Financial Analyst Interview Questions Answers

This article includes sample answers to some of the most often requested financial analyst interview questions. Test your industry knowledge and prepare to show off your analytical talents with questions ranging from fundamental finance inquiries to difficult financial modeling ideas.

You can study for the eClerx aptitude test for financial analysts even if you are a recent graduate. You can prepare for this by reviewing the technical finance interview questions. They will also be useful for the hard MBA Finance interview questions and answers since you will need a basic understanding of finance and accounting skills.

1. Explain the term "financial modeling."

Financial modeling is a type of quantitative analysis that is often employed in asset pricing and corporate finance. It is the practice of taking a company's expenses and earnings into account (usually in spreadsheets) to predict the future impact of today's decisions.

The financial model also proves to be a powerful instrument for completing the following tasks:

• Calculate the worth of any company.

• Strategic planning vs the competition

• Putting diverse circumstances to the test

• Budget allocation and planning

• Analyze the effects of any economic policy changes.

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2. Is it feasible for a corporation to have a good cash flow while still experiencing major financial difficulties?

You can respond to this Financial Analyst interview question by saying:

Yes. There are two cases in point -

Even if a company is in crisis, it will display positive cash flow for a while if it sells off inventory while deferring payables.

Although a company's revenues were excellent throughout the period, future estimates show that revenues will drop.

When you outline such scenarios, you're demonstrating that you're not looking at the cash flow statements; instead, you're concerned with where the money is coming from or going to, and you're highlighting how the company is generating or losing money.

3. What exactly is working capital, and what are the various sorts of it?

The best way to describe working capital is current assets minus current liabilities.

Working capital's main purpose is to determine how much money you have on hand to cover all of your current expenses.

Because financial analysts play such an important role in capital markets as information brokers, a thorough understanding of working capital requirements is critical. In addition, an analyst must be on their toes to estimate actual working capital requirements, particularly if the company is always developing or expanding.

You can also mention a few previous instances in which your current company required greater working capital, and you can back up your answer with the methods you took to increase working capital.

4. Explain expense models and quarterly forecasts.

Quarterly forecasting is the analysis of expenses and revenue that will be created or incurred in the future.

Referencing an income statement as well as a complete financial model works well for this. Making a realistic model, on the other hand, is difficult, and this is where a financial analyst comes in. As a specialist, you must model revenues with great care and precision.

An expenditure model specifies which expense categories are permitted on a specific sort of work order, and it is this information that is used to establish a budget. An expense projection model is also constructed to make this model effective, which aids in identifying variable and constant costs and serves as a foundation for accurately estimating the company's predicted profit or loss.

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5. What is the distinction between a ledger and a journal?

One of the most critical questions in a finance interview is this one.

The journal is a book in which all of the financial transactions are first recorded. The ledger is a book that contains specific accounts from the original journal. In layman's words, journals are the unprocessed books that are used to prepare the ledger. This leads to a second conclusion: if you create a journal incorrectly, your ledger will be incorrect as well.

However, during the financial analyst interview, the recruiter will ask you about your basic knowledge, as this directly or indirectly pertains to the Financial Analyst job function, which is described below:

• Examining the journal entries (to ensure the data is correct)

• Managing journal entries for ledgers by checking the distribution work area

• Assuring compliance with all accounting standards

• Values of a group of subsidiaries or management segments are being verified.

• Managing source transactions in the sub-ledger

• Recurring journal entries in the general ledger

• Financial statements and other transactions are examined.

6. What is the main difference between a profit and loss statement and a balance sheet?

The balance sheet summarises a company's financial situation at a given point in time. The profit and loss statement (P&L) illustrates revenue and expenses over a specific period.

7. What exactly is 'cost accounting'?

This is a crucial and frequently asked question in financial analyst interviews. Many organizations want to know if the applicant has a basic understanding of cost accounting. This looks to be one of the most often asked MBA Finance interview questions.

Cost accounting is the science, art, and practice of cost control and profitability estimation, as well as the presentation of data for managerial decision-making, using costing and cost accounting concepts, methodologies, and techniques.

8. What is Net Present Value (NPV)? What is its purpose?

The difference between the current value of cash inflows and outflows is known as net present value (NPV). In capital budgeting, the net present value (NPV) is used to determine the profitability of a proposed investment or project.

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9. What exactly are 'adjustment entries?'

Accounting journal entries that shift a company's accounting records to the accrual basis of accounting are known as adjusting entries. You can also draw attention to the various forms of adjusting entries, such as accumulated revenue, accrued expenses, depreciation expenses, and so on.