Financial Analyst Interview Questions with Correct Answers (Latest 2023)

How are the three financial statements interconnected? Correct Answer Income Statement Net income--the bottom line--flows from the Income Statement to Retained Earnings on the Balance Sheet. It also becomes the first line of Cash from Operations on the Cash Flow Statement. You can think of the Income Statement as a cumulative record over a period of time. Balance Sheet The name of this statement describes its purpose; the Balance Sheet always balances. This financial statement acts as a record for a firm's assets and all the claims against those assets. The remaining value is called Stockholder's Equity. The Cash balance which is the first line item under Current Assets at the top of the Balance Sheet is taken from the Ending Cash on the Cash Flow Statement. The Balance Sheet, unlike the Income Statement, is not a cumulative record over time; it is a snapshot of one moment in time. Cash Flow Statement The Cash Flow Statement connects the three financial statements together. The statement begins with Net Income from the Income Statement and the Ending Cash balance at the bottom Cash Flow Statement flows to Cash and Cash Equivalents at the top of the Balance Sheet. How do you analyze the financial statements? Correct Answer RATIOS! 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 Aside from the financial statements, what else do you need to consider when analyzing a company? Correct Answer Risk: It is vital to manage and maintain. Credit Risk- the risk that a company or individual will be unable to pay the contractual interest or principal on its debt obligations. Interest Rate Risk - the risk that an investme