equity research technical interview questions

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Equity Research Interview Questions and Answers (40 Samples)

40 common equity research interview questions.  Examples include technical, transactional, behavioral, and logical tests with sample answers

Prior to becoming a Founder for Curiocity, Hassan worked for Houlihan Lokey as an Investment Banking Analyst focusing on sellside and buyside  M&A , restructurings, financings and strategic advisory engagements across industry groups.

Hassan holds a  BS  from the University of Pennsylvania in Economics.

Mr. Arora is an experienced private equity investment professional, with experience working across multiple markets. Rohan has a focus in particular on consumer and business services transactions and operational growth. Rohan has also worked at Evercore, where he also spent time in private equity advisory.

Rohan holds a BA (Hons., Scholar) in Economics and Management from Oxford University.

Common First Equity Research Interview Questions

15 common equity research technical questions.

• WSO Bonus Technical Question

8 Fund-Specific Hard Technical Questions

• 5 Most Common Equity Research Behavioral/Fit Questions

5 Firm-Specific Behavioral/Fit Questions

5 logical puzzles - interview brain teasers, full wso hedge fund prep guide & additional resources, list of hedge funds.

Equity Research (ER) attracts seasoned professionals and new hires with a variety of talents and diversified skill sets across the world for a fulfilling career. New hires starting right out of school will start as research associates and move up the chain to becoming research analysts after gaining experience in the industry.

Given the limited number of positions for a tremendous amount of applicants, it is no surprise that the interview process is designed to be incredibly competitive .

Consequently, answering the technical and behavioral questions confidently and consistently is key to converting an interview into an offer . Therefore, the best way to prepare for these interviews is to follow the markers, learn to answer the common questions asked (covered below!), and practice tirelessly.

The following free WSO ER interview guide is a comprehensive tool designed to cover every single aspect of the ER interview process, walking you through step by step from the beginning to the end of the interview. This interview guide will drastically improve your chances of securing an offer with your dream job.

Our guide covers a total of 40 of the most common behavioral, technical, and logical questions, along with proven sample answers , that are asked by hedge funds professionals to candidates during the hiring process.

We strongly believe it’s a great place to start your preparation before investing in our more comprehensive Hedge Fund Interview Course .

This resource features 13 firm-specific questions from leading hedge funds ( Citadel , Bridgewater Associates , etc.) and proven sample answers to them.

Successful professionals within the equity research industry can present themselves as the ideal candidate for the position by highlighting their genuine interest in finance and strong work ethic. A candidate’s presentation of themself occurs at the beginning of the interview, often through these two questions. Regardless of the firm, the position, or the location, we can guarantee that these industry standard questions will be asked.

Anticipating both of these questions before walking into the interview, being well-practiced in crafting a compelling narrative around them, and selling yourself will make you stand out from amongst the pool of potential candidates.

Walk me through your background/resume

We recommend you dial in a cohesive 90-second resume walkthrough that highlights as well as explains all the on the positive and motivating factors behind every transition on your resume (school to job, job to better job, most recent position to grad school).

A good example highlighting this is as follows,

I initially went to school to learn how to design cars, but after my first internship in the field, I realized that I loved interacting with clients directly and decided to pursue full-time roles in B2B sales. In these sales roles, I learned and developed solid selling skills as well as gained direct exposure to A, B, and C. Since I wanted to continue refining that skill set and branch out to focus on X, Y, and Z, I am looking for a new role/promotion which provides that opportunity…

Be deliberate with your delivery. Every decision you made should have a purpose (preferably that you initiated). Don't be negative with your answers. It's important to never say you left because you were bored or "wanted to try something new."

Moving on from there, have a few backup stories prepared. These stories should effectively portray you as a good ER candidate involve highlighting your abilities as a go-getter with a genuine interest in financial markets. Have these stories prepped and use them to answer whatever the interviewer is asking you. Tell these stories with confidence, clarity, and relevance, and you’ll be putting yourself in good territory. Again, it is key to ensure your resume lines up and supports your stories.

