Top 25 financial analyst intern interview questions and answers(Latest)

Technical questions are asked to assess your understanding of the finance concepts. This blog mainly focuses on the financial analyst intern interview questions.

Top 25 Questions for Financial Analyst Intern Interview

Q1. Explain ‘financial modelling’.

Ans. Financial modeling is a quantitative analysis commonly used for either asset pricing or general corporate finance. It is the process wherein a company’s expenses and earnings are taken into consideration (commonly into spreadsheets) to anticipate the impact of today’s decisions in the future.

The financial model also turns out to be a very impactful tool for the following tasks:

• Estimate the valuation of any business
• Compare competition
• Strategic planning
• Testing different scenarios
• Budget planning and allocation
• Measure the impacts of any changes in economic policies

Since financial modeling is one of the most important primary skills, you can also share your experience through different financial models including the discounted cash flow (DCF) model, initial public offering (IPO) model, leveraged buyout (LBO) model, consolidation model, etc.

Q2. Walk me through a ‘cash flow statement.’

Ans. This is one of the basic finance interview questions.

Being one of the essential financial statements, you’ll have to be well-prepared for this question as day in and day out you have to use cash flow statements to successfully build a three-model statement.

When a recruiter asks this question during your interview, you can start by explaining the three main categories of cash flow statements:

• Operating activities
• Investing activities
• Financing activities

After calculating the total cash from all the above-listed categories, adding an opening cash balance, and further explaining all significant adjustments, you will arrive at the total change in cash. Mention all the necessary parts that are associated with it in the answer to this financial analyst interview question.

However, during the interview, the interviewer will also be looking out for something more beyond the bookish knowledge about cash flow statements. S/he must be interested in how the statement of cash flow is useful to a financial analyst.

Now, this could turn into your bonus point as you can walk through the intent of using the cash flow statement, which is listed below:

• Provides data and information about a firm’s liquidity status,
• Helps in outlining the firm’s ability to alter cash flows status in future
• Highlights the changes in account balances on the balance sheet
• Helps in depicting the company’s ability to meet expansion requirements in future
• Gives the estimation of available free cash flow

Q3. Is it possible for a company to have a positive cash flow but still be in serious financial trouble?

Ans. To answer this Financial Analyst interview question, you can say:

Yes. There are two examples –

1. A company that is selling off inventory but delaying payables will show positive cash flow for a while even though it is in trouble
2. 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.

Q4. What do you think is the best evaluation metric for analyzing a company’s stock?

Ans. There is no specific metric. It depends on how you put the answer and make the interviewers understand the value of the specific parameter that you mention.

The main intention of this question is to check your critical thinking abilities and logical skills. This question also gives you a chance to prove your capabilities in identifying potential pros and cons related to the available investment options.   It may also help you score better for the eClerx aptitude test for financial analysts.

Generally, technical analysts use some of the following types of charts to check the stock price, which forms the basics of picking the right one:

• Line charts (helps in tracking daily movements)
• Bar charts (helps in tracking periodic highs and lows of stock price)
• Point chart (helps in determining stock momentums)

Q5. What is working capital, and which are the different types of working capital?

Ans. 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.

Another example of proving your abilities is to suggest the times when you and your team used the working capital data to operate current and future needs smoothly.

This is one of the important finance analyst interview questions for freshers and even intermediates.

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Q6. Explain quarterly forecasting and expense models.

Ans. The analysis of expenses and revenue which is predicted to be produced or incurred in the future is called quarterly forecasting.

For this, referring to an income statement along with a complete financial model works well. However, making a realistic model is a challenge, and thus the role of a financial analyst comes here. As an expert, you need to model revenues with high degrees of detail and precision.

An expense model tells what expense categories are allowed on a particular type of work order, which forms the foundation of building a budget. Also, to make this model functional, an expense projection model is created, which helps in identifying variable and fixed costs which forms a basis of accurately forecasting the company’s expected profit or loss.

Q7. What is the difference between a journal and a ledger?

Ans. This is one of the most important questions for a finance interview.

The journal is a book where all the financial transactions are recorded for the first time. The ledger is one that has particular accounts taken from the original journal. So in layman’s terms, journals are the raw books that play a pivotal role in preparing the ledger. This gives us a second conclusion that if you wrongly prepare a journal, your ledger will also be faulty.

However, here the question which the recruiter will ask during the financial analyst interview is to understand your foundational knowledge as this, directly or indirectly relates to the Financial Analyst job role, which is mentioned below:

• Reviewing journal entries (to ensure the data is correct)
• Checking the distribution work area to manage journal entries for ledgers
• Ensuring that all accounting standards are met
• Verifying set of subsidiaries or management segment values
• Managing sub-ledger source transaction
• Recurring general ledger journal entries
• Reviewing financial statements and other transactions

Q8. What is ‘cost accountancy’?

Ans. This is one of the important and most commonly asked financial analyst interview questions. It is asked by many employers to check if the candidate has some basic understanding of cost accounting. This also appears to be one of the most common MBA Finance interview questions and answers.

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 as well as the presentation of information for managerial decision-making.

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Q9. How many financial statements are there? Name them

Ans. There are four main financial statements –

1. Balance sheets
2. Income statements
3. Cash flow statement
4. Statements of shareholders’ equity

This is an example of easy financial analyst interview questions and answers.

Q10. What are ‘adjusting entries’?

Ans. Adjusting entries are accounting journal entries that convert a company’s accounting records to the accrual basis of accounting. You can further highlight the different types of adjusting entries such as accrued revenue, accrued expenses, depreciation expenses, etc.

Q11. Do you follow the stock market? Which stocks in particular?

Ans. You need to be very careful in answering this interview question related to financial markets. As a financial analyst, following the stock market proves to be beneficial. Also, always be up-to-date with the stocks.

