Last updated on Dec 20, 2023
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Understand the purpose
2
Review the basics
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3
Know the ratios
4
Use the tools
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5
Practice the questions
6
Learn from the feedback
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7
Here’s what else to consider
Financial statement analysis is a crucial skill for accounting professionals, especially when applying for jobs that require evaluating the performance, profitability, and risk of a company or a project. However, it can also be a challenging topic to discuss in an interview, as there are many aspects, methods, and ratios to consider. How can you prepare to discuss financial statement analysis in an interview and impress your potential employer? Here are some tips to help you.
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- Prateek Ahuja Top Decision-Making Voice | Faculty for Finance | CA Finalist | B. Com(H) 2
- Essam Tageldin Experienced in Financial Reporting at Iskraemeco BY Elsewedy Electric | Proficient in Financial Modeling |Feasibility… 2
1 Understand the purpose
The first step to prepare for discussing financial statement analysis in an interview is to understand the purpose of the analysis and the context of the job. Different types of analysis serve different objectives, such as comparing historical trends, benchmarking against competitors, assessing financial health, or projecting future outcomes. Depending on the role you are applying for, you may need to focus on different aspects of the analysis, such as profitability, liquidity, solvency, efficiency, or growth. Therefore, you should research the company and the industry you are applying for and tailor your analysis accordingly.
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- Prateek Ahuja Top Decision-Making Voice | Faculty for Finance | CA Finalist | B. Com(H)
It is rightly said “Begin with the End in Mind.”Thus, it is necessary to be informed about the required outcome from the process (analysis).However, before understanding the process, one needs be to aware about some prerequisites to firstly gain understanding about the organisation and its environment (explained in brief in other suggestions, refer point 7).Understanding the need for analysis will help the candidate to adjust his/her focus.Even when different objectives could mean different approaches, there could be some steps that are common in the analysis process such as, extracting information from raw data, transforming it into usable formats, establishing a structure to present the analysis/report, etc.
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2 Review the basics
The second step to prepare for discussing financial statement analysis in an interview is to review the basics of the three main financial statements: the income statement, the balance sheet, and the cash flow statement. You should be able to explain what each statement shows, how they are related, and what are the main components and accounts in each one. You should also be familiar with the accounting principles and standards that govern the preparation and presentation of the financial statements, such as GAAP or IFRS, and how they affect the quality and comparability of the information.
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3 Know the ratios
The third step to prepare for discussing financial statement analysis in an interview is to know the ratios and formulas that are commonly used to measure and interpret the financial performance and position of a company or a project. You should be able to calculate and explain the meaning and implications of ratios such as return on assets, current ratio, debt-to-equity ratio, gross margin, inventory turnover, or net present value. You should also be aware of the limitations and assumptions of the ratios and how they may vary depending on the industry, the size, and the strategy of the company or the project.
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- Prateek Ahuja Top Decision-Making Voice | Faculty for Finance | CA Finalist | B. Com(H)
Traditionally, ratios alone used to be the guiding factor to analyse the financial performance. But in today’s modern world, with the advent of latest business intelligence tools, analytics have gone beyond ratio analysis.However, ratios will continue play a pivotal role in the process of analysis of financial statements for the simple reason that they are simple to use and doesn’t require knowledge of complex modern tools.Therefore the application of fundamental ratios to analyse the financial performance is a must have skill. Knowing only the formula wouldn’t be sufficient. The interpretation of the ratios is necessary.
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4 Use the tools
The fourth step to prepare for discussing financial statement analysis in an interview is to use the tools and techniques that can help you perform and present the analysis effectively and efficiently. You should be proficient in using software such as Excel, QuickBooks, or Tableau to organize, manipulate, and visualize the data from the financial statements. You should also be able to use tools such as horizontal analysis, vertical analysis, trend analysis, or common-size analysis to highlight the significant changes, patterns, and differences in the financial statements. Moreover, you should be able to use tools such as SWOT analysis, Porter's five forces analysis, or PESTEL analysis to complement the financial statement analysis with external and internal factors that may affect the company or the project.
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5 Practice the questions
The fifth step to prepare for discussing financial statement analysis in an interview is to practice the questions that you may encounter and prepare your answers. You can find examples of financial statement analysis questions online or from books or courses. You can also ask a friend or a mentor to mock interview you and give you feedback. When practicing the questions, you should try to demonstrate your analytical, critical, and communication skills, as well as your knowledge and interest in the company and the industry. You should also be prepared to justify your assumptions, explain your methods, and provide recommendations based on your analysis.
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- Prateek Ahuja Top Decision-Making Voice | Faculty for Finance | CA Finalist | B. Com(H)
In my experience, practicing book questions do not necessarily help to gain a hands on experience.Therefore it is recommended to try reading and solving case scenarios or case studies.It is even better to reach out to professionals in your reach and seek to gain working knowledge and experience before walking in to an interview.This will not only help you to perform better but also put you in a confident position in front of the interviewer.
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6 Learn from the feedback
The sixth and final step to prepare for discussing financial statement analysis in an interview is to learn from the feedback that you receive and improve your skills and confidence. Whether you get the job or not, you should always ask for feedback from the interviewer or the recruiter and reflect on your strengths and weaknesses. You should also seek feedback from other sources, such as peers, mentors, or online communities, and learn from their experiences and insights. By doing so, you will be able to identify the areas that you need to work on, the resources that you can use, and the best practices that you can follow to become a better financial statement analyst and interviewer.
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7 Here’s what else to consider
This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?
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Understand business model, financial metrics, and recent news and Refresh your memory on key financial statements ,Practice calculating fundamental ratios,profitability, liquidity, and solvency ,Analyze trends, identify strengths and weaknesses, explain how the financial statements paint a picture of the company's health and performance , Anticipate common questions like "What are the biggest drivers of revenue?" or "How does their cash flow compare to competitors?". Practice formulating your answers using data and insights from the statements.Show critical thinking by asking insightful questions about specific aspects , Analyze potential risks and opportunities , Present your analysis in a clear, and engaging manner. Use charts or graphs
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- Prateek Ahuja Top Decision-Making Voice | Faculty for Finance | CA Finalist | B. Com(H)
Before jumping into analysis of Financial Statements, following pointers need adequate consideration, namely:1. Nature of Business.2. Industry & its Environment.3. Management & its Integrity.4. Financial Reporting Framework & Regulatory Requirements.5. Accounting Policies and Principles followed by the Entity.These are the fundamentals of the company, and unless you have this structure in mind, any sort of analysis could turn out to be vague.
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