involves analyzing financial data to make informed decisions

• Finance helps individuals and organizations make financial decisions

• It includes financial planning, budgeting, investing, and risk management

• Finance plays a crucial role in the economy by allocating resources efficiently

• Examples of fina...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.

The most effective form of heat transfer is convection.

• Convection is the transfer of heat through the movement of fluids (liquids or gases).

• It is more efficient than conduction (transfer of heat through a solid) and radiation (transfer of heat through electromagnetic waves).

• Examples of convection include boiling water, ocean currents, and wind.

• Natural convection occurs due to differences in temperature and density, while forced convection is caused by external factors like fa...read more

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

Budgeting and forecasting are typically done annually, but may be done more frequently in certain industries or circumstances.

• Budgeting and forecasting are important tools for financial planning and decision-making.

• Most companies will do an annual budget and forecast, but may also do quarterly or monthly updates.

• Industries with rapidly changing market conditions, such as technology or fashion, may require more frequent updates.

• Budgeting and forecasting may also be done in res...read more

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

• Capital market facilitates the buying and selling of long-term debt and equity instruments.

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

• Investors can buy and sell securities such as stocks, bonds, and derivatives in the capital market.

• The capital market includes primary market where new securities are issued and secondary market where existin...read more

Deferred revenue is the income received in advance for goods or services that are yet to be delivered or rendered.

• Deferred revenue is a liability on the balance sheet.

• It is recognized as revenue only when the goods or services are delivered or rendered.

• Examples include subscription fees, advance payments for software licenses, and gift cards.

• Deferred revenue is also known as unearned revenue or advance payments.

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

Both revenue and profits are important, but profits are more crucial for long-term sustainability and growth.

• Revenue is the total amount of money earned by a company from its sales, while profits are the amount of money left over after deducting all expenses.

• While revenue is important for a company's short-term success, profits are crucial for its long-term sustainability and growth.

• A company with high revenue but low profits may not be able to sustain itself in the long run,...read more

FundsRoom is a financial technology company that provides a secure and efficient platform for fund managers to manage their investor communications and data.

• FundsRoom offers a cloud-based platform for fund managers to securely share documents and data with investors.

• The platform streamlines investor communications and reduces administrative tasks for fund managers.

• FundsRoom's features include document management, investor reporting, and data analytics.

• The platform is customiz...read more

Steps to review a financial budget

• Check if the budget aligns with the company's goals and objectives

• Analyze the historical financial data to identify trends and patterns

• Evaluate the assumptions and estimates used in the budget

• Ensure that the budget is realistic and achievable

• Identify potential risks and opportunities

• Review the budget with relevant stakeholders and incorporate feedback

• Monitor actual performance against the budget and make necessary adjustments

Re-class entry for revenue posted to wrong GL

• Identify the correct GL account for the revenue

• Reverse the entry from the wrong GL account

• Post the entry to the correct GL account

• Ensure that the financial statements are adjusted accordingly

Balance sheet and P&L statement sections explained.

• Balance sheet sections: Assets, Liabilities, Equity

• P&L statement sections: Revenue, Cost of Goods Sold, Gross Profit, Operating Expenses, Net Income

• Assets include current and non-current assets such as cash, inventory, property, and equipment

• Liabilities include current and long-term liabilities such as accounts payable, loans, and bonds

• Equity includes common stock, retained earnings, and other equity

• Revenue is the income gene...read more

Bullish market is when the stock prices are rising, while bearish market is when the stock prices are falling.

• Bullish market is characterized by optimism and confidence among investors.

• Bearish market is characterized by pessimism and fear among investors.

• Bullish market is associated with high trading volumes and increased demand for stocks.

• Bearish market is associated with low trading volumes and decreased demand for stocks.

• Examples of bullish markets include the dot-com boom...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

Neither is better as both have negative environmental impacts and are being phased out in favor of renewable energy sources.

• Coal and petroleum are both non-renewable fossil fuels

• Burning coal releases more carbon dioxide and other pollutants than burning petroleum

• Petroleum is more versatile and used in a wider range of industries

• Both fuels are being phased out in favor of renewable energy sources like solar and wind power

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

To ensure drawing same color, minimum number of draws is max(n1, n2, ...)

