Equity Research Interview Questions With Answer In Detail
Learn about Equity Research Interview Questions for freshers & Experienced with Sample Answers in Question & Answer.
Q1) If the RBI Repo hikes rates by 0.5%, what would you expect the impact to be on stock market?
Suggested Answer: When the repo rate rises, the borrowing rates rise in tandem with it. Likewise, the cost of borrowing increases, as does the cost of providing funds to the company. As a result, the cost of the product rises, and the rate of inflation rises. Whenever the price of goods and services rises, people spend more and save less. When people save less, the amount of money that flows into the stock market decreases.
Q2) What is the 10-year Treasury Note rate?
Suggested Answer: 1.92% for Feb 18 2022
Q3) What is the price of gold?
Suggested Answer: $1,908.04 (As On February 21)
Tip: Make Sure you should prepare current index price of stock, commodities, interest, etc when you prepare for any interview
Q4) Tell me Is it better to invest in high P/E or low P/E stocks?
Suggested Answer: A lower price-to-earnings ratio indicates that the stock of a particular company is inexpensive, but this does not always imply that you should purchase the stock. A lower price-to-earnings ratio may be due to some negative news about the company, as a result of which investors are unwilling to pay more for the stock. The lower the price-to-earnings ratio of a company, the greater the return on your investment. In order to make purchasing decisions, it may be necessary to compare the price-to-earnings ratio (P/E) with competitors as well as with all of the peers on average. Investors' confidence in a company is reflected in its price-earnings ratio, which indicates that they are willing to pay a higher price for the stock when compared to the company's earnings.
A low price-to-earnings ratio isn't always a good or bad thing; however, it can be a sign that a stock is a relative bargain when compared to its competitors. This is due to the fact that you can theoretically purchase a share of the company's earnings for less money than it would cost to purchase a share of the same earnings from another company.
Q5) Why use EBITDA instead of enterprise value in the valuation process.
Suggested Answer: EBITDA has no relationship with enterprise value. EBITDA (earnings before interest, taxes, depreciation, and amortization) is defined as earnings before interest, taxes, depreciation, and amortization. A company's true earning power cannot be determined by this metric, which is essentially meaningless. EV is market cap + debt - cash and cash equivalents.
Q6) Tell me when you would see a company with a high EV/EBITDA multiple but a low PE multiple.
Suggested Answer: This relationship implies that there is a significant difference between the enterprise value of the firm and the equity value of the firm. The term "net debt" refers to the difference between the two. Therefore, a company with a significant amount of net debt will most likely have a higher enterprise value to earnings per share (EV/EBITDA) multiple.
Q7) Which is a very popular valuation metric What would you call the inverse of the P/E ratio? What does it tell you?
Suggested Answer: A company's earnings yield, also known as the earnings price ratio (E/P ratio), is the earnings per share of common stock divided by the stock's market price.
The earnings-to-price ratio rises in tandem with earnings and falls in tandem with increases in the stock price. The proportion of each dollar invested in the stock that was profited by the company
Q8) Can you elaborate us why do you want work for us?
Suggested Answer: For the position of financial analyst at Greenway Health, I believe that my previous experience manipulating data from financial statements, combined with my ability to work well with others, would make me a great candidate for the position. My track record demonstrates that I consistently go above and beyond the call of duty in order to add value in any capacity in which I have served.
Q9) Why do you want to work on Equity research?
Suggested Answer: I'm drawn to the field of equity research because I get a thrill out of discussing the factors that influence the price of a company's stock. It's almost as if you're solving a giant math problem where all the numbers fall into place and you finally understand what's going on. I am fascinated by the reasons why revenue is down or why the market sentiment for a stock is up.
Q10) Elaborate me the difference between sell side and buy side?
Suggested Answer: A sell-side analyst is someone who works for a brokerage or firm that manages individual accounts and makes recommendations to the firm's clients on investments. Buy-side analysts typically work for institutional investors, such as hedge funds, pension funds, or mutual funds, and are paid on a commission basis.
Q11) Tell me about what you have qualities as a analyst?
Suggested Answer: It has been rewarding to be able to conduct research and analysis in my classes and internships. I enjoy delving into the numbers and details, and I hope to be able to continue that work and gain more experience in this position in the future.
Q12) Tell me the main diﬀerence between Fundamental Analysis and Technical Analysis and which one you prefer ?
Suggested Answer: The main difference between
Fundamental Analysis: Fundamental analysis is concerned with determining the intrinsic or true value of a stock in order to determine if it is overvalued or undervalued in the marketplace. This is accomplished by taking into account a variety of indicators, such as the profit generated by the company, its business model, the growth of its industry, and others, before making a determination. Essentially, the goal is to take into consideration every significant externality that could have an impact on the stock's price. Analysts who use this approach study and analyze a stock using complex ratios and metrics, which are difficult to understand.
Technical Analysis: This method of analysis attempts to predict the price movement of a stock by only taking into account the price action patterns and returns generated by it, as opposed to other methods of analysis. There is a fundamental concept at work here: patterns frequently repeat themselves and exist on a continuum. As a result, investors who use this method frequently rely on momentum-based indicators in conjunction with support and resistance levels in order to analyze the price of the stock.
Fundamental analysis is my preferred method of investing because I intend to hold onto a company for the long haul.
Q13) What type of skills you can you oﬀer as a analyst?
Suggested Answer: I can bring strong analytical and quantitative abilities, problem-solving abilities, and, perhaps most importantly, a passion for the markets to the table.
Q14) Why do DCF projections typically go out between 5 and 10 years?
