HP India Senior Financial Analyst Interview Questions and Answers

The balance sheet shows a company's assets, liabilities, and equity, while the income statement details revenues and expenses over time.

• Balance Sheet: Snapshot of financial position at a specific date, e.g., total assets of $1M.

• Income Statement: Reports financial performance over a period, e.g., revenue of $500K and expenses of $300K.

• Balance Sheet Components: Assets (what the company owns), Liabilities (what it owes), ...read more

A cash flow statement tracks cash inflows and outflows, crucial for evaluating liquidity and cash management.

• It consists of three sections: operating, investing, and financing activities.

• Operating activities show cash generated from core business operations, e.g., cash received from customers.

• Investing activities reflect cash used for investments, e.g., purchasing equipment or selling assets.

• Financing activities indica...read more

Negative cash flow can indicate growth opportunities or strategic investments rather than financial distress.

• Investment in growth: A startup may have negative cash flow while investing heavily in product development.

• Seasonal businesses: A retail company may experience negative cash flow during off-peak seasons but expects profits during peak times.

• Acquisition costs: A company may incur negative cash flow while acquirin...read more

Soaring accounts receivable may indicate potential cash flow issues or credit risk in a business.

• Increased sales on credit: A rise in accounts receivable could suggest that the company is selling more on credit, which may lead to cash flow problems if customers delay payments.

• Customer credit risk: A significant increase might indicate that the company is extending credit to less reliable customers, increasing the risk ...read more

AR factoring is a financial transaction where a business sells its accounts receivable to a third party for immediate cash.

• Improves cash flow by converting receivables into cash quickly.

• The third party, known as a factor, typically charges a fee or discount.

• Example: A company sells $100,000 in receivables to a factor for $90,000.

• Factors may also handle collections and credit risk assessment.

• Commonly used by small busin...read more

Liquidity refers to short-term asset availability, while solvency indicates long-term financial stability.

• Liquidity measures a company's ability to meet short-term obligations, e.g., cash and cash equivalents.

• Solvency assesses a company's ability to meet long-term debts, e.g., total assets vs. total liabilities.

• A company can be liquid but not solvent, e.g., having cash but high long-term debt.

• Conversely, a company can ...read more

EBITDA measures a company's operational performance, indicating profitability before interest, taxes, depreciation, and amortization.

• EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, providing a clear view of operational profitability.

• A positive EBITDA indicates that a company is generating enough earnings from its core operations to cover its operating expenses.

• Negative net income with...read more

A very high current ratio indicates strong liquidity but may suggest inefficiency in asset utilization.

• A current ratio above 2:1 may indicate that the company has more than twice its current liabilities covered by current assets.

• While high liquidity is generally positive, it may also suggest that the company is not effectively using its assets to generate revenue.

• For example, a company with a current ratio of 5:1 may b...read more

DuPont analysis is a financial performance framework that breaks down return on equity into its components.

• It decomposes ROE into three components: profit margin, asset turnover, and financial leverage.

• For example, a company with a 10% profit margin, 1.5 asset turnover, and 2 financial leverage has an ROE of 30%.

• This analysis helps identify strengths and weaknesses in a company's financial performance.

• It allows for com...read more

A high P/E ratio suggests that investors expect future growth, but it may also indicate overvaluation.

• Indicates high investor expectations for future earnings growth.

• Can suggest that a stock is overvalued compared to its earnings.

• Example: A tech company with a P/E of 50 may be seen as having strong growth potential.

• May reflect a market trend where investors are willing to pay more for perceived growth.