600+ Financial Analyst Interview Questions and Answers

The golden rules of accounts are basic principles that guide the recording of financial transactions.

• The golden rules include the principles of debit and credit.

• Debit the receiver, credit the giver.

• Debit what comes in, credit what goes out.

• Debit expenses and losses, credit income and gains.

• Debit assets and expenses, credit liabilities, equity, and income.

• Examples: Debiting cash when receiving payment, crediting accounts payable when making a payment.

Taking after tax EBIT / EBIT *(1-T) in FCFF calculation adjusts for taxes and interest expenses.

• FCFF (Free Cash Flow to Firm) is calculated before interest and taxes, so adjusting for taxes with after tax EBIT / EBIT *(1-T) accounts for the tax shield provided by interest expenses.

• FCFE (Free Cash Flow to Equity) is calculated after interest and taxes, so no adjustment is needed for taxes in the calculation.

• By using after tax EBIT / EBIT *(1-T) in FCFF calculation, we are esse...read more

I would prefer a lower cap rate as it indicates higher potential returns on investment.

• Lower cap rate implies higher potential returns on investment

• Higher cap rate may indicate higher risk or lower potential returns

• Investors typically prefer lower cap rates for safer investments

• Example: A cap rate of 5% may be preferred over a cap rate of 10%

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

EBIT is earnings before interest and taxes, EBITDA is earnings before interest, taxes, depreciation, and amortization, cash flow statements show the inflow and outflow of cash, financial ratios are used to analyze a company's financial performance.

• EBIT stands for Earnings Before Interest and Taxes, it is a measure of a company's profitability before taking into account interest and taxes.

• EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, it pro...read more

Current ratio includes all current assets, while quick ratio only includes liquid assets.

• Current ratio measures a company's ability to pay off its current liabilities with its current assets.

• Quick ratio is a more conservative measure of liquidity, as it only includes assets that can be quickly converted to cash.

• Current ratio formula: Current assets / Current liabilities

• Quick ratio formula: (Current assets - Inventory) / Current liabilities

• Example: A company with $100,000 in c...read more

Cash flow statement is a financial statement that shows the inflow and outflow of cash in a business over a period of time.

• It shows the sources of cash inflow and the uses of cash outflow.

• It helps in analyzing the liquidity and solvency of a business.

• It consists of three sections: operating activities, investing activities, and financing activities.

• Example: If a company sells its equipment, the cash received from the sale will be shown as a cash inflow in the investing activi...read more

A credit default swap is a financial contract that allows an investor to transfer the credit risk of a bond or loan to another party.

• It is a type of derivative instrument

• The buyer of the swap pays a premium to the seller in exchange for protection against default on a particular bond or loan

• If the bond or loan defaults, the seller of the swap pays the buyer the face value of the bond or loan

• Credit default swaps played a significant role in the 2008 financial crisis

• Example: A ...read more

Working capital is the difference between current assets and current liabilities.

• Working capital is the amount of money a company has available to fund its day-to-day operations.

• It is calculated by subtracting current liabilities from current assets.

• A positive working capital indicates that a company has enough funds to meet its short-term obligations.

• Examples of current assets include cash, accounts receivable, and inventory, while current liabilities include accounts payabl...read more

Changes in a situation can impact financial statements differently

• Changes in revenue will impact income statement by affecting net income

• Changes in inventory levels will impact balance sheet by affecting assets

• Changes in debt levels will impact cash flow statement by affecting financing activities

Accrual accounting is a method of accounting where revenues and expenses are recorded when they are earned or incurred, regardless of when the cash is received or paid.

• Revenue and expenses are recognized when they are earned or incurred, not when the cash is received or paid

• This method provides a more accurate picture of a company's financial health

• Accrual accounting is required by GAAP for publicly traded companies

• Example: A company provides services in December but doesn't ...read more

Salary is a fixed amount paid to an employee on a regular basis, while wages are paid hourly or daily based on the number of hours worked.

• Salary is usually paid on a monthly or annual basis, while wages are paid on an hourly or daily basis.

• Salary is fixed and does not change based on the number of hours worked, while wages are variable and depend on the number of hours worked.

• Salary is common for salaried employees, while wages are common for hourly employees.

• Salary may inclu...read more

A software company incurs various costs including development, marketing, infrastructure, and maintenance.

• Development costs for creating and updating software

• Marketing costs for promoting the software

• Infrastructure costs for hosting and maintaining servers

• Maintenance costs for fixing bugs and providing customer support

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

I reconcile an average of 20 accounts per day. I match transactions first.