Q12. What is a ‘composite cost of capital’?

Ans. Also known as the weighted average cost of capital (WACC), a composite cost of capital is a company’s cost to borrow money given the proportional amounts of each type of debt and equity a company has taken on.

WACC= Wd (cost of debt) + Ws (cost of stock/RE) + Wp (cost of pf. Stock)

Q13. What is ‘capital structure’?

Ans. The capital structure is how a firm finances its overall operations and growth by using different sources of funds.

Capital structure has two main components – equity and debts. Equity involves selling stakes of ownership by issuing stock. Equity holders usually have the claim on the assets of a company after debts are paid. Debt holders, on the other hand, prioritise timely repayment of their principal and interest. There is no long-term commitment to the company.

Decisions on capital structure are important to analyse due to factors such as financial risk, control of obligation. So, an optimal capital structure would be present when there is a balance between equity and debt.

Q14. What is ‘goodwill’?

Ans. Goodwill is an asset that captures the excess of the purchase price over the fair market value of an acquired business.

Ideally, you must explain the nature of goodwill and its importance to support the answer. It has an intangible value in the balance sheet. The reason is that when a company acquires another firm, it is buying more than the physical assets. The intangible assets can include the reputation of a company, loyalty of customers, etc.

The formula to calculate goodwill is,

Goodwill = Purchase Price – Fair Value of Identifiable Net Assets

Q15. What do you know about valuation techniques?

Ans. For calculating the valuation of a business or stocks, generally, the following three types of valuation techniques are used:

• DCF analysis – helps in forecasting future cash flows
• Comparable company analysis – helps in comparing the current worth of one business when compared to other similar businesses using P/E, EBITDA
• Precedent transactions – helps in identifying the transactional values of a company by comparing a business with other business which has been sold recently

Q16. What do you mean by ratio analysis?

Ans. The ratio analysis approach is frequently used by financial analysts to get deeper insights into a company’s overall equity analysis by using financial statements.

Analysis of different ratios helps stakeholders in measuring a company’s profitability, liquidity, operational efficiency, and solvency status. And when these ratios are paired with other essential financial metrics, it results in a deeper view of the financial health of the company.

Analyzing ratios helps in:

• Examining the current performance of your company with past performance
• Avoiding potential financial risks and problems
• Comparing your organization with other
• Making stronger and data-driven decisions

Some of the most frequently analyzed financial ratios are:

• Liquidity ratios
• Solvency ratios
• Efficiency ratios
• P/E and dividend ratios

Q17. What do you think are the common elements of financial analysis?

Ans. Some of the common elements of financial analysis include:

• Revenue & revenue growth and income statement
• Profits and net profit margin
• Accounts receivables and inventory turnovers
• Capital efficiency (Return on equity, debt to equity ratio)
• Firm’s liquidity

Q18. How is Cash Flow different from Free Cash Flow (FCF)?

Ans. Free cash flows (FCF) refers to the remaining cash available for investors after considering cash operating and investing expenditure and it is used to find a business’s current value. However, cash flow is used to find net cash inflow from the business’s basic activities like operating, investing, and financing.

Free cash flow helps in defining business valuation which is required by investors as it includes capital expenditure and changes in Net Working Capital.

Q19. As a financial analyst which factors do you constantly analyze?

Ans. For this important question for financial analyst interview, it is essential to keep data handy for the following essential factors (depending on the business type, the metrics can change)

• Risk exposure and how the business will affect the current working capital?
• How to streamline finance requirements and make business processes effective?
• Identifying the right opportunities based on capital and/or revenue.
• How will financial decisions affect key value drivers?
• Which product/ customer segment/ target audience largely affects profit margins and what will be the future impact on margins affected by today’s choices, financial strategies, and decisions?
• Which decisions can affect our stock price?

Q20. Which tools do you use for advanced financial modeling?

Ans. Some of the essential business intelligence tools (BI tools) are:

• Quantrix
• Oracle BI
• GIDE
• Maplesoft
• Tableau

Q21. What will you use to gauge the company’s liquidity – cash flow or income?

Ans. Measuring the firm’s liquidity means finding the company’s ability to pay its current debt with its current assets. Here is a basic process to measure the company’s liquidity:

• Calculate the current ratio of the company (Current Assets/Current Liabilities)
• Calculate the quick ratio (Current Assets-Inventory/Current Liabilities)
• Find the Net Working Capital of the company (Current Assets – Current Liabilities)

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.

Q22. Which programs do you use to prepare illustrated technical graphs, charts, or spreadsheets?

Ans. To answer this technical finance interview question, try not to stick to just one specific program. You can mention the different software programs that you have used in the preparation of reports. The best way to answer this question is to tell the usage of one program over the other. You can say that you prefer Microsoft excel as it offers statistical and analytical references.

Also, irrespective of how many programs you have used before, showcase that are willing to use any program that the organization opts for.

Q23. What is variance analysis?

Ans. 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 favorability for each item by comparing actual costs to standard costs in the industry.

Q24. When do you capitalize rather than expense a purchase?

Ans. When you capitalize on a purchase, you are converting the purchase to an asset on the balance sheet. The more costs that are capitalized rather than expensed, the greater the profit that can be reported to shareholders. If the purchase will be used in the business for over one year, it will be capitalized and depreciated according to the company’s accounting policies. Capitalizing expenses is beneficial as companies acquiring new assets with long-term lifespans can amortize or depreciate the costs.

Q25. What is important to consider when deciding on capital investment?

Ans. Before investing, you should first consider these factors:

• The outlook of the management
• The strategy of the competitor
• Opportunities that are created by technological changes
• Cash flow budget
• Fiscal Incentives
• Market Forecast
• Other non-economic factors