My Finance Interview Equity Research Interview Questions Why would account receivables grow faster than sales?

Most likely the company is financing its customers by extending its days sales outstanding (DSO)

What is the difference between proven, probable and possible reserves?

First, reserves are the quantities of oil that are anticipated to be commercially recoverable. Unrecoverable quantities of oil are referred to as contingent resources and prospective Resources.

Proved reserves are the quantities of oil that can be estimated with reasonable certainty to be commercially recoverable.

Probable reserves are the additional reserves that are less likely to be recovered than proved reserves.

Possible reserves are the additional reserves that are less likely to be recoverable than probable reserves. This entry was posted in Equity Research Interview Questions on July 4, 2013. What is the pecking order theory?

To finance internal projects, preference is given to internal funds first, followed by debt and then equity as a last resort. Note however that high risk sectors, such as high tech, prefer to raise equity over using debt financing. This entry was posted in Equity Research Interview Questions, Investment Banking Interview Questions on July 4, 2013. What is the difference between coking coal and thermal coal?

Coking (metallurgical) coal is used in steel making and thermal (steam) coal is used in power generation. Have a look at this webpage for more details:

http://www.homelandenergygroup.com/s/Coal.asp?ReportID=338859&_Title=Commenton-Coking-Coal-vs-Thermal-Coal

This entry was posted in Equity Research Interview Questions on July 4, 2013. What influences the price of copper?

The price of copper is mainly influenced by the supply and demand for the metal. On the demand side, copper correlates to the economy because its used as a building material and used in manufacturing wires and pipes. When the economy is growing, copper prices tend to rise and when the economy is slowing, the price of copper usually drops. On the supply side, any interruption in copper production could result in price spikes. This entry was posted in Equity Research Interview Questions, Sales and Trading Interview Questions on July 4, 2013. How to prepare for an equity research interview?

Read the newspaper (or a financial website) daily:

Prepare to talk about a recent M&A deal. Bonus points if the deal is in your sector. Also, form an opinion on whether the deal is in the interest of the shareholders or not. The more you read the paper the easier it will become to discuss macro economic themes, which is crucial for any finance interview. Monitor how the major companies in your sector have been performing. Did the earnings beat the street? Is the outlook strong? Any sector wide challenges/issues?

Prepare to talk about specific companies:

The most common question is: what would you buy? Discuss specific catalysts and macro themes. Bonus points if you can identify reasons to buy a specific stock that are not well-known to investors yet.

Form an opinion on where gold, oil and the U.S. dollar are heading:

Keep in mind that there is no wrong or right answer. Its all about your reasoning. You should support your answer with facts and analysis. In most cases the interviewer will take the opposite side of the argument. Again, no wrong or right answer, so dont back down.

Some points to keep in mind:

This might be a bit difficult at first, but always distinguish fact from opinion. Analyse the facts to arrive at an opinion. Smile. You are selling your analysis and opinion. A smile shows that you are confidant and comfortable with your answers and you enjoy chatting about finance in general.

This entry was posted in Equity Research Interview Questions, Investment Banking Interview Questions, Sales and Trading Interview Questions on July 4, 2013. Why do want to work in equity research?

Whether your aim is to work in equity research or youre interested in any finance position, you should have a good reason for applying for the position youre interviewing for.

In the case of equity research, mention your non-finance work experience as a reason to focus on the sector youre interviewing for. Also, you could use a specific class or course that helped you prepare for this position.

One way to look at equity research vs. investment banking is that as an equity research analyst/associate:

You only have access to public information, which makes the job interesting. You get to talk to suppliers, customers and competitors of your coverage universe. You focus on one sector and eventually become an expert in that sector.

On the other hand, as an investment banking associate/analyst:

You get to work with companies directly and you could have access to material nonpublic information.

You work on many deals with different scopes. You work on companies from different sectors.