• I reconcile an average of 20 accounts per day

• I match transactions first

• I prioritize high-value accounts

• I ensure accuracy by double-checking balances

• I use accounting software to streamline the process

Lease accounting involves recording lease agreements on the financial statements in accordance with accounting standards.

• Lease accounting requires classifying leases as either operating leases or finance leases.

• Operating leases are treated as off-balance sheet items, while finance leases are recorded as assets and liabilities on the balance sheet.

• Lease payments for operating leases are expensed on the income statement, while finance leases involve depreciation of the leased a...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

I am a financial analyst with expertise in P2P, accounting principles, and invoice processing.

• P2P stands for Procure-to-Pay, which is the process of requisitioning, purchasing, receiving, paying for, and accounting for goods and services.

• The golden rule of accounting states that debit what comes in and credit what goes out.

• Accounts payable is the amount a company owes to its suppliers or vendors for goods or services purchased on credit.

• Provision for doubtful debt is an estim...read more

HFM stands for Hyperion Financial Management, a financial consolidation and reporting software.

• HFM is used for financial consolidation, reporting, and analysis.

• It helps in streamlining the financial close process and improving accuracy.

• HFM is commonly used by large organizations for financial planning and analysis.

• Some key features of HFM include data consolidation, intercompany eliminations, and financial reporting.

• Examples of companies using HFM include Oracle, Deloitte, an...read more

I would carefully evaluate the new job offer and consider factors such as career growth, salary, benefits, and work-life balance before making a decision.

• Consider the potential for career advancement in the new job

• Compare the salary and benefits package of the new job with the current one

• Evaluate the work-life balance and job satisfaction in both positions

• Seek advice from mentors or career counselors to make an informed decision

Microsoft still uses Bing due to its integration with other products, potential for growth, and competition with Google.

• Integration with other Microsoft products like Windows and Office

• Potential for growth in areas like AI and voice search

• Competition with Google to maintain market share

Financial statements and analysis tools used in financial reporting and decision-making.

• Profit and Loss Statement (P&L): Shows a company's revenues, expenses, and profits over a specific period of time.

• Cash Flow Statement: Reports a company's sources and uses of cash during a specific period, showing how changes in balance sheet accounts and income affect cash and cash equivalents.

• Balance Sheet: Provides a snapshot of a company's financial position at a specific point in time...read more

XL Dynamics is a financial services company specializing in mortgage banking and technology solutions.

• XL Dynamics is known for its expertise in mortgage banking and technology solutions.

• They provide services like loan origination, underwriting, and quality control.

• The company uses advanced technology and automation to streamline processes and improve efficiency.

• XL Dynamics has a strong focus on data security and compliance.

• They have a team of skilled financial analysts who an...read more

INR to USD is less than Rs 70 now as Rupee has strengthened.

• Rupee strengthening means INR is worth more in USD

• INR to USD exchange rate is now less than Rs 70

• Example: INR to USD is now Rs 68

The Golden Rules of Accounting are basic principles that guide the recording of financial transactions.

• Debit the receiver, credit the giver

• Debit what comes in, credit what goes out

• Debit expenses and losses, credit income and gains

A lathe machine is a tool that rotates a workpiece on its axis to perform various operations such as cutting, drilling, sanding, and turning.

• It is used in metalworking, woodworking, and glassworking industries.

• The workpiece is held in place by a chuck or collet and rotated against a cutting tool.

• Lathe machines can be manual or computer-controlled (CNC).

• They are used to create symmetrical objects such as bowls, candlesticks, and gun barrels.

• Lathe machines can also be used for ...read more

I developed a financial model to analyze the profitability of a new product launch.

• Identified key revenue drivers and cost components

• Built a detailed revenue forecast based on market research and sales projections

• Created a cost model to estimate production, marketing, and distribution expenses

• Performed sensitivity analysis to assess the impact of different scenarios on profitability

• Presented findings and recommendations to senior management

Unemployment reduces in a country through various measures and policies.

• Economic growth and expansion of industries create more job opportunities.

• Government policies like tax incentives and subsidies encourage businesses to hire more employees.

• Investment in education and training programs helps to improve the skills of the workforce.

• Social welfare programs like unemployment benefits provide temporary relief to those who are unemployed.

• International trade and globalization can...read more

Accruals and deferrals are accounting adjustments made to ensure that revenues and expenses are recognized in the correct accounting period.