WSO has published its very own Equity Research sample resume template and provides guidelines on crafting a successful ER resume. Check it out at WSO’s official Equity Research Resume Guidelines page.

Why equity research?

Given the wide variety of professional backgrounds that candidates come from, WSO has created a dedicated page to answer this question. WSO’s “Why Equity Research?” page covers a variety of sample answers tailored for students and professionals looking to break into equity research.

Free Interview Training

Sign up to our FREE 5-Day Interview Training to kickstart your interview prep.

Technical questions are a cruical component of almost every equity research recruiting process. Therefore, your interviewers will expect accurate and detailed responses to commonly asked technical questions. It's important that and your answers must demonstrate in-depth knowledge and expertise of the topics at hand. The following section features 15 common ER interview questions , and sample answers have been provided for every question.

At the end of these 15 questions, we have also provided you with eight exclusive firm-specific technical questions to jumpstart your mock interview training.

The 15 technical questions covered below are exclusive to the equity research industry. However, equity research interviews often overlap with investment banking and hedge fund interviews as general finance/accounting questions can also be asked. To check out an additional 45 technical questions with sample answers, check out WSO’s free 101 Investment Banking Interview Questions and Answers and Hedge Fund Interview Questions pages.

1. What is EBITDA?

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization . It is a general metric for evaluating a company’s cash profitability. In addition, it is sometimes used as a proxy for free cash flow because it will allow you to gauge how much cash is available from operations to pay financing costs like interest, capital expenditures, etc. This is one of the most important single items someone will look at in evaluating a Company.

EBITDA = Revenues - Expenses (excluding non-cash and non-operational items like interest, taxes, depreciation, and amortization)

Sample Answer:

EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation, and Amortization. It’s an excellent high-level indicator of a company’s financial performance .

Since it removes the effects of financing and accounting decisions such as interest and depreciation, it is a much better metric than revenue or net profit for comparing different companies. As a result, it serves as a rough estimate of free cash flow and is used in the EV/EBITDA multiple to establish a company’s high-level valuation quickly .

2. What is enterprise value?

Enterprise Value is the value of an entire firm. It accounts for the debt and equity in a business and is calculated using the equation below. This is the price that would be paid for a company in the event of an acquisition, where the acquirer takes on all the debt and equity of the acquiree .

Simplified Enterprise Value Formula :

Enterprise Value = Market Value of Equity + Debt + Preferred Stock + Minority Interest - Cash

Enterprise Value is the value of a firm as a whole from the perspective of its owners, including both debt and equity holders. In its simplest form, you calculate an Enterprise Value by taking the market value of equity (aka the company’s market cap ), adding the debt and the value of the outstanding preferred stock. Then you add the value of any minority interests the company owns and then subtract the cash the company currently holds.

3. What is the difference between enterprise value and equity value?

Equity Value represents residual value for common shareholders after the company satisfies its outstanding obligations (net debt, preferred stock, which is senior to common equity). In contrast, enterprise value represents the value available to both equity and debt holders.

4. How do you value a private company?

• You cannot use a straight market valuation since the company is not publicly traded.
• A DCF can be complicated by the absence of an equity beta, making calculating WACC difficult. In this case, you have to use the equity beta of a close comp in your WACC calculation.
• Financial information for private companies is more difficult to find because they are not required to make public online filings.
• An analyst may apply a discount on a comparable company’s valuation if the comps are publicly held because a public company will demand a 10-15% premium for the liquidity an investor enjoys when investing in a public company.

5. Why might there be multiple valuations of a single company?

Each valuation method will generate a different value because it is based on various assumptions, multiples, or comparable companies and/or transactions.

Typically, the precedent transaction methodology and discounted cash flow method result in a higher valuation than the result of a comparable companies' analysis or market valuation. In addition, the precedent transaction result may be higher because the approach usually includes a “ control premium ” while calculating the company’s market value. This premium exists to entice shareholders to sell and will account for the “synergies” that are expected from the merger .

The DCF approach typically produces higher valuations because analysts’ projections and assumptions are usually somewhat optimistic.

