Are you about to have your Financial Analyst interview scheduled? Read on to know the most important tips and facts..
Interview anxiety is something that most of us face. The fear of performance, the uncertainty of getting the job and hesitation of presenting ourselves in the best form, add to our stress. But this is where job-seekers go wrong. Instead of being scared or stressed, you must face the interview with confidence and this only comes with sound preparation. Many of you are fresh out of college and have requisite certifications in hand eventually will go through the recruitment process in the near future.
To be well prepared for an interview, it is very important to understand what the interviewer expects from the aspirants. In this post, we will delve into how Financial Analysts can ace at the interview.
The interview for the designation of a Financial Analyst tests your technical skills as well as ability to handle any complex situation that arises at work. How you answer the ‘Behavioural round’ depends a lot on your personality, but the ‘Technical round’ needs a good amount of preparation.
Let us look at some of the topics which you should give special emphasis on while doing this groundwork.
(1) Explaining financial modelling
It’s all about getting your basics right. You ought to know all the features of financial modelling, its various applications and the important points that need to be considered. This also includes the best practice for financial modelling. You should have conceptual clarity about the objectives that can be achieved via financial modelling.
(2) Knowledge of valuation technique
Many-a-time recruiters ask you about choosing a single evaluation technique. There can be no definite answer to this. It all depends on the situation and your perception of valuation. However, you need to be very confident about the valuation technique you choose and be able to explain the reason. It is always a good idea to do some quick calculation and demonstrate your answer with examples. This will convince the employers about your depth of knowledge and quantitative skills.
(3) Ratio Analysis
Ratio analysis plays a very important role in financial analysis. Knowledge of ratio analysis does not mean just cramming the formulas. Application is more important. You need to know how to compare ratios across companies and industries and arrive at a conclusion. Also, certain ratios are more important for some sectors while others are not. Recruiters expect you to know which ratios to pick for comparison when you are working on a particular sector.
(4) Impact of changes in current assets on balance sheet
Current assets and liabilities such as accounts receivable/ payable and inventory are important part of the Balance sheet. Any changes in them directly impacts the working capital cycle. Hence, it is important to understand the effect of changes in accounts receivable or payable on the business and cash.
(5) Cash flow analysis
Cash flow is a very important financial statement. The inflow and outflow of cash and the situation of the company speaks volumes about its financial situation. As a financial analyst you need to know the nuances of cash flow. Many times a firm may show net loss but still have a cash surplus, similarly there may be instances of net profit but a cash deficit. There are so many adjustments like non-cash expenses, bad debt, and increase/decrease in accounts receivable/payable which impact the cash flows. You need to be well versed if tricky questions like “Can a company have positive cash flow even if its situation is bad or vice versa?” are thrown at you.
(6) CAPM model including systematic and unsystematic risk
When it comes to valuation, the Capital Asset Pricing Model (CAPM) is of utmost importance. The concept and calculation of alpha, beta, systematic and unsystematic risk must be on your fingertips. You can be asked to explain the steps taken in calculating the risk element or give examples of systematic and unsystematic risk in real life business scenarios.
(7) Conceptual clarity on DCF, FCF
Discounted Cash Flow (DCF) and Free Cash Flow (FCF) are the penultimate stages of valuation and a financial analyst needs to have full clarity on this. You need to be aware about the difference between Cash Flow and Free Cash flow. More importantly, you need to know how Free Cash Flow is calculated and how it is relevant in valuation of a business. How to choose an appropriate discounting factor (weighted average cost of capital) and valuing a company is a vital topic for preparation.
(8) Sector-specific knowledge
Most of the brokerages and KPOs have dedicated analysts for each sector. So, if the interview is for Financial Analyst of a particular sector, you can expect the questions to be very sector specific. Hence you need to prepare on revenue drivers for the sector, specific research metrics and suggest the most suitable valuation method for the sector. For some it may be relative valuation, for some it may be Discounted Cash flow while for others it may be Sum of the Parts method. Along with this, you have to be updated with the latest happenings in the sector as this might impact the company’s performance and valuation.
(9) Macroeconomic Developments
Very often candidates face questions like “What would suit a country more if it is faced with inflation- A hawkish stance on interest rates or Dovish?”
Apart from the knowledge of excel, valuation or sector, a good financial analyst is expected to be aware of the developments in India as well as global economy. Developments like Fed’s decision on US interest rate, China’s political and economic comebacks, the price of oil and gold as well as developments in the Eurozone and Gulf Countries need to be tracked on a regular basis. Closer home, one needs to be well-versed with the Union Budget, policy changes, interest rate changes, inflation rate, taxation regime etc.
(10) Impact of currency depreciation on sectors
Movement of currency and its impact on various sectors is a topic that many employers like to question upon. Especially if the company is export or import oriented. Study the currency movement trend for the past one year and see which sectors have been impacted and how. Analyse what are the factors that have led to the volatility and try to form an opinion as to how things will fare in the future.
The list mentioned above is an indicative one which covers the broader topics. These are areas which should not be skipped. You may, of course, prepare on numerous other topics, which will surely increase your confidence at the interview. Apart from the technical round, nowadays it is quite common for interviewers to ask the candidates to build a simple model based on the case study provided, so stay prepared.
A good preparation for an interview is a battle half won. Confident answers reflect your capability as a prospective employee and show your readiness to take on a challenging role as a Financial Analyst. So don’t falter, prepare well and ace the interview!