• Accruals are revenues or expenses that have been earned or incurred but have not yet been recorded in the accounting system.

• Deferrals are revenues or expenses that have been recorded in the accounting system but have not yet been earned or incurred.

• Examples of accruals include accounts receivable and accrued expenses, while examples of de...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

WACC stands for Weighted Average Cost of Capital and is used to determine the minimum return a company must earn on their investments to satisfy their shareholders and debt holders.

• WACC is calculated by taking the weighted average of the cost of equity and the cost of debt, with each component weighted by its respective proportion in the company's capital structure.

• In Real Estate, WACC is used to evaluate the feasibility of real estate projects by comparing the expected retur...read more

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

The negative item in the balance sheet is liabilities.

• Liabilities represent the company's debts or obligations that must be paid off in the future.

• Examples of liabilities include loans, accounts payable, and accrued expenses.

• Having high levels of liabilities relative to assets can indicate financial risk.

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

4 stroke engines are more efficient than 2 stroke engines due to better fuel economy and lower emissions.

• 4 stroke engines have a separate intake and exhaust stroke, resulting in better fuel economy.

• 2 stroke engines have a combined intake and exhaust stroke, resulting in higher fuel consumption.

• 4 stroke engines produce lower emissions due to a separate exhaust stroke.

• 2 stroke engines produce higher emissions due to a combined intake and exhaust stroke.

• Examples of 4 stroke engi...read more

Accruals are revenues earned but not yet received, while deferrals are payments received but not yet earned.

• Accruals are recorded as accounts receivable on the balance sheet.

• Deferrals are recorded as accounts payable on the balance sheet.

• Examples of accruals include interest income and sales revenue.

• Examples of deferrals include prepaid rent and unearned revenue.

• Accruals and deferrals are important for accurate financial reporting and matching revenues with expenses.

Bankruptcy is a legal process where a person or business is unable to repay their debts. Mortgage is a loan taken to buy a property.

• Bankruptcy is a legal process where a person or business declares that they are unable to repay their debts

• The court may liquidate the assets of the debtor to pay off the creditors

• Mortgage is a loan taken to buy a property, where the property is used as collateral

• The borrower pays back the loan with interest over a period of time

• If the borrower f...read more

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

For a non-listed company, financial statements can be obtained through direct request, industry reports, credit reports, or financial databases.

• Request financial statements directly from the company's management or investor relations department.

• Refer to industry reports or research from financial institutions that may have information on the company's financial performance.

• Obtain credit reports from credit rating agencies that may provide insights into the company's financial...read more

Financial statements are essential tools used by businesses to communicate their financial performance and position to stakeholders.

• Financial statements provide a snapshot of a company's financial health at a specific point in time.

• They help investors and creditors assess the company's profitability, liquidity, and overall financial stability.

• They are used by management to make informed decisions about the company's operations and future strategies.

• Financial statements includ...read more

The three financial statements - income statement, balance sheet, and cash flow statement - are interlinked through the flow of information and transactions.

• Income statement shows the company's revenues and expenses, which affect the net income reported on the statement.

• Net income from the income statement flows into the balance sheet as retained earnings, affecting the equity section of the balance sheet.

• Cash flow statement shows how changes in balance sheet accounts and inc...read more

Budgeting sets revenue goals, while forecasting predicts actual revenue in future periods.

• Budgeting involves setting financial goals for revenue to be achieved

• Forecasting involves predicting the actual amount of revenue that will be achieved in future periods

• Budgeting is more about planning and setting targets, while forecasting is about predicting outcomes

• Budgeting helps in allocating resources effectively, while forecasting helps in making informed decisions

• Examples: Budget...read more

Depreciation impacts all three financial statements by reducing the value of assets on the balance sheet, increasing expenses on the income statement, and affecting cash flow on the cash flow statement.

• Reduces the value of assets on the balance sheet, as the accumulated depreciation is subtracted from the original cost of the asset.

• Increases expenses on the income statement through the depreciation expense, which reduces net income.

• Affects cash flow on the cash flow statement...read more

I have knowledge on various financial instruments such as stocks, bonds, derivatives, and commodities.

• Familiarity with different types of stocks such as common, preferred, and penny stocks

• Understanding of bonds including government, corporate, and municipal bonds

• Knowledge of derivatives such as options, futures, and swaps

• Awareness of commodities like gold, oil, and agricultural products

• Ability to analyze and evaluate financial instruments based on market trends and economic i...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