With the rising complexities of the financial market, there has been a significant growth in the demand for professionals as well, who can analyse these competitive landscapes, assess risks, and make well-informed investment decisions.
As more and more companies are looking for such skilled candidates worldwide, the job role of a finance analyst has become significant more than ever. They are not only required to work with extensive databases and leverage technology to make data-driven decisions but also play a critical role in ensuring compliance with financial regulations and managing regulatory risks.
According to a report, the years from 2022-2032 are likely to witness an 8% growth in the overall employment of financial analysts.
If you’re someone aiming to step into this dynamic world of numbers with a skilled candidature comprising experience and a financial analysis course or certification, then this is the right place to prepare for that final leap - the interview round!
Technical Finance Analyst Interview Questions and Answers
Below are a few examples of some of the most commonly asked technical questions to finance analysts:
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What do we mean by financial modelling?
Financial modelling is a process wherein a mathematical representation of a financial situation or asset is created with the help of various tools and techniques. These models are used to make financial forecasts, budgeting decisions, and risk assessments.
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What is cash flow statement?
Cash flow statement offers a snapshot of a company's cash inflows and outflows during a defined time frame. This financial statement plays a crucial role in evaluating an organisation's financial well-being and liquidity.
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Explain working capital and its different types.
Working capital stands as a pivotal concept in financial management, signifying the distinction between a company's current assets and liabilities. Various categorisations of working capital exist, including gross working capital, net working capital, regular working capital, and variable working capital, amongst other classification methods.
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Can you explain the contrasts between a journal and a ledger?
A journal and a ledger are both crucial accounting tools, but they have different purposes and distinct characteristics. As an illustration, a journal functions as a record to document all financial transactions within the accounting system, while a ledger, conversely, is employed to categorise and condense the transactions documented in the journal.
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What do you mean by cost accountancy?
Cost accountancy is a specialised field within accounting that concentrates on pinpointing, quantifying, examining, and overseeing the expenses accrued by a business. This discipline plays a pivotal role in aiding organisations in making informed decisions, managing costs, establishing pricing strategies, and evaluating overall profitability.
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Can you explain EBITDA and its role in stock performance analysis?
Earnings Before Interest, Taxes, Depreciation, and Amortization, commonly referred to as EBITDA, stands as a highly prevalent financial metric in stock performance evaluation and financial analysis. It aids investors in precisely gauging a company's performance within its primary operations.
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What are the most important factors to consider when evaluating a loan?
When assessing a loan, whether for business or personal work, several factors should be taken into consideration. These factors encompass credit history, cash flow track record, available collateral for loan security, and the interest rate, amongst other considerations.
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What do we mean by quarterly forecasting and expense model?
Quarterly forecasting refers to the process of predicting a company’s financial performance and outcomes for a specific period. On the other hand, the expense model is a financial tool business organisations use to estimate and manage their expenses systematically.
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According to you, what is the most effective evaluation metric for analysing a company's stock?
The price-to-earnings ratio, or P/E ratio as it is more popularly known, is one of the many indicators used by investors to precisely assess a stock's market value in relation to the company's earnings. A stock may be overpriced if the P/E is high, whereas an undervalued stock may be indicated by a low P/E.
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What impact does an increase in accounts receivable have on an organisation's cash flow?
When a business organisation experiences an increase in accounts receivable, it directly impacts its cash flow. An increase in accounts receivable usually means that the organisation’s customers are taking longer to pay their invoices. This, in turn, carries the potential to negatively impact the organisation’s cash flow because it has provided goods or services but has not yet received the corresponding cash.
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What do we mean by NPV?
NPV, also known as net present value, refers to the difference between the present value of cash inflows and the present value of cash outflow.
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Can you state the definition of capital structure?
Capital structure can be defined as the combination of different sources of funds utilised by a company to finance its operations and investments.
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What do we mean by goodwill?
Goodwill is an intangible asset that highlights the excess purchase price of a company over the fair market value when one company acquires another.
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What are some of the most common components of financial analysis?
A financial analysis comprises several elements, such as capital efficiency, profits, revenue and income statement, inventory turnover, and accounts receivable, amongst others.
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Can you establish the difference between cash flow and free cash flow?
Cash flow pertains to the cash's ingress and egress within a business during a defined timeframe. Conversely, free cash flow represents the precise cash amount generated by a company through its operations, excluding the capital expenditures necessary for asset maintenance and expansion.
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What do we mean by variance analysis?
Variance analysis is a financial tool used by organisations to help them understand why their actual financial outcomes differ from what was expected or budgeted. It is most commonly used in budgeting and performance evaluation.
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Can you name any three types of financial analysis?
Financial analysis can be segregated into various types depending on its focus and objectives. A few examples of the same include liquidity analysis, vertical analysis, and leverage analysis, amongst others.
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Why is long-term liability important?
Long-term liability refers to debts that extend beyond one year. By analysing the same, companies can accurately determine their financial position and strength.
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Name some of the most commonly found data formats in Excel.
Strings, numbers, and currencies are three of the many data formats offered by Microsoft Excel.
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What is financial benchmarking?
Financial benchmarking is a process companies use to evaluate their financial performance and position. The ultimate goal of this technique is to gain insights into how well a company has performed in various financial arenas and identify any potential areas for improvement.
Conclusion
While interview sessions can be daunting, preparing beforehand is always a wise decision. Hence, we have prepared this list incorporating some of the most frequently asked questions in accounting and financial modelling interviews. In addition, if you wish to build a successful career in finance and stay one step ahead of your competitors, then it is always advisable to opt for financial analysis courses available online.
One such amongst them includes the certified financial analyst course, brought to you by Imarticus Learning. This 4-month duration programme bears several advantages, including industry certification, extensive career support, hands-on training by industry experts, and more.
