Top Equity Research Analyst Interview Questions

So, Equity research interviews can sometimes be smooth like butter, or rough like thunderstorms depending on the interviewer. Some interviewers focus on the fundamentals, while some might grill you on sector-specific questions. In this article, I will cover the most relevant equity research analyst interview questions.

First Round- Equity Research Analyst Interview Questions

So, you don’t really get to the main interview of the face-to-face round, unless you get filtered in this first round. Now usually, I have seen that companies can conduct the first round of interviews in either of the three ways;

• Case-Based
• Aptitude Based quizzes.
• Or Finance technical quizzes

Case-Based Equity Research Analyst Interview Questions

Now, when I say case-based it means an actual equity research model, part model completion or finding errors in a model. Also, you might either be told to complete the case and send the working file back or there might be a quiz in which you might have to select the right answer. Also, a note here the assessment can take place in either of the three areas;

• Firstly, Financial statement analysis
• Second, Excel for Finance
• Finally, Valuation based questions.

So, to get started check out the excel based case below, this is a live case based equity research interview case. Download, the template and then once solved use the quiz to check if you got it right.

Excel Case- Equity Research Interview

After solving the case, Complete the quiz.

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Created on March 09, 2023 By mentorme78

Equity Research Case Based Interview Questions

After solving the case given on the template, use this quiz to check if your calculations are right.

1 / 3

What is the aggregate net margin of all companies?

14%

20%

29.82%

2 / 3

What is the total number of companies in Utilities sector?

1

15

0

3 / 3

After solving the case, select the following information,Fill in the blanks in cells using a relevant function. What is the Market capitalisation and Net income of 2015 of AAPL?

863.9 , 49409

279.1, 10060

991.3, 49409

Your score is

The average score is 20%

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0%

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Financial Statement Analysis-Based Questions

So, a lot of companies would rather do the case based questions during the advanced stages rather than at the start. While, they might want to test your fundamentals first. Which is why I always advice students to prepare for fundamentals thoroughly, rather than just focussing on valuation. To get a feel of the preparation, you can try taking the below financial statement analysis quiz, which I created after observing many equity research interviews we did for our students.

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Created on March 09, 2023 By mentorme78

Equity Research Interview -FSA Questions

This is an assessment quiz to test, if you have the required basic knowledge of financial statements. Try these questions, and if you score less than 60%, then its time spend some time learning financial statement analysis.

1 / 5

A firm has net sales of $3,500, earnings after taxes (EAT) of $1,000, depreciation expense of $500, cost of goods sold (COGS) of $1,500, and cash taxes of $500. Also, inventory decreased by $100, and accounts receivable increased by $300. What is the firm's cash flow from operations?

$1,300

$1,800

$1,200

2 / 5

During 2007, Brownfield Incorporated purchased $140 million of inventory. For the year just ended, Brownfield reported cost of goods sold of $130 million. Inventory at year-end was $45 million. Calculate inventory turnover for the year.

3.71.

3.25.

2.89.

First, calculate beginning inventory given COGS, purchases, and ending inventory. Beginning inventory was $35 million [$130 million COGS + $45 million ending inventory - $140 million purchases]. Next, calculate average inventory of $40 million [($35 million beginning inventory + $45 million ending inventory) / 2]. Finally, calculate inventory turnover of 3.25 [$130 million COGS / $40 million average inventory].

3 / 5

A key limitation of balance sheets in financial analysis is that:

Different balance sheet items may be measured differently

Liquidity and solvency ratios require information from other financial statements

Some items are recognized when they are unlikely to reflect a flow of economic benefits

Balance sheet values may use a mixture of measurement bases (historical cost, fair value, etc.). As a result, balance sheet values of assets, liabilities, and equity may not reflect their intrinsic values. Balance sheets provide the information necessary to calculate the firm's solvency and liquidity ratios. Items are recognized on the balance sheet only if a flow of future economic benefits to or from the firm is probable.

Done

4 / 5

Which of the following transactions is most likely to be recognized on a firm's statement of changes in equity?

Buying a machine from an equipment dealer

Declaring a dividend on common shares

Investing cash in an exchange-traded fund

Declaring a dividend decreases shareholders' equity and is reflected on the statement of changes in shareholders' equity. Buying a machine is unlikely to change shareholders' equity at the time of purchase. Investing cash in a security is an exchange of one asset for another and is also unlikely to change shareholders' equity at the time of the investment.

5 / 5

The ZZT Company went public on June 1, 2004, by issuing 25 million shares of common stock. In 2005, the firm raised additional capital by issuing 2 million shares of preferred stock. What is the weighted average number of common shares outstanding for the year ending December 31, 2005?

10,416,667

14,583,333

25,000,000

The weighted average number of common shares outstanding is the number of shares outstanding during the year weighted by the portion of the year they were outstanding. Since no new common shares were issued in 2005, and there were 25 million shares at the end of 2004, there are 25 million shares at the end of 2005. Note that the preferred stock shares do not affect the common shares outstanding.

Your score is

The average score is 57%

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Valuation-Based Equity Research Interview Questions

So, this type of interview case study might include an existing model, which needs to be completed. The objective of the case is to test if you understand how valuation works in real-time at the fundamental level.