Just do your research before you head to an interview and have couple reasons on why you picked this position over another one. Saying that youll get to apply your finance skills might not be enough, because you could apply them whether you work in equity research or in investment banking. This entry was posted in Equity Research Interview Questions, Investment Banking Interview Questions on July 4, 2013. How would you invest a million dollars?

Most people answer this question by recommending one stock. Then theyd go through a list of why they recommend this stock. That is not the intent of this question. The interviewer is testing your portfolio management skills. Here is a better way to go about answering this question:

1- Tell the interviewer that this is a portfolio management question. Ask who is this for, someone young, retired or in between. Then make a point about the level of risk they could take. 2- Build a proper portfolio with asset diversification in mind. For example: someone who is young could invest 30% of their portfolio in small cap U.S. equities, 30% in global equities, 20% in blue chip, and 20% in bonds. Someone whos retired would invest in safer instruments with yield, like bonds and dividend paying, large cap stocks.

3- Stress that asset class and geographic diversification is important and that the composition of the portfolio depends on the age and circumstances of the investor. This entry was posted in Equity Research Interview Questions on July 4, 2013. What are the different disciplines of security analysis?

Fundamental, quantitative and technical.

Fundamental analysis examines business conditions and financial statements. You can either use bottom up analysis or top down analysis.

Quantitative analysis uses mathematical concepts, such as statistics, calculus and probability.

Technical analysis uses historical data including price and volume to forecast future price.

Equity research analysts focus on the long term outlook and thus they use fundamental analysis. This entry was posted in Equity Research Interview Questions on July 4, 2013. What is the difference between Form 10-K, Form 10-Q, Form 8-K and Form 4?

Companies use Form 10-K to report their annual results.

Companies use Form 10-Q to report their quarterly results.

Companies use Form 8-K to disclose unscheduled material events, such as an acquisition, a new long term contract with a supplier, or quarterly conference call information. uestion: What industries have you worked with in the capacity of a research analyst? Answer: Describe the industries or companies you analyzed in the past. Also mention the companies or clients you worked for they are fairly predictable, but be specific. Question: What are important skills for a research analyst? Answer: Being painstakingly detail-oriented is crucial. Strong math is also of utmost importance. Analytical skills have to be top-notch if a person is to be able to interpret the market and company performance. And communication skills are important because a research analyst communicates with clients and target industries and prepares reports regularly.

Question: Describe the typical research process. Answer: Typically, an analyst focuses on a specific company or industrial segment, researches its economic performance, and documents it in the form of a report. The report is presented to the company management who then decides how to improve the services. Question: Can you give examples of the type of analysis you do? Answer: Review analyses youve been experienced with, such as product and scenario analysis or analysis of economic performance. Question: What are the characteristics of a successful research analyst? Answer: Research analysts are typically highly-motivated proactive professionals who are out to make a difference. They are fast-paced, adaptable, dynamic, and demonstrate initiative. They are strong team players, have a passion for technology, and think creatively. Job Description: Develop and maintain detailed financial models. Analyze financial statements to identify trends. Forecast earnings for companies under coverage by employing a rigorous research process. Foster relationships with industry management teams, firm clients and internal personnel. Analyze market and research databases to examine sector dynamics and investment opportunities. Conduct extensive financial and industry analysis on companies within the assigned sector, including analysis of company financial statements, industry trends, and supply chain. Communicate research findings to internal and external client network. Develop and maintain strong relationships with company management teams to ensure continued understanding of the nuances and complexities of companies under coverage and to provide corporate access to institutional client base. Share industry views and best practice ideas with team members at all levels. Serve as an ambassador for the firms global research team, encouraging coordination among sector research teams from all regions. Requirements: Prior work experience at a firm within the financial industry Two-year banking program experience Undergraduate degree from a competitive university Strong financial and accounting knowledge Good written and verbal communications skills

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EQUITY RESEARCH INTERVIEW QUESTIONS: (Note: most of IB and S&T questions are fair game too) 1. 2. Tell me about yourself walk me through your resume. Why did you come to Michigan?