You can value a private company with many of the same techniques one may use for a public company valuation. However, there are a few differences. There will be difficulty in obtaining the right inputs as financial information will likely be harder to find, potentially less complete, and less reliable. Further, you can’t simply use a straight market valuation for a company that isn’t publicly traded. On top of this, a DCF can be problematic because a private company will not have an equity beta to use in the usual WACC calculation. Finally, if you are doing a comps analysis using publicly traded companies, a 10-15% discount may be required in the calculations as a 10-15% premium is typically paid for the public company’s relative liquidity.

6. How do you calculate a firm’s terminal value?

Terminal Value = ( FCF t (1+g)) / (WACC - g)

• To establish a terminal value, you can either use the formula above, which is the perpetual growth methodology, or the multiples method.
• In the multiples method, you assign a valuation multiple (such as EV/EBITDA) to the final year’s projection and use that as the “terminal value” of the firm.
• In either case, you must remember to discount this “cash flow” back to year zero as you have with all other cash flows in the DCF model .

There are two ways to calculate terminal values. The first is the multiples method. In order to use this method, you choose an operation metric (most commonly EBITDA) and apply a comparable company’s multiple to that number from the final year of projections.

The second method is the perpetual growth method, where you select a modest growth rate, typically just a little bit higher than the inflation rate and lower than the GDP growth rate, and assume that the company can grow at this rate infinitely. Then you multiply the FCF from the final year by 1 plus the growth rate and divide that number by the discount rate (WACC) minus the assumed growth rate.

7. What is beta?

• It represents the relative volatility or risk of a given investment with respect to the market.
• Beta is a measure of the volatility of an investment compared with the market as a whole. The market has a beta of 1, while investments that are more volatile than the market have a beta greater than 1, and those that are less volatile have a beta less than 1.
• β < 1 means less volatile than the market (lower risk, lower reward).
• β > 1 means more volatile than the market (higher risk, higher reward).
• A beta of 1.2 means that an investment theoretically will be 20% more volatile than the market. For example, if the market goes up 10%, that investment should increase by 12%.

8. What is the market risk premium?

The market risk premium is the excess return that investors require for choosing to purchase stocks over “risk-free” securities. It is calculated as the average return on the market (usually the S&P 500, typically around 10-12%) minus the risk-free rate (current yield on a 10-year Treasury).

9. When should an investor buy preferred stock?

• Preferred stock could be looked at as a cross between debt and equity. It will generally provide investors with a fixed dividend rate (like a bond), but also allow for some capital appreciation (like a stock). Preferred stock may also have a conversion feature that allows shareholders to convert their preferred stock into common stock .
• It typically does not have voting rights like those of common stock.
• It is senior to common stock within the company’s capital structure .

An investor should buy preferred stock for the upside potential of equity while limiting risk and assuring stability of current income in the form of a dividend. In addition, preferred stock’s dividends are more secure than those from common stock. Owners of preferred stock also enjoy a superior right to the company’s assets, though inferior to those of debt holders, should the company go bankrupt.

10. When should a company buy back stock?

A company should buy back its own stock if it believes the stock is undervalued when it has extra cash. However, if it believes it can make money by investing in its own operations, or if it wants to increase its stock price by increasing its EPS by reducing shares outstanding or sending a positive signal to the market. Also, a stock buyback is the best way to return money to shareholders, as they are tax-efficient when compared to dividends.

11. What might a shareholder analysis tell you about an equity deal?

• For an existing public company, a shareholder analysis compares current institutional investors to ones that the company might target in a new equity offering.
• You could also use this analysis to find institutional investors with similar industry holdings that have not yet invested in your client and target them in the offering.

12. Suppose you hold a put option on Microsoft stock with an exercise price of $60. The expiration date is today, and Microsoft is trading at $50. How much is your put worth, and why?

This put is worth $10. It gives you the option to sell your shares at $60, and you can buy them in the open market at $50. You therefore would buy shares of Microsoft at $50 per share and immediately sell them for $60, making a profit of $10 per share.

