Financial Analyst Interview Prep Guide

This must be second nature. Start with the Income Statement: revenue minus expenses gives net income. Net income flows to the Balance Sheet through retained earnings (part of equity). The Cash Flow Statement reconciles: start with net income, add back non-cash expenses (depreciation), adjust for working capital changes, subtract CapEx (investing), and show financing activities (debt/equity). Key connections: depreciation reduces income taxes (IS) but is added back on CFS. CapEx appears on CFS but increases PP&E on BS. Debt issuance increases cash (CFS) and liabilities (BS). Practice until you can explain this in 90 seconds without hesitation.

Five-step framework: (1) Project unlevered free cash flow for 5-10 years based on revenue growth, margins, CapEx, and working capital assumptions. (2) Calculate terminal value using either exit multiple method (EV/EBITDA multiple applied to terminal year EBITDA) or perpetuity growth method (FCF x (1+g) / (WACC-g)). (3) Calculate WACC using cost of equity (CAPM: risk-free rate + beta x equity risk premium) and after-tax cost of debt, weighted by target capital structure. (4) Discount all cash flows to present value. (5) Perform sensitivity analysis on key assumptions (growth rate, WACC, exit multiple). State that you arrive at a valuation range, not a single number. Mention that you would triangulate with comparable company analysis and precedent transactions.

Structure your investigation: (1) Revenue quality: is growth organic or from acquisitions? Is it driven by volume or price? (2) Cost analysis: are COGS rising (supply chain issues, input costs) or is it SGA growth (sales team expansion, marketing spend)? (3) Mix shift: is the company selling more low-margin products/services? (4) Investment thesis: is margin decline deliberate (investing for growth in a new market) or problematic (competitive pressure, loss of pricing power)? (5) Benchmarking: how do margins compare to peers? (6) Trajectory: is the decline accelerating or stabilizing? Show you think about both the quantitative data and the strategic context behind the numbers.

Key SaaS-specific inputs: ARR growth rate (deceleration curve), net revenue retention (expansion minus churn), gross margin (typically 70-80% for SaaS), operating expense ratios (S&M, R&D, G&A as % of revenue), stock-based compensation treatment. Project revenue from ARR, apply gross margin, model operating leverage (expenses growing slower than revenue). Calculate unlevered FCF, use appropriate WACC (typically 10-12% for growth SaaS), terminal value with exit multiple (10-20x EBITDA for high-growth SaaS). Build a clean structure: assumptions at top, calculations in middle, output at bottom. Include sensitivity table on growth rate and exit multiple. Speed matters: a clean model with one clear recommendation beats a perfect model that takes too long.

Income Statement: operating income decreases by $10, assuming a 25% tax rate, net income decreases by $7.50. Cash Flow Statement: net income is down $7.50 but depreciation (non-cash) is added back, so cash from operations increases by $2.50. Balance Sheet: PP&E decreases by $10 (accumulated depreciation), cash increases by $2.50, retained earnings decrease by $7.50. The balance sheet still balances: assets down $7.50 ($10 PP&E decrease offset by $2.50 cash increase), liabilities unchanged, equity down $7.50 (retained earnings). Practice these types of "what happens if" questions until the logic is instantaneous.

Structure with STAR but emphasize the analytical process and business impact. Describe: the business question (e.g., should we enter a new market, acquire a company, change pricing), your data sources and methodology (comparable analysis, scenario modeling, sensitivity analysis), the key insight you discovered (something non-obvious that changed the decision), your recommendation, and the quantified outcome (revenue impact, cost savings, ROI). Show you can translate complex analysis into clear, actionable recommendations for non-financial stakeholders.

Enterprise value stays approximately the same in theory (Modigliani-Miller). Equity value decreases by the amount of debt taken on (shares reduced, but debt offsets). In practice, enterprise value may change slightly due to: tax shields (interest expense is tax-deductible, increasing firm value), increased bankruptcy risk (higher leverage increases cost of capital), and market signaling effects. Discuss that the true answer depends on whether the company is at its optimal capital structure. This question tests whether you understand the distinction between enterprise value and equity value at a fundamental level.

Structure: (1) Industry and competitive position: market size, growth rate, competitive moat, industry dynamics. (2) Financial analysis: revenue growth trajectory, margin profile and trend, return on invested capital (ROIC), cash flow generation, balance sheet strength. (3) Valuation: relative valuation (EV/EBITDA, P/E vs peers), intrinsic value (DCF), and what you are paying for growth. (4) Risk assessment: customer concentration, regulatory risk, competitive threats, management quality. (5) Catalysts: what will drive value creation in the next 12-24 months? Present a clear recommendation with the key 2-3 factors that tip the decision, not a list of everything you know.