Suggested Answer: The ability to predict the future in a reasonable manner determines the length of the forecast period. A tenure of less than 5 years is frequently deemed insufficiently long. When the time horizon exceeds ten years, it becomes increasingly difficult to forecast accurately.
Q15) Which type of industry you want to cover and why?
Suggested Answer: I'd like to write about the technology industries, which are the most interesting to me.
Q16) What is the major diﬀerence between growth and value, also do you want to growth or value investor?
Suggested Answer: Investment in stocks and stock mutual funds can be divided into two fundamental approaches, or styles: growth and value. Growth investors look for companies that have strong earnings growth potential, whereas value investors look for stocks that appear to be undervalued in the current market.
I intend to be a value investor because I believe that, as a framework, value is significantly more adaptable in some ways (if we define value as buying things the market has undervalued).
Q17) What are the Pros and cons of using the Price-Earnings Ratio (P/E)?
Appealing statistic that relates the amount paid to what was earned
Easy to use and widely available
A proxy for a variety of other firm characteristics, such as risk and growth.
Accounting earnings are used.
Earnings are reported at different times throughout the business cycle.
Does not take into account the firm's risk or growth
Q18) Suppose oil price change 20% down how it will aﬀect economy?
Suggested Answer: Low oil prices have a negative impact on the oil and gas industry, but have a positive impact on the auto and plastics industries, among other industries. When it comes to the overall economy, one offsets the other, but the regional effects are magnified in the "oil patch," as it is commonly referred to.
Q19) Just imagine your siblings hold and any IT companies stock and they tell you they will sell stock right now then how you will react?
Suggested Answer: I will suggest that if he makes a good profit from there, he should sell it, and if he sees any long-term growth in that stock, he should hold onto it for the foreseeable future. My siblings, on the other hand, will make the final decision.
Q20) If a Firm has a higher Price-Earnings (PE) ratio than another company in same sector, what could be possibilities?
Suggested Answer: It means that investors are willing to pay more for a piece of a company's earnings than they are willing to pay for the other pieces of earnings when a company's PE ratio is higher than the industry average. Now, there are a variety of reasons why they are willing to pay more—it could be simply because of the hype, or it could be because the company has extremely promising growth prospects.
Q21) If a firm has a Lower Price-Earnings ratio than another company in same sector, what could be possibilities?
Suggested Answer: If a company's PE ratio is lower than the average for its industry, it indicates that the company may be carrying more debt on its books than its peers, or that the company may be losing market share, or that the company may be experiencing lower profit margins than its peers, or that the company may be experiencing governance issues within the management.
Q22) Explain me how you use Sensitivity Analysis in Excel?
make use of base case assumptions for growth rates, WACC, and other inputs, which result in a base valuation for the company.
The preparation of a sensitivity table is required in order to provide clients with a better understanding of the assumptions and their impact on valuations.
Sensitivity analysis is commonly used to determine the impact of changes in the WACC and the company's growth rate on the stock price.
Q23) What is the major ratio use for any company to analyze?
Suggested Answer: The major ratio use Quick ratio, Debt to equity ratio, Working capital ratio, Price to earnings ratio, Earnings per share, Return on equity ratio, Profit margin etc.
Q24) Tell me which are the most common valuation ratios used to analyze any stock?
Suggested Answer: Most common is valuation ratios used to analyze any stock
Enterprise Value (EV)/EBITDA
Price to Earnings (P/E)
Price to Book Value (P/BV)
Q25) Explain me which are the most common multiples we use in valuation?
Suggested Answer: Most common multiples use in valuation are
Q26) Explain me how you calculate the Weighted Average Cost of Capital ?
WACC = Cost of Equity Weight of Equity + Cost of Debt (1 - Tax Rate) Weight of Debt + Cost of Preferred Weight of Preferred
Cost of Equity is calculated using CAPM
Cost of Debt and Preferred are usually estimated by looking at comparable companies /debt issuance and interest rates and yields of similar companies
Q27) How you do a Discounted Cash Flow analysis in Equity Research?
Suggested Answer: The process begins with the creation of historical financial statements for the company in standard format
Three statements should be projected using a step-by-step financial modelling technique.
Other schedules, such as a debt and interest schedule, a plant and machinery and depreciation schedule, a working capital schedule, a shareholders equity schedule, an intangible and amortization schedule, and so on, support the three statements.
Once the forecast has been completed, you can move on to the valuation of the company using the DCF approach.
With DCF, you must calculate free cash flow to the firm or free cash flow to equity, and then find the present value of these cash flows in order to determine the fair value of the stock (also known as discounted cash flow).
Q28) What is Free Cash Flow to Firm and how you will value?
Suggested Answer: A surplus of cash that remains after taking into account working capital requirements, as well as the costs of maintaining and renewing fixed assets The debt holders and the equity holders benefit from the company's free cash flow.
FCFF = EBIT x (1-tax rate) + non cash charges + changes in working capital - capital expenditure
Q29) What is Financial Modeling and how it is useful in Equity Research?
Suggested Answer: Financial modelling is a method of projecting a company's financials in a very organized manner. Because companies only provide historical financial statements, a model can assist in understanding the company's fundamentals - ratios, debt, earnings per share, and other parameters.
Using financial modelling, you can predict how a company's balance sheet, cash flow statement, and income statement will look in future years.
Q30) Explain me the concept of Trailing PE and Forward PE?
Suggested Answer: The trailing PE ratio is calculated using earnings per share from the previous period, whereas the forward PE ratio is calculated using earnings per share from the forecast period.