13. Where did the S&P 500/Dow Jones Industrial Average/NASDAQ close yesterday?

• This question is used to gauge your general interest in the financial markets . You probably will not be expected to know the number to the penny, but knowing the levels of the three major exchanges/indices, as well as whether they were up or down and why will show your interviewer that you keep track of what is going on in the world of finance.
• You should know how the market moved (up or down) the previous day and why it moved. You can find this information by watching CNBC , reading the WSJ, or just by using Google.
• Yesterday the XXXX closed at XXXX, up/down XXX from the open. I also noticed that it was up XXX from the day before due to …
• It would also be a good demonstration of market interest to know the overall valuation levels of the three major indices. The P/E ratios for the overall Dow, S&P 500, and Nasdaq are publicly available on major financial news publications.

14. Where do you believe the stock market will be in future, say 3/6/12 months from now?

• This question can show your interest in the markets. There’s no right/wrong answer as everyone has different opinions on where the market is going.
• You need to have an opinion and well-thought-out reasoning for that opinion.
• If you think the market will drop in the next three months, hit bottom, and then begin to bounce back, have a reason to explain why you think it is going to drop, why it is going to bottom out, and why it is going to bottom out will begin to rise.
• It is more important to display logical reasoning than to be correct.
• Do some research before your interview. Read what writers for major newspapers are predicting and saying, and then implement some of their reasons in your own explanation.
• Also, be sure to stick to your reasoning. Your interviewer may challenge your position and question your reasoning. If you have to come up with a solid theory behind your response, be confident in your position and try to explain your rationale. If your logic and thought process makes sense, don’t change your opinion just to agree with your interviewer.

15. Is 15 a high P/E (Price to Earnings) ratio?

This is not just a yes or no question. A firm’s P/E ratio is essential compared to other companies in its industry. P/E can be thought of as how many dollars an investor is willing to pay for one dollar of earnings. 

A high P/E represents high anticipated growth in earnings. In high-growth industries, such as technology, a P/E ratio of 15 may be considered relatively low. This is because the company is expected to grow its earnings at a high rate and therefore deserves a higher valuation relative to its present earnings. 

However, a P/E of 15 may be considered high for a large pharmaceutical company since earnings growth may be expected to be slow but steady in future years.

It depends on the industry. For example, a P/E ratio of 15 in an industry like financial institutions may be considered a bit high, but if the company is a high-growth tech company, 15 may be considered relatively low.

WSO Bonus Technical Question:

"pitch me a stock".

The stock pitch is arguably the most crucial and most common question you will be asked during the interview process. Ideally, you want to have 2-4 stocks in mind that you can pitch , i.e. large-cap, small-cap, stock to short. We advise spending 30 minutes to a couple of hours finding a stock you like and listing out the reasons why. Even if your interviewer doesn't ask you, it's always better to be prepared for these interviews. Here's a good explanation of how to answer this question.

They are trying to figure out whether you understand the underlying concept of what drives a business. Some questions to help figure this out are:

• What are the key drivers of the company (both revenue and cost)? 
• Why is it a good investment? 
• What are the potential opportunities available? 
• What' s their competitive advantage ? 
• What are the primary risks?

Here's a sample stock pitch, courtesy of [esbanker] , a private equity associate. The post has been edited and formatted.

Well, I've recently been following Copa Airlines, a Panamanian airline company, currently trading at $xx per share. Recently, the airline industry has been underperforming the markets for several reasons: compressed margins from the volatility in oil this year increased competition from low-cost carriers, and over-leverage by most airlines (think American or Air Canada).   While many airline companies are in desperate need of restructuring, Copa airlines have seen their revenues - now at $1.4 billion - growing at a robust 10% compounded over the last 5 years. Copa boasts an EBITDA of approx. $350 MM, Net Income of around $240MM, which translates to roughly 18%. Margins have remained stable over the last few years and are significantly greater than other airlines. After running a basic DCF (5-year projections), Copa has an implied price per share of $xxx. In terms of comps, Copa is trading at an EV/ EBITDAR of 7 .7x, which is slightly less than the industry median of 10.3 x, and a PE ratio of 12.9 x relative to an industry median of 14.1 x. Given Copa's strategic positioning in Latin America, its strong operating and financial performance of late, and its relatively low share price, I would strongly recommend buying Copa Airlines.

