Finanical Modeling/ Financial Statement Analysis Interview Questions

blingamink's picture
Rank: Monkey | 42

Hello All,

I have been out of the finance interviewing game for a while, I am a 2nd year analyst at a boutique IB.

Need some help preparing for a technical interview I will hopefully be having soon - can anyone here help me with questions on financial modeling, financial statement analysis and questions which point towards the connectivity on the 3 statements, i mean being in banking hopefully i know the answers..lol, but have forgotten the interviewing skills and sort of questions.. so any help is most welcome!!!

Do they still ask questions regarding valuation to people with banking exp?

Also: The person who will be interviewing me is a recent X-Bulge bracket associate, so his questions will be around what they ask at the BB firms - so all of you current or x BB people, do suggest something.

Thanks!

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Comments (9)

Best Response
Oct 22, 2009

Google is your best friend. But here goes anyway:

QUESTIONS:

1) Walk me through how the 3 main financial statements are connected.

2) If depreciation increases by $10, what happens to the 3 financial statements?

3) What happens to the 3 financial statements this year and the next if a company purchases PP&E worth $100 at year end with cash?

4) Which item shows up on all 3 financial statements?

5) If you could just choose 1 financial statement to value a company, which one would it be and why?

ANSWERS:

Note: I'm not 100% if my answer is perfect - I'm sure veterans here will correct me if I'm wrong.

1) LT assets on B/S used to work out dep on I/S and CFS and CAPEX on CFS
net income on I/S (net of any dividend) = change in RE on B/S
Ending CF from CFS = change in cash balance on B/S

2) Tip: start from I/S --> CFS --> B/S (so that you end with B/S, allowing you to check if it indeed balances)
Assuming tax of 40%:
I/S: pretax income decrease by $10, tax decrease by $4, net income decrease by $6
CFS: CF from Op increase by $4 (tax saving)
B/S: Cash increase by $4, PP&E decrease by $10 (due to increase in contra) --> Asset side decrease by $6
RE decrease by $6 --> L&E side decrease by $6

3) Assuming tax=40%, PP&E depreciated on straight-line basis over 5yr:
Yr0 I/S: no change
Yr0 CFS: CF from Investing increase by $100 (CAPEX)
Yr0 B/S: Cash decreases by $100, PP&E increases by $100
Yr1 I/S: depreciation increases by $20, pretax income decrease by $20 so net income decrease by $12
Yr1 CFS: CF from Op increase by $8 (tax saving)
Yr 1 B/S: Cash increases by $8, PP&E decrease by $20 --> Asset side decrease by $12
RE decrease by $12 --> L&E side decrease by $12
*Variation of this question like debt financing can be made (make easy assumptions on int exp and work the same way)

4) Depreciation (assuming indirect method). Also, if firm pays no dividends and reports CFS using indirect method, change in RE = net income = top line of CFS

5) I am not entirely sure but I say B/S: assuming no dividend, you can work out net income from change in RE, which is also the top line of CFS. (+ other stuff like you can see value of equity, assets on B/S, etc)

If you're a 2nd year analyst, I'd say you can still expect to receive similar valuation type questions.
As I said, just google - there are so many sites (including this one if you dig around) with questions and tips.

Good luck

    • 2
Oct 23, 2009

Thanks there, yeah these questions look familiar. There was one about line of credit and 3 statements - cant remember exactly, let me dig to see if I can find that Q. Any clue of what I am talking about..hopefully i am not too unclear.

Oct 23, 2009
blingamink:

Do they still ask questions regarding valuation to people with banking exp?

Yes. It's obnoxious but I've asked people to walk me through a DCF. I once interviewed a laid off analyst from Morgan Stanley and boy was he offended.

For people at your level, you should really be able to talk about your deals and your role on them. The questions are going to revolve around what EBITDA multiple a company was bought, sold, priced at, how the deal was structured, etc.

I go into questions regarding the combination of financial statements if the person has M&A experience on their resume and claim to have built the merger model. Make sure to defend everything on your resume.

I'm making it up as I go along.

Oct 28, 2009

Thanks corneillus, definitely great insight! what about questions re: prepare a model for us and in-house exercise.. have u ever given that? How crazy do they make it? any idea?

Jan 27, 2015
Cornelius:
blingamink:

Do they still ask questions regarding valuation to people with banking exp?

Yes. It's obnoxious but I've asked people to walk me through a DCF. I once interviewed a laid off analyst from Morgan Stanley and boy was he offended.

For people at your level, you should really be able to talk about your deals and your role on them. The questions are going to revolve around what EBITDA multiple a company was bought, sold, priced at, how the deal was structured, etc.

I go into questions regarding the combination of financial statements if the person has M&A experience on their resume and claim to have built the merger model. Make sure to defend everything on your resume.

What topics/subjects do you suggest to master for a 1st year analyst, apart from financial statements and valuation?

I'm new to this field. Could you please elucidate the merger model - I mean what does it contain?

Oct 24, 2009

bump. i would like to know more about it too.

How detailed do the accounting questions go?

What is the most important financial statement from the banking point of view? I have heard cash flow statement, but I may be wrong.

Does IB interview ask you to pick out a stock and explain why?

How important is say, industry analysis in IB? And analyzing competitive landscape of things as well as other fundamental analysis of various companies?

Jan 27, 2015

You start by reading the definition.

http://www.investopedia.com/terms/w/workingcapital...

You are only concerned with current assets and liabilities.

Jan 27, 2015
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