5 Advanced Financial Analyst Interview Questions
- If you could choose one financial metric to assess a stock, what would it be?
- P/E — market capitalization(value of the company)/earnings
A good way to benchmark companies and compare stocks to each other. Is it over/under-valued compared to its earnings?
The limitation is when the company is making losses or no earnings, this will not be relevant.
- Free cash flow — available cash flows for companies to spend e.g. dividends, pay debt.
Tells companies if they are making enough money from its operation to have free cash on hand to spend in whichever way they want.
2. Why is EBITDA an important metric/value?
Earnings before Interest, Tax, Depreciation and amortization.
I,T,D,A → these are not the operating side of the business.
Therefore, EBITDA only focuses on the operating side of the business. It allows you to benchmark the business and tells you which business operations are more profitable.
3. How can you explain solvency?
Solvency is the companies ability to meet its financial obligations. Looking at equity=A-L (the ability to meet its current and long-term obligations) and current ratio = CA-CL (the ability to meet its short-term obligations).
4. What factors do you need to consider before taking out a loan?
- Analyze the cost of debt vs equity
- Analysis: How funds will be used? Strong business case?
- ROI>interest? The return of the project has to be higher than what you need to loan in order to earn a profit.
- Payback? Plan to be able to pay back the loan.
5. Which financial statement do you refer to in order to monitor whether the company has enough cash to pay off the current Liab.?
- Current Assets → balance sheet
A/R aeging schedule. Make sure you are able to collect back your A/R balances.
Inventory. Obsolete goods?
- Cashflows statement
