FP&A Interview Questions

FP&A Interview Questions Walk me through the three financial statements. - - The balance sheet shows a company's assets, liabilities, and shareholders' equity, and is a snapshot in time. - income statement: outlines the company's revenues and expenses over a period of time (quarter/year). - cash flow statement: shows the cash flows from operating, investing, and financing activities over a period of time. these 3 statement give a picture of firm's financial health What is a key ratio to consider when evaluating a new investment? - ROI (Return on Investment): This value is calculated by taking net return over initial investment What Key Performance Indicator (KPI) is most important for measuring profitability? - Gross Margin: This is calculated by taking Gross Profit and dividing it by revenue. This is an important indicator for measuring profitability because you can use it to benchmark and compare two companies What is EBITDA and why do we care about it? - EBITDA is earnings before interest, taxes, depreciation and amortization and is also sometimes referred to as operating profit. This is the profit that the company makes before non-operating expenses are taken out. Where do you see Dividends on the income statement? - YOU DONT! You see this on the shareholders equity statement. Dividends are not an expense, they are a distribution of previously existing equity If Accounts Receivable (AR) keeps going up, what could the driver be? - Could be a collection problem: if the company is not collecting its AR on time, then the AR will continue to build up on the balance sheet. Another reason could be sales growth: if your company keeps growing sales, the AR will also continue to rise Why do you want to be a financial analyst? - I love working with numbers to understand the financial implications of a decision. Knowing the implications will help me guide business managers toward educated and responsible business decisions. What is the current ratio? - current assets divided by current liabilities. Measures a company's ability to fulfill short-term financial obligations What is the quick ratio? - (Current Assets - Inventory) / Current Liabilities. Measures a companys ability to meet short term financial obligations without inventory What line item appears on all three financial statements? - Net Income or Depreciation Expense If you have only one financial statement to choose which one are you taking to understand the most about the business? - Statement of Cash Flows - If you look at the Income statement alone, you won't be able to tell what the cash position/debt that the company carries. If you look at the balance sheet alone, you can tell the cash position but you can't tell the actual health or performance in terms of profitability. Statment of cash flows has everything you need: it begins with Net Income and then goes on to detail cash from each of the activities What is Working Capital and why is it negative sometimes? - Working Capital is Current Assets - Current Liabilities. Sometimes it goes negative because you could be collecting your AR faster than you are paying you AP meaning that you are efficient in collecting your cash. What is the impact on income if inventory goes up by $10? - NOTHING! When you buy inventory you are not impacting income