Financial analysts analyse financial data and utilise the results of their findings to assist businesses in making financial decisions. Frequently, their analysis is intended to aid businesses in making important investment decisions.
Some of the essential responsibilities and duties that a financial analyst performs regularly are as follows:
How much does a financial analyst make?
The national average salary for a financial analyst is ₹ 4.0 LPA in India. The salary of a financial analyst ranges from ₹ 2.1 Lakhs to ₹ 10.1 Lakhs based on their skills and years of experience.
Helpful article: How to get a job in the finance sector
The following are the essential eligibility criteria for applying for the position of the financial analyst:
Individuals with an MBA degree are usually preferred as they display the appropriate skills and experiences needed for the job.
Here are 30 potential financial analyst interview questions and answers that are asked to candidates applying for the role of a financial analyst.
1. What four financial statements are used to monitor a company’s finances?
The four financial statements that are used to monitor a company’s finances are:
2. Explain financial modelling.
Financial modelling is a process wherein a company’s expenditures and incomes are summarised (usually into spreadsheets) to predict the impact of a future event or decision. It is also very impactful for the following tasks:
3. What is a cash flow statement?
In simple terms, a cash flow statement is a financial statement that summarises the movement of cash and cash equivalents (CCE) that come in and go out of a company.
4. What is the best evaluation metric for analysing a company’s stock?
The most common method for determining a stock’s value is to calculate the company’s price-to-earnings (P/E) ratio. The P/E ratio is calculated by dividing the company’s stock price by its most recently reported earnings per share (EPS).
5. Tell me about quarterly forecasting and expense models.
Quarterly forecasting is the analysis of expenses and revenue that are expected to be produced or incurred in the future. An expense model specifies which expense categories are permitted on a specific type of work order, which serves as the foundation for budget creation. It aids in identifying variable and fixed costs and serves as a foundation for accurately forecasting the company’s expected profit or loss.
6. What process do you use to create sales reports?
Sales reports are written summaries of a company’s sales activities for a given time frame. These reports often contain data on revenue, leads, new clients, and sales volume. Creating a sales report is a detailed step-by-step process requiring a thorough understanding of the requirements and the purpose of making the report. Filing a sales report can be implemented by adhering to the following steps.
7. Do you have any industry licence or certifications? If so, what are they?
An interviewer may ask this question to know if your qualifications are suitable for the position. If you have certifications or licensure, this is a perfect chance to discuss how they helped improve your skills.
8. What financial methodologies do you use for conducting an analysis?
Analysts employ various strategies to gain a thorough grasp of a company’s financial performance. The three methods of financial analysis most frequently used are ratio and trend analysis, vertical analysis, and horizontal analysis.
9. List the differences between a journal and a ledger
Transactions are recorded in a supplementary book of accounts called the journal. A ledger is a primary book of accounts to organise the transactions entered in a journal. The journal entries are entered in reverse chronological order from the day of the transaction.
*The ledger includes specific accounts taken from the original journal, a book where all financial transactions are first recorded. So in layman’s terms, journals are the raw books that play a pivotal role in preparing the ledger. It gives us a second conclusion: if you wrongly prepare a journal, your ledger will also be faulty.
However, here recruiter will ask this question during the financial analyst interview to understand your foundational knowledge as this, directly or indirectly, relates to the Financial Analyst job role, which is mentioned below:
10. What is ‘cost accountancy’?
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 and the presentation of information for managerial decision-making.
11. Name the various financial statements.
There are four main financial statements:
12. What do you know about the stock market?
A stock market is where investors buy and sell company shares. It is a network of exchanges where companies trade shares and other securities.
13. What is ‘capital structure’?
In corporate finance, capital structure refers to the combination of several external funding sources, also known as capital, utilised to finance a company. It is listed on the firm’s balance sheet and comprises equity owned by shareholders, debt, and preferred shares.
14. How would the income statement change if a company’s debts increased?
Interest payments on debt lower the net income and cash flow but do not erode ownership. Due to the decreased taxable income, this decrease in net income also provides a tax advantage. Leverage ratios like debt-to-equity and debt-to-total capital grow when debt levels rise.
*An interviewer asks this question to assess how prepared you are for a financial analyst position and whether you have the correct expertise to perform well. Your answer should directly address how company debt affects an income statement. Example: “If a company’s debts increase, this would decrease the net income (or profit) listed in a company’s income statement.”
How would you explain solvency to a person without financial knowledge?
Solvency is the ability of a company to meet its long-term debts and other financial obligations. Solvency is the measure of a company’s financial health since it demonstrates its ability to manage operations into the foreseeable future. Investors can use ratios to analyse a company’s solvency. An example of a business with solvency is that it can pay all its bills – the ability to pay debts, specifically interest debt payments, when they are due.
