A financial analyst is responsible for a wide range of activities including gathering data, organizing information, analyzing historical results, making forecasts and projections, making recommendations, and generating Excel models, presentations, and reports.
This article by Execkart lists 10 Important financial analyst interview questions with sample answers. From basic finance questions to challenging financial modeling concepts, test your industry knowledge and prepare to highlight your analytical skills.
Here are some of the important questions and its answers.
1. Why do you want to be a financial analyst?
Everyday a business analyst is faced with new challenges and new problems to solve, which makes it a perfect job for someone that values a dynamic and challenging work environment, and allows one to continuously develop their problem solving and critical thinking skills.
One answer to this question might be: “I decided to major in finance because I have long had an interest in understanding how businesses are structured—how they make money and how they're profitable.
2. Is it possible for a company to have a positive cash flow but still be in serious financial trouble?
To answer this Financial Analyst interview question you can say:
Yes. There are two examples –
A company that is selling off inventory but delaying payables will show positive cash flow for a while even though it is in trouble
A company has strong revenues for the period, but future forecasts show that revenues will decline
When you define such situations, it proves that you are not looking at the cash flow statements; instead, you care about where the cash is coming from or going to and mark all the points highlighting how the company is making or losing money.
3. What is working capital, and which are the different types of working capital?
The working capital formula is best defined as current assets minus current liabilities.
The primary function of working capital is to analyze the total amount of money that you have readily available to meet the demand of all the current expenses.
Since financial analysts play a major role in being an information mediator in capital markets, getting a true understanding of working capital needs is very essential. Also, an analyst must stay on their toes to forecast the actual working capital requirements, especially in the case 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, and you can even back your answer with the ways you used to boost the working capital.
4. DO YOU PREFER TO WORK ALONE OR IN A TEAM ENVIRONMENT?
There are many financial analyst positions in which collaboration is integral to the job. For instance, you might be building sales models for a company, while another employee builds vendor models, and the two of you regularly must combine data to create an overall business model for the chief financial officer of the company.
So this is a question that speaks to fit, both with the company and with the position.
Answer the initial question and give some examples of times in which you’ve worked alone or with a partner or team. But don’t try to second guess what the interviewer is looking for to get a job. “There are no right or wrong answers—some companies value independence and some value working in teams,” Jaffee says. The key is to find the one that matches with your own preferences.
An answer to this question might look like this:
“I prefer working in teams. In my previous job, I worked closely with a colleague to put together a business model for a client. They asked us to build a predictive financial model to outline where their business could be three years down the road. I got to do half of it, and my partner got to do half of it based on our expertise, and we were able to put it together and make a presentation to the client. I really enjoyed working with someone else to create the financial model and present it as a team and also learned so much from my partner that I was able to take with me to other analyses I did independently and with other colleagues down the line.”
5. TELL ME ABOUT A TIME WHEN YOU HAD TO PRESENT FINANCIAL DATA.
This question helps an interviewer assess whether you have experience and skills making presentations. Some financial analysts are regularly tasked with presenting data to company leadership or other parties, so hearing how you’ve done in the past will help them predict how you’d do in the role you’re applying for. Your answer will offer a glimpse into how you prepare for a presentation, the kind of data you’ve presented (including whether you were presenting your own data or someone else’s), and how comfortable you are speaking in front of people at different seniority levels.
They might also want to know whether you considered the presentation to be successful, what you learned from it, and what you would have done differently if you had a chance to do it over again.
An answer to this question might look like this:
“As a company, we were considering acquiring another competitor and needed to identify what the combined financials of the companies would look like. I had to identify synergies related to head count, technology, payroll, redundant internal services, and ultimately forecast the financials to show the combined companies. I started by making sure I knew exactly what numbers the decision-makers in my company were focused on and why and then dived into the modeling component, sharing with colleagues for verification and input along the way. Once the bulk of that work was done I put together a slide deck that included a model output and highlighted the most important conclusions I’d come to. I presented my findings with specific recommendations to my team as well as a group of executives. They had several follow-up questions, as was expected, many of which I was able to answer on the spot but a few required me to go back to the model and incorporate some of their feedback. In the end, the majority of my recommendations were adopted but I learned the most from the few that had to be altered. The next time I had to put together a similar presentation, I tried to anticipate these kinds of questions and my recommendations were sharper for it (and got adopted with barely a tweak).”
6. WHAT DO YOU THINK IS THE SINGLE BEST EVALUATION METRIC FOR ANALYZING A COMPANY'S STOCK?
The recruiter is looking for your thought process as you compare and contrast different valuation methods. This helps an interviewer see that you’re familiar with multiple financial concepts when it comes to stock valuation and that you understand the pros and cons of different types of methodologies.
This question is more likely to come up if you’re interviewing to work for an investment bank or research firm. But you should be prepared to walk interviewers through how you come to an answer on any type of process question you receive.
HOW TO ANSWER
Walk the recruiter through your thought process in choosing the metric you prefer and talk about what it can tell you about the stock and how that would help you evaluate a company. You can also mention other metrics in your answer to help you explain why the one you chose is better or what secondary metrics you’d pick if you could add others to support your primary choice.
7. HOW ARE THE INCOME STATEMENT, BALANCE SHEET, AND CASH FLOW STATEMENT RELATED?
This is another question that gets at technical knowledge that interviewers assume you have walking into an interview for a financial analyst position. They ask it to make sure that you have a baseline financial knowledge, but it’s also a good barometer for how seriously you’re taking the interview process and how prepared you are by how easily, accurately, and clearly you respond.
HOW TO ANSWER
Make sure you practice your responses to this and other technical knowledge questions out loud and in front of the mirror prior to your interview so that you have a fairly concise and accurate answer at your fingertips (without sounding too rehearsed!).
For instance, your answer might be:
"The first line of the income statement is the revenue line or “top line,” and after subtracting various expenses you arrive at net income or “bottom line” for the company. Net income comes into the cash flow statement as the first line, which is then adjusted for all non-cash expenses to get to a change in cash over a specific period. This change in cash will correspond directly to the cash line item in the balance sheet, providing a more detailed look at why that specific balance changes. The balance sheet is unique in that it is a snapshot of the balances of accounts at a specific time vs. a period of time (i.e. the previous quarter). Net income also connects to the balance sheet as a change in retained earnings."
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