3. 4. 4. 5. 6. 7. 8. -

Why do you want research/investment management? Why sell-side versus buy-side? What are the differences? What qualities make for a good analyst? What skills can you offer as an analyst? Any industry-specific ones? What industry(ies) do you want to cover? Any preference for value or growth? What is the difference between growth and value? What about GARP investing? How would you analyze the (pick one) industry? Pitch a stock to me. (Expect follow-up questions) This is the Pitch Me a Stock portion of the interview. a) Choose at least 2 stocks to buy & 2 stocks to short b) KNOW these companies a. Major ratios b. Comparable companies c. The competitive landscape of the industry in which these stocks reside (basically a Porters 5 Forces exercise) d. Build your own model, including income statement, balance sheet & cashflow statement. This will FORCE you to get to really know the company, its drivers, major assumptions and greatest risks. e. Know the opinion of the stock on the Street and how your opinion either agrees or dissents with the consensus. f. The effect of macroeconomic factors on the stock & its industry. g. Major news events in the sector. TIP: If you pick a well-known, widely covered stock it will certainly be one on which the interviewer has some sort of opinion even if he/her does not cover the stock. While this will certainly allow for a fluid discussion, it will ensure that you have to be CONFIDENT in your knowledge of the stock. Picking an obscure stock is a way for you to show your explanatory powers and lessen the chances that the interviewer knows everything there is to know about that stock. However, this might also work against you as the interviewer might lose interest in the story. REMEMBER: They are attempting to assess: (1) How much you prepared for the interview. (2) If you can think quickly on your feet. (3) If you can communicate well and take criticism.

9.

How did you arrive at your target price?

10. What is your investment philosophy? 11. Do you own/have you owned any stocks? Tell me about them. Why did you buy/sell them? 12. Why do you want to work for us? 13. Why do you want to live in the (firms location) area? What ties to you have to the area? 14. What other firms are you looking at? Why sell-side and buy-side?

15. Where do you think the market is going? Why? 16. What do you think is most important: A companys management, product, strategy, etc. ? 17. What are five questions you would ask a companys management? How else would you assess management? 18. Which would you rather have: A good company with poor management, or a poor company with good management? Why? 19. What are your long term goals? 20. What are you looking for in an internship/job? 21. What classes have you taken? What have been your favorites? Least favorite? Why? 22. What have you learned at Michigan that will make you a good analyst? 23. What are your strengths? Weaknesses? 24. What accomplishments are you most proud of in your career to date? 25. Can you give me an example of a situation of facing conflict with a colleague or team member and how you dealt with it? 26. Can you give me an example of when you have had to use persuasion? 27. Is there anything you feel we didnt cover? 28. What do you want me to know about when I walk away from this interview that might not be evident from your resume? 29. Can you give me an example of an ethical dilemma youve faced and how you managed the situation? 30. Tell me about some of the teams that youve (un)successfully worked on in the past. 31. Tell me about a failure you had. 32. Describe a situation when you made an impact at work. 33. What schools did you apply to? Which ones did you get into? 34. What was your undergraduate GPA? GMAT? 35. Why did you go to your undergraduate school? Why did you choose your major? 36. There are several qualified people who are applying for this job. Why should we pick you? (ideally this has been suggested/incorporated into your answer for question #1). 37. Tell me about a time when you had to take a stand, and were met with opposition to your view. What was the outcome? 38. Why dont you want to work in Investment Banking? Consulting?

