Basic Interview Questions Asked For Finance Analyst Role With Answers #1
Finance Analyst Role Interview Questions and Answer you should practice
Q1. Tell me what is WACC?
Suggested Answer: It is referred to as the weighted average cost of capital (WACC), and it is concerned with the return that lenders and shareholders expect to receive in exchange for lending money to a company. The WACC is calculated by multiplying the cost of each capital source (debt and equity) by the relevant weight by market value, and then adding the products together to determine the total cost of capital.
Q2. What did you learn during your studies?
Suggested Answer: The interviewer is interested in what you learned in college/university and how you plan to apply your knowledge.
Sample Response: As part of my graduate studies, I plan to put my data analysis skills and knowledge to use. During my studies, I worked on some financial modelling projects for IT and manufacturing companies.
Q3. Which deal did you track recently?
Suggested Answer: The purpose of this interview is to assess your knowledge of financial market news. It can be any type of transaction, whether it is a private equity or a merger and acquisition transaction.
Tip. It is important to be informed about current financial market news before preparing for any interview.
Sample Answer: I track recent deals between Morgan Stanley and E Trade. Here Morgan Stanley acquired brokerage firm E Trade for $13 billion.
Q4. Tell me about a Vodafone and idea deal?
Suggested Answer: In this interview, you will be asked about any recent transactions you have read and how you have analyzed them on your own.
Sample Answer: It was recently announced that Idea will merge with Vodafone for a total of US $ 23 billion. The combined company will have a subscription base of 394 million customers and a customer market share of 35% and 41%, respectively. Vodafone is valued at Rs.82,800 crore (EV), while Idea is valued at Rs.72,200 crore (EV), with debts of Rs.55,200 and Rs.52,700 crores, respectively, according to the transaction.
Q5. What is EV? How do you calculate it?
Suggested Answer: Enterprise value (EV) is a way to figure out how much a company is worth. It's often used as a more complete alternative to equity market capitalization. To figure out how much money a company has, add up its market value and total debt, then subtract all cash and cash equivalents.
Q6. As you indicated, EBITDA reflects operational efficiency; however, don't you believe we should compare apples to apples ?
Suggested Answer: People often use EBITDA as a way to figure out how much a business is worth. Those who don't like this value often say this number can be dangerous and misleading because people often think it means cash flow. However, this number can actually help investors make apples-to-apples comparisons.
Q7. What does positive EBITDA mean?
Suggested Answer: If a company has a positive EBITDA, it means that it is profitable on an operating level: it sells its products for more money than it costs to manufacture them. If, on the other hand, EBITDA is negative, it indicates that the company is experiencing operational difficulties or that it is being poorly managed.
Q8. What is EBITDA and how to calculate, do you think EBITDA give true picture of firm?
Suggested Answer: EBITDA (earnings before interest, taxes, depreciation, and amortization) is a financial performance metric that can be used in place of other metrics such as revenue, earnings, or net income to assess a company's financial performance. Despite the fact that it is frequently shown on a profit and loss statement.
EBITDA alone does not provide a true and complete picture of a company's performance.
Q9. What is FCFE and FCFF?
Suggested Answer: FCFE is an stand for free cash flow to equity. Amount of cash that can be distributed to equity shareholders in the form of dividends or stock buybacks after all expenses, reinvestment and debt repayments have been paid is known as distributable cash.
FCFF, which stands for Free Cash Flow to Firm, it is defined as the amount by which a company's operating cash flow exceeds its working capital needs and expenditures.
Q10. Company A wants to value a company using FCFF and company B wants to value a company using FCFE. Do you think there would be a difference in their DCF valuations?
Suggested Answer: No It doesn't work that way. When we do DCF with FCFF, we get the value of a company by discounting the cash flows with the weighted average cost of capital (WACC). Here, the costs of all sources of capital are taken into account because FCFF takes into account the whole capital structure of the company.
As a result, this cash flow is also known as leveraged cash flow. if the company only has common equity, its FCFF and FCFE are the same because both come from the same source of capital,
After tax operating EBIT is usually adjusted for a non-cash expense, interest expense, capital investment costs, and debt repayments. FCFE is usually calculated by subtracting these costs from post-tax operating EBIT.
Q11. Which is more risky -1.0 beta or 1.2? Why?
Suggested Answer: It is more risky because -1.0 is less than 1.0 if a stock moves less than the market. High-beta stocks are thought to be more risky, but they also have a better chance of making money. Low-beta stocks are thought to be less risky, but they also make less money.
Q12. How is FCFF calculated?
Suggested Answer: FCFF begins with net income, which is calculated after taxes and interest are deducted. Following that, we deduct any non-cash expenses that apply, such as depreciation and amortization.
Q13. What is the DCF valuation method?
Suggested Answer: DCF analysis is an intrinsic valuation method that is used to estimate the value of an investment based on the expected cash flows.
Q14. How will you put a money tag on a football team? How will you evaluate it?
Suggested Answer: This question simply assesses your ability to analyze. There is no right or wrong answer. It will only put your ability to respond to the test.
Sample Response: I will look at the team's past history, such as winning percentage, playing performance, market value, who are the top key players, what are the ups and downs, what are the chances of getting a good return on investment, how they play games and what quality players we have to pay them, and what is the team's capital value. After conducting the analysis, I will review the team's financial performance, including revenue, profit, and expenses, among other things.
Q15. What are the main ratios used for evaluation?
Suggested Answer: The main ratio used for evaluation for performance is
Leverage: Debt-to-Equity Ratio = Total Liabilities / Shareholders Equity
Liquidity: Current Ratio = Current Assets / Current Liabilities
Liquidity: Quick Ratio= (Current Assets - Inventories)/ Current Liabilities
Profitability: Return on Equity (ROE)= Net Income/Shareholder's Equity
Efficiency: Net Profit Margin=Net Profit / Net Sales
Q16. What is PE Ratio ?
Suggested Answer: Price-to-earnings (p/e) Ratio Is Mainly Used By Investors to help this ratio tell how much the market is willing to pay for every rupee the firm earns.
Q17. How do you calculate WACC? Tell me the steps?
1. Identify the equity and debt market values
2. Calculate the costs of the debt and equity
3. Combine the debt and equity market values
4. Identify the current corporate tax rate
5. Final apply the formula
Q18. How do you calculate beta?
Suggested Answer: Beta is calculated by dividing the standard deviation of the asset's returns by the standard deviation of the market's returns. The result is then multiplied by the correlation between the return on the security and the return on the market.
Q19. What is the formula for calculation of cost of equity?
Suggested Answer: Cost of equity = Risk free rate of return + Premium expected for risk. Cost of equity = Risk free rate of return + Beta × (market ra