16. What do you know about valuation techniques?
For calculating the valuation of a business or stocks, generally, the following three types of valuation techniques are used:
*You may also consider the following courses for a better understanding of the subject:
17. What is ratio analysis?
Ratio analysis is a quantitative approach used by financial analysts to gain deeper insights into a company’s overall equity analysis by studying its financial statements. Stakeholders can assess a company’s profitability, liquidity, operational efficiency, and solvency status by the ratio analysis method. It aids in:
Some of the most frequently analysed financial ratios are:
18. How do you create financial analysis reports?
The financial analysis report focuses on a company’s financial strengths and shortcomings. The data on a financial analysis report indicates the company’s financial health to investors. A financial analysis report can be used to pique the attention of investors and aid in the expansion of a firm. The steps below are followed in developing financial analysis reports:
19. Differentiate between a P&L statement and a balance sheet?
A balance sheet gives thes summary of the financial position of a company for a specific point in time. The profit and loss statement gives info about revenues and expenses during a set period.
20. Differentiate between cash flow and free cash flow.
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.
21. How will you gauge a company’s liquidity?
Measuring the firm’s liquidity means finding the company’s ability to pay its current debt with its existing assets. Here is an essential process to measure the company’s liquidity:
However, if you choose between cash flow or income, the better idea is to gauge the company’s liquidity based on cash flow since using earnings is a more reliable approach.
22. What is variance analysis?
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 favourability of each item by comparing actual costs to standard costs in the industry.
23. Tell me about EBITDA.
Earnings Before Interest, Taxes, Depreciation, and Amortisation, or EBITDA, is a method of measuring the total financial success of a company. It frequently serves as a replacement for other indicators, including earnings, revenue, and income.
There are two methods to calculate this:
EBITDA=Net Income Interest Taxes D A
EBITDA=Operating Profit DE AE
24. If you encounter inconsistencies in a company’s finances, how will you handle the situation?
An employer uses this question to determine how you would react to a potential problem or an ethical dilemma. In your response, demonstrate your devotion to ethical business practices and enforcement. Example: “In my previous position, I was analysing a small business’s financial records when I noticed that a portion of funds had disappeared from its income statement. There was no record of where these funds went, and the same amount was missing each month, so I talked with my supervisor and we brought it to the business owner’s attention.”
25. What do you feel is the best profitability model to forecast your projects?
I would usually choose a profitability model that reflected the type of business I was forecasting, but if I had to choose one for all of my projects, I would use the financial model because a company’s finances constantly fluctuate.
*Interviewers use this question to gauge your knowledge of industry terminology. When you give your answer, specify a model and explain your reasoning for choosing it.
26. Explain why you should analyse long-term liability.
Debts outstanding for more than a year refer to long-term liability. By analysing it, a company can know its financial strength.
27. What are the components of the DuPont model, and how do you calculate them?
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
28. How are the income, balance, and cash flow statements related?
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.
29. How do assets and liabilities affect a company’s cash flow?
There are a few aspects of how a cash flow of an organisation can be affected:
30. What do you mean by working capital? Explain the various types.
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
*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.
MBA finance course guide
Key concepts to learn in MBA finance course
MBA in finance or M.Com in finance
Online Manipal, the online platform of Manipal University Jaipur, provides a range of UGC entitled finance-related courses and placement assistance programmes to students. Various finance-related courses provided by Online Manipal include B.Com, M.Com, MBA in Finance, MBA in IT & Fintech, and MBA in BFSI. The courses are designed by industry experts to equip students with relevant skills and experiences for a bright future.
Students are prepared to be focused and interview-ready for future opportunities. Sessions like resume review, LinkedIn profile building, interpersonal skills, business guidelines etc., are provided to groom students for their future careers. Career advisory and skill development programmes provide additional benefits to students enrolled in the online programmes. The placement cell works with leading organisations to offer internships and jobs to potential students across various sectors. Final selection happens based on the hiring company, their recruitment policies and candidature fit.
The financial analyst role is essential for a company’s financial planning and analysis department. They help in analysing financial statements and predicting the future of the company. They also forecast future expenses and revenues in modelling capital structure and budgeting. They keep track of the financial plan, analyse the company’s performance, along with changes and market trends. They help calculate variances and trends between forecasts and actuals and find out the causes of these variances. Their job is to report findings to the management and stakeholders and help shape the company’s strategic planning.
Information related to companies and external organizations is based on secondary research or the opinion of individual authors and must not be interpreted as the official information shared by the concerned organization.
Additionally, information like fee, eligibility, scholarships, finance options etc. on offerings and programs listed on Online Manipal may change as per the discretion of respective universities so please refer to the respective program page for latest information. Any information provided in blogs is not binding and cannot be taken as final.
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