9 Equity Research Interview Questions With Answers
Q1- Tell me is there any possibilities Terminal value can be Negative?
Suggested Answer: It is theoretically possible, but not in practice. The terminal value of a company is the value of its expected free cash flow after the period covered by the explicit projected financial model.
Terminal Value = (FCFF x (1+Growth Rate))/(WACC - growth rate)
If, for some reason, the WACC is less than the growth rate, the terminal value may be less than the growth rate.
Q2- Why PE ratio high of a tech company is higher than the PE of a mature company?
Suggested Answer: Moreover, it can be demonstrated that the Price-Earnings multiple is driven by the ratio (1–g/ROE) / (r– g), where r represents the cost of equity, g represents the growth rate, and ROE represents the return on equity. A high-tech company's price-to-earnings ratio (PE) may be higher because investors expect the stock to grow more rapidly.
Q3- Explain me about your investment philosophy and how you look your own investment strategy?
Suggested Answer: According to what I want to accomplish for myself, my investment strategy is different each time.
When used in conjunction with a large number of derivatives and options, it can be a very aggressive investment strategy; when used in conjunction with a long-term investment strategy, it is much more conservative. If I want to earn a 30 percent return in three months, or a 5 percent return per year for five years, the underlying strategies must be distinct. The basic rule is to look for high-quality companies or funds with strong management and balance sheets that are in a growing industry, and then to hold onto them for a minimum of five years after discovering them.
Q4- Suppose you analyze a listed company and you have to find deep detail of the company then what you question will be with yourself?
Is the management team delivering on their promises on a consistent basis?
Is there a clear plan for the future in place from the top down at the company?
Is the management team up to the task of dealing with the crisis?
Is the management team putting together the best possible product mix?
Is the management reliant on a small number of products and a small number of clients?
Is the management spending enough money on research and development?
Is there anything the management is doing to keep their best employees?
Is the management team allocating their resources wisely to new products and business expansion?
Is the management team prepared to accept the changes and challenges that lie ahead?
Is the management team more concerned with the bottom line or the margins?
Is the management team focusing on temporary solutions or on long-term solutions for a specific problem?
Is their business module a long-term, financially viable component? Does the company's management distribute its profits to its stockholders? Is the company's management communicating with its stakeholders and providing them with reassurance if the company is struggling? Is the company's management open and transparent?
Q5- Imagine you attend a earning call What questions you would ask a company management?
Suggested Answer: It all depends, but I'll ask some questions like, for example,
What is the most beneficial use of the cash on the balance sheet of the company? Is there a plan in place for the company to raise capital in order to fund future growth?
When it comes to sales, where do you see them heading in the next 12 to 24 months?
When it comes to your industry, who are the up-and-coming competitors you should be looking out for.
Q6- Tell me between EBIT and EBITDA, which is better?
Suggested Answer: Because depreciation and amortization are non-cash expenses, they are excluded from EBITDA calculations. Alternatively, the cost of debt and its tax consequences. As a result, EBIT is superior.
Q7- Imagine you are facing conﬂict with a colleague and other team member and how you deal with it?
Suggested Answer: I understand that different people have varying points of view, which can lead to miscommunication and conflict between people. The direction of the project was determined after we each explained our respective perspectives and thought processes to one another. When it comes to conflict resolution, communication is essential.
Q8- What factors affect price of copper?
Suggested Answer: Copper is used extensively in our industrial production, and copper wire has a significant impact on the telecommunications industry as well.
Copper's price is influenced by a number of important factors.
Situation of the World's Economy
Copper consumption is primarily concentrated in the industrialized countries of the world. A greater influence on copper prices is exerted by the economic conditions of these countries such as the United States, Japan, Western Europe, and other countries.
Seasonal Variables The price of copper fluctuates according to the season. Typically, the lowest copper price is reached in January, and the highest price is reached in August.
Q9- Is EBITDA a good proxy for cash flow?
Suggested Answer: With the exception of capital-intensive industries such as oil and gas, EBITDA is positive.