Some of the numbers are out of date - this is from an early 2011 model.

Walking into the interview with an in-depth understanding of the above-covered 15 technical questions will undoubtedly make you stand out in the applicant pool. However, to achieve complete technical mastery, you must expect technical questions that are specific to different hedge funds.

The following section features eight exclusive interview questions that actual interviewers asked potential candidates at some of the world’s largest hedge funds during equity research interviews.

Did you know?

The following questions are from WSO’s company database , which is sourced from the detailed personal experiences of more than 30,000 people with hedge funds interviews. The Hedge Fund Interview Course includes access to over 800 questions across 165 hedge funds (no other resource comes close).

Point72 Technical Questions

• In order to value a company with no revenue, such as a start-up, you must project the company’s cash flows for future years and then construct a discounted cash flow model of those cash flows using an appropriate discount rate .
• Alternatively, you could also use other operating metrics to value the company. If you took a start-up website with 50,000 subscribers, but no revenue, you could look at a similar website’s value per subscriber and apply that multiple to the website you are valuing.
• Valuing a company with no revenue comes down to determining the market opportunity for a company and assigning a value per user, customer, or subscriber, and then discounting that back at an appropriate rate that accounts for the inherent execution and market risk .  

A sample general approach to modeling and research could involve the following 6-step process:

• Formation of assumption/hypothesis
• Collection of relevant data
• Analysis of markets
• Creation of forecast
• Simulation/test-run
• Release and monitoring of model  
• The profits generated on the Income Statement after any payment of dividends are added to shareholder ’s equity on the Balance Sheet under retained earnings .
• Debt on the Balance Sheet is used to calculate interest expense on the Income Statement .
• Property, plant, and equipment, on the Balance Sheet, are used to calculate depreciation expenses on the Income Statement.

There are many other links, but the above are some of the primary connections frequently analyzed as part of accompanying schedules in financial modeling .

There are many links between the Balance Sheet and the Income Statement. The central link is that any net income from the Income Statement, after the payment of any dividends, is added to retained earnings. In addition, debt on the Balance Sheet is used to calculate the interest expense on the Income Statement, and property, plant, and equipment (PP&E) are used to calculate any depreciation expense .  

Citadel Investment Group Technical Questions

The exchange ratio is the relative number of new shares given to existing shareholders of a company that has been acquired or merged with another. It is used by companies looking to offer a full or part equity offer for an acquisition transaction.

It is best to go prepared with one long idea and one short idea. Being able to demonstrate that you understand the many nuances of shorting is a fantastic way to differentiate yourself from other possible candidates. 

If you are interviewing for a specific sector/industry, then select a business from that industry to pitch . While your interviewer will likely know more about the industry and/or company, but as long as you stick to stating this, you should be in the clear.

Using a pitch structure such as the one below gives the best results:

• Industry : Why is the industry attractive? [Use a quantitative metric to show you did your homework here, such as, "ABC Industry has the ability to grow xyz% in the next 3-5 years. This is also a good place to highlight changing competitive dynamics, etc.]
• Company : Why is the company attractive? ["The business has sales of $30 in a $3,000 industry representing a 3% market share despite being recognized as the product leader and having an exceptional management team" is an example of one of the best way to address this]
• Catalyst : Why is the market wrong and how will the market realize the intrinsic value of the business? [This is the most critical part of the pitch. For example, "ABC is currently valued at 10x [insert multiple] but is being unfairly discounted because of the incompetency of the prior management team. Since the current management team has taken over [insert metric] XYZ has improved. As of right now, the market has not recognized the improvement in XYZ or the overall business, but I expect that [insert catalyst] will demonstrate ABC's true value to the market within [insert time frame]."
• Valuation : What is the intrinsic value of the business? ["If my assumptions [discuss them here] about the effect of [insert catalyst] prove true, then the market will realize ABC's intrinsic value of [insert valuation]." You can then speak about contingency valuations, etc.]