39. What can I tell you about my firm? 40. It is common practice to evaluate P/E ratio to determine if a stock is cheap. If you had no comparable companies for a stock, how can you evaluate if a stock is cheap? 41. How would you justify the price that XYZ paid for ABC? Do you expect XYZ to be a good investment in light of these acquisitions? 42. What makes a stock a good investment? 43. If you had to put ALL of your money in one stock and leave it there for 10 years, which stock would it be and why? 44. Why are high P/E stocks more susceptible to major declines when interest rates increase? 45. We want people who have a passion for investing in stocks what have you done to demonstrate you have this? 46. What was your best investment? Why what did you learn? 47. What was your worst investment? What did you learn? 48. If the fed hikes rates by 0.5%, what would you expect the impact to be on the market? 49. Difference between cyclical and growth industries, and how they are affected by external factors. 50. Where do you see the market in 5-10 years and what leads you to believe so? 51. What is P/E and how would you use it to compare companies? 52. Where is the NASDAQ, and what has it done over the last year? 53. Where is the Dow, and what has it done over the last year? 54. Where is the S&P 500, and what has it done over the last year? 55. Where is the Russell 2000, and what has it done over the last year? 56. Where is the dollar vs. the yen? 57. Where is the dollar vs. the euro? 58. What is the overnight rate? 59. What is the 10 year T-Note rate? 60. What is the price of gold? 61. Common practice to evaluate P/E ratio to determine if a stock is cheap. If you had no comparable companies for a stock, how can you evaluate if a stock is cheap? 62. I have the balance sheets from Intel and Disney/ABC in front of me. What do you think would be some of the differences?

63. What does the cost structure like for the [INSERT ANY INDUSTRY] industry? Fixed, variable etc? What are their biggest cost components? 64. What do you think the income statement would look like for a drug company like Pfizer? What would their COGS be? How about their operating margin? 65. For those of you that are career changers: Looking at your resume I can see that you have no market experience, what should make me believe that this is something you are seriously interested? 66. Where do you see the market in 5 - 10 years and what leads you to believe so? 67. What are you looking for in an internship/job? 68. What classes have you taken? What have been your favorites? Least favorite? Why? 69. Why dont you tell me what valuation techniques you would use if I were to ask you to value a company? 70. What do you think is the main reason stocks go up or down? 71. You mentioned P/E ratio, which is a very popular valuation metric. What would you call the inverse of the P/E ratio? What does it tell you? 72. Tell me something about yourself that isnt listed on your resume. 73. What brings you here today? 74. Have you had any type of previous modeling experience? 75. Do you understand a DCF model? Walk me through the process. 76. I have your resume in front of me, but why dont you tell me about yourself? 77. Can you tell me about any previous accounting work you have done? 78. Can you tell me about the accounting classes you have taken thus far, and which class you plan to take in the future? 79. Did you previous accounting classes talk at all about looking at the footnotes? 80. What type of valuation work have you done in the past? 81. Tell me about the Finance Club/Investment Club here at school and how it has helped you? 82. Have you entered a stock pitch competition or done extensive research on an individual 83. Being a successful analyst requires one to have three different silos of skills: sales/communication skills, analytical skills, and writing skills. If you were to come in to XYZ firm, which of these skills would you lead with? 84. What is the main reason that stocks go up or down? 85. Why dont you give me your outlook on the economy and the stock market? 86. Lets talk about interest rates, what do you think will happen to them over the next year?

87. If interest rates were to go, which sectors do you think would benefit, and which would stand to lose 88. If you were to get a job here, what would be your dream sector and why? 89. How would you compare XYZ firm to other firms on Wall Street? Potential questions to ask/thoughts to think about: What would it take to drop rating to underperform? Especially hallmark stock? How many analysts? Analyst to associate ratio? Increasing coverage? Need for more associates? Leverage associates in what way? Modeling? Is it still possible to get to know mgt. and the qualitative sides of the bus with inc coverage? How do you rank buy-side clients? Do associates talk to certain clients vs. others? Associates go on company visits? Industry conferences? II rankingsvery important? What do you do to get ranked? Do you care? Expectations for publishing? What is it like when a company in your space goes public? Process of initiating coverage? input from other sources? DOR, Buy-side clients? Are there ever conflicts over coverage of a particular name/in a gray area b/w 2 sectors How have you developed relationships with sales people? With company management? What do you do between earnings season? Changing recommendations process? What do you do differently in your writing to be more effective relative to other analysts that cover your names? Notes versus initiation reports. How do you deal with a situation in which one of your stocks blows-up?