• Calculate the maximum number of shoes of a single color

• Draw that many shoes to ensure at least one color is repeated

• Example: Box has 3 red, 4 blue, 2 green shoes. Minimum draws = 4 (to get 2 blue shoes)

• Formula: Min draws = ceil(2/(1 - (max(n1, n2, ...) / total shoes)))

Trade life cycle refers to the stages involved in a trade from initiation to settlement.

• The trade life cycle includes trade initiation, trade execution, trade confirmation, trade settlement, and trade accounting.

• Trade initiation involves the decision to buy or sell securities and the selection of a broker.

• Trade execution involves the actual buying or selling of securities.

• Trade confirmation involves verifying the details of the trade.

• Trade settlement involves the exchange of ...read more

I would analyze the terms of the bond and its impact on the company's financials.

• Review the interest rate and maturity date of the bond

• Assess the impact on the company's debt-to-equity ratio

• Evaluate the potential benefits and risks of issuing bonds

• Consider alternative financing options

• Communicate findings to management and make recommendations

I can work on various financial applications including accounting software, financial analysis tools, and investment management platforms.

• Proficient in using accounting software such as QuickBooks and Xero

• Skilled in financial analysis tools like Excel and Bloomberg Terminal

• Familiar with investment management platforms such as E*TRADE and TD Ameritrade

• Experience in using financial modeling software like MATLAB and R

• Knowledgeable in using ERP systems like SAP and Oracle

If vendor PO is not passed, it goes through a review process and may require additional approval.

• Vendor PO may not be passed due to various reasons such as incorrect pricing, quantity, or product

• The PO will go through a review process to identify the issue and determine the appropriate action

• Additional approval may be required before the PO can be passed and processed

Credit appraisal of SME units involves assessing their financial health, management capabilities, market position, and repayment capacity.

• Analyze financial statements, including balance sheets, income statements, and cash flow statements

• Evaluate management team and their experience in the industry

• Assess market position and competition

• Review credit history and repayment capacity

• Consider collateral and guarantees

• Use credit scoring models and ratios to determine creditworthiness...read more

Brittle materials can be shaped through processes like grinding, cutting, and molding.

• Brittle materials are those that break easily under stress.

• Grinding can be used to shape brittle materials like ceramics and glass.

• Cutting can be used to shape brittle materials like diamonds.

• Molding can be used to shape brittle materials like plaster of Paris.

• The shaping process must be done carefully to avoid cracking or breaking the material.

EV/EBITDA is a valuation metric used to evaluate a company's financial performance and potential for growth.

• EV/EBITDA compares a company's enterprise value (EV) to its earnings before interest, taxes, depreciation, and amortization (EBITDA).

• It is useful for comparing companies in the same industry or sector.

• A lower EV/EBITDA ratio indicates that a company may be undervalued, while a higher ratio may indicate that a company is overvalued.

• EV/EBITDA can be used in conjunction wi...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

The number of balls that can fit in a Boeing 737 depends on the size of the balls and the available space in the aircraft.

• The size of the balls and the available space in the Boeing 737 will determine the number of balls that can fit.

• The cargo hold of a Boeing 737 can accommodate a certain volume of cargo, which can be used to estimate the number of balls that can fit.

• Consider the dimensions of the cargo hold and the size of the balls to calculate an approximate number.

If the interest rate in the market goes up

• The cost of borrowing increases

• Bond prices decrease

• Stock prices may decrease

• Inflation may decrease

• Currency may appreciate

Secured loans are backed by collateral while unsecured loans are not. Insolvency is a financial state where a person or company is unable to pay their debts.

• Secured loans require collateral such as a house or car, while unsecured loans do not.

• In case of default, the lender can seize the collateral for secured loans.

• Unsecured loans are based on creditworthiness and may have higher interest rates.

• Insolvency is a state where a person or company is unable to pay their debts and m...read more

Fill a 5X5 matrix with numbers 1-25 such that each number is average of adjacent numbers.

• Start with the center number and fill the adjacent numbers with consecutive odd numbers

• Fill the remaining numbers in a spiral pattern, using the average of adjacent numbers

• Check for edge cases and adjust the numbers accordingly

• Example: 13 12 11 10 9, 14 3 2 1 8, 15 4 center 6 7, 16 5 18 19 20, 17 22 23 24 25