Technical Second Round- Equity Research Analyst Interview Questions

So, once you clear the first round of screening and you get shortlisted. Now, its time where the recruiter usually wants to confirm the results, by doing a live in person technical assessment. While, you might think, you have already cleared the test. However, the problem is that many candidates, do perform good on a test based interview. As soon, as the same questions are asked in person, the results look very different.

Beginner Level- Technical Equity Research

So let me take you through some range of questions.

 What comes in the asset side of the Balance sheet?

The asset side of the balance sheet includes current and non current assets. Current assets include liquid assets like inventory, cash , recivables. While non current assets include, fixed assets, intangible assets.

 If we forget to charge Rs.10 in depreciation in the income statement and tax rate is 10%, how will we correct the other statements and what will be its effect on the income statement?

So, we need to reduce the profit by 10% of 10, which is 1, similary reduce retained earnings in the equity side of the balance sheet. While add 10% of 10 in the cash flow statement. At the same time reduce the relevant fixed asset account with 10.

 What is NPV?

So, if we invest $100 in a project and which generates cashflows of $50, $100, $300 over three years. At the same time, the cost of capital is let’s say 10%. The net present value calculates, the present value of cash flows minus our initial investment. So essentially, it calculates the absolute return generated by the project.

 What comes under current assets ?

Under current assets, these are assets which can be converted into cash within a year. Out of which cash and investment securities are the most liquid while, inventory, recivables and pre-paid expenses are less liquid comparatively.

 What are prepaid expenses?

So, pre-paid expenses is an asset, which is created when I pay an advance to another businesss for which the other business is yet to provide services.For example; pre-paid rent.

What are outstanding liabilities ?

There can be multiple definitions for outstanding liabilities. But one interesting example is contingent liabilities, which are liabilities related to a pending legal case.

Explain your Previous internships.

Usually, you want to be able to explain your achievements in previous internships and do it more quantitatively.

what is DCF?

So, DCF is discounted cash flow and is used to find the present value of future cashflows in a equity valuation model. While the same concept also calculates net present value in case of a project finance model.

what is CAPM?

CAPM, stands for capital asset pricing model is used to calculate the cost of equity for a company. Which is Risk free rate+ Beta( Return on Market – Risk free rate). We use this rate, as discount rate in DCF Models.

what is WACC?

While, discounting Free cash flow to the firm we use WACC instead of cost of equity. Which is because the firm has multiple source of capital, with different types of cost.

What is FCFF, FCFE and it’s formulas?

FCFF= EBIT(1-T)+ Dep+ Changes in Wc- Capex

FCFE= Net Income+ Dep+ Changes in wc- capex +- Deb raised or repaid

Explain all the 3 financial statements and it’s components.

The three financial statements are income statement, balance sheet and cash flow statement. Income statement has revenue- cogs= Gross profit- indirect expenss= EBITDA- DA= EBIT-I=EBT-T=PAT. Cash flow statement has CFO, CFI, CFF. While balance sheet has assets with current and non current, liabilities side has current and non current liabilities, while equity has contributed capital and retained earnings.

Budget 2023 highlights

The most important highlights from an investment perspective are

• Firstly, increase capital investment by 33% to 10 lac crore in infranstructure which will indirectly increase employment.

Advance Level- Aptitute Testing Equity Research Questions

How many burgers are sold during the lunch hour in the office complex?  

Now, here the whole object of asking you this question is to test on how you think. Not necessarily, that the answer has to be exact. After all, everything research is based on assumptions.

So, you could answer this by first taking the following approach

• What is the size of the building?- It may be an approximate but lets say we quantify in terms of number of estimated companies in the building and average number of employees per company. So, may be 300 employees, 10 companies= 3000 Total population.
• Next, lets say for serving 3000 people, there must be at least 20-30 stalls or mini restaurants.
• Out of that since we giving an Indian interview, the maximum variety of options available can be ( mexical, Chinese, Indian, general cafes, south Indian).
• So even if there are 2 stalls per type of food, then we are saying that total 2 cafes which might be selling burgers.
• Now, out of 3000 employees there is a good change that more than 50% of the population will eat the more cheaper option which is Indian and south Indian. While Chinese and Mexican at lunch time or office time looks like rare. So let’s assume that 35% of the population might take a quick snack at a café. But since its an office café, not all will eat burger because its heavy, most will prefer sandwiches.
• So, out of that 35%, lets assume 5% will take burger and most will eat light sancks. So 5% of 3000 x2 times a day=300 burgers.
• Now, the trick here is to see if 60,000 per day of revenue makes sense from 5% of the food sale.

Here the major object is approach and logic, not the answer.

There are 27 identical balls with only one ball having a different weight from others. Give the minimum possible steps to identify that mis-weighted ball.

• Firstly, Divide the balls into 2+2+1 parts. Weigh the groups with 2 balls.
• Secondly, If they weigh the same the other is having a different weight.
• Otherwise, take the group with greater weight(as it has the required ball) and

measure them one vs one(2 times measuring case).

Take out exactly 4 liters of water using a 5 liter and a 3 liter can, with unlimited supply of water  

So, this is simple take fill half of the 5 litre can and 3 litre can. It makes it 4.