Financial Analyst Interview Questions and Answers - 3

18. What do you mean by working capital?

Working Capital means Current Assets minus Current Liabilities.

However in banking terms, it is calculated as Current Assets (excluding cash) - Current Liabilities (excluding interest bearing debt).

19. Give an example of a business that can have negative working capital.

A retail business usually has a negative working. Here the customer pays the money at the time of sale but the retail business owner has to pay to the suppliers after some days, based on its credit period.

20. Explain quarterly forecasting.

Quarterly forecasting is the analysis of expenses and revenue expected to be generated or incurred in future.

21. What are the prime reasons for mergers and acquisitions?

The prime reasons that drive mergers and acquisitions are:

i.) To enter new markets
ii.) To deal with a competitor
iii.) To gain new technology
iv.) To save cost
v.) To improve the market share

Can it be possible that a company has positive cash flow and still be in deep financial trouble?

Yes, it is possible. Examples of two such situations are:

i.) If a company sell of its goods but delays its payments, the cash flow will be positive momentarily.
ii.) If the current revenues are good but the future prediction is poor.

22. Which one statement helps in understanding the health of the company?

Cash is a big indicator of the health of a business. So, it is the Cash flow statement that throws a good light on the financial health of a company.

23. Excel is a widely used tool for financial modeling. Can you give a few tips?

MS Excel provides the option to customize each every report as per the requirement of the company which makes it a widely used tool for financial modeling. However, it is not totally error free. Here are a few tips to keep in mind while preparing a financial model in MS Excel:

i.) Ensure you use simple formulae and calculations.
ii.) To organize use grouping function.
iii.) Make use of keyboard functions.
iv.) Use a combination of Date function.
v.) Learn formulas required for financial modeling.
vi.) While finding specific information use INDEX MATCH.
vii.) Use IF function to make dates dynamic.
viii.) Use F5 to find formulas or hard coded numbers.
ix.) In order to audit your financial model use Trace Precedents and Trace Dependents.
x.) In order to have specific dates for your cash flow use XIRR and XNPV.