Try to keep your pitches as short as possible and as high-level as possible. This helps to minimize the chances of putting your foot in your mouth and allows the interviewer to ask more in-depth questions where they feel necessary. Of course, you also need to be prepared to answer in-depth questions about anything pertaining to your pitch. This includes topics ranging from the industry, competitors, or the company.

Note: The above extract was taken and paraphrased from WSO User @Simple As…’s post, “ The Asymmetric Risk Profile: Preparing For The Hedge Fund Interview ”

We assume that the entire Net Operating Balance ( NOL ) goes to $0 in an M&A transaction, and therefore we write down the existing Deferred Tax Asset by this NOL write -down.

Bridgewater Associates Technical Question

It could be beneficial to increase the volume of software sold and increase the price of pens, as the incremental cost of each additional software license sold is relatively low, and almost all of the additional revenue would flow directly to margins, not to mention its scalability. Increasing the price of pens has more advantages from a financial standpoint as they have a higher incremental cost (cost of producing a pen scales with quantity sold).

D.E. Shaw Group Technical Question

During the Covid-19 pandemic, the Fed lowered interest rates to accommodate the lack of demand due to the uncertainty caused by the pandemic. This led to massive inflation, the effects of which are now being realized. Looking at the treasury curve and comments by Mr. Powell (who mentioned that inflation is not transitionary), it is evident that the rates will increase by mid-2022. This is to ensure that inflation is curbed and the economy moves towards normalization post-Covid.

5 Most Common Equity Research behavioral/Fit Questions

Fit or “behavioral” questions are used to gauge whether or not you have the right work ethic, attitude, personality, and values to fit in with a Hedge Fund’s equity research department. Many Hedge Funds take this process extremely seriously because most firms typically have only a handful of investment professionals who must collaborate on projects over long hours and under tight deadlines. 

For example, Bridgewater Associates is known for its intense corporate culture of radical truth and radical transparency . Therefore, its interviews consist mainly of ethical and moral questions.

The following section walks you through 5 of the most common types of fit questions and suggests approaches for answering them. The proposed strategies and sample answers are meant to be illustrative. Always remember, you need to adapt your responses to be true to yourself and your own words.

1. What do you consider to be your greatest accomplishment?

• If you want your answer to be related to your education, talk about how you worked on an assigned project that you didn’t understand at first, struggled through understanding it, and eventually received an A for your hard work.
• If you want to relate it to your personal life, talk about something you are proud of in your family life. You can even connect it to athletic success, community service, or recovery from illness.
• You can use this question to reveal the balance in your life. This can be especially useful if your resume is short on classroom excellence. Be sure to explain that you are extremely proud of your less-than-perfect GPA because it allowed you to accomplish other activities at school (as long as you have a solid list of extracurricular activities).
• Whatever approach you choose to answer this question, be sure you spin it to demonstrate how one or more of the qualities valued in finance, such as positive attitude, willingness to learn, drive, and determination lead you to success.

I consider one of my most significant accomplishments to be the work-life balance I have achieved between keeping my grades up while serving as the captain of my hockey team. As a result of this, I gained greater leadership skills as I led our varsity team through the entire season as well as structured our fall and spring workouts. This leadership role required me to polish my time management skills which were invaluable. I also wouldn’t trade the friendships and connections I made during my time on the hockey team I made for anything else in the world.

2. Coming out of this interview, what are three things about you that I should take with me?

Choose three traits you have that demonstrate your natural abilities at equity research and reveal that you are memorable and unique compared to other potential candidates.

The three things that I would like you to take from this interview are,

• To start, I want you to know that I am extremely hard working and will bust my tail every day to ensure that the job gets done
• That I have excellent communication skills and a positive attitude; and
• Your firm is my top choice, and I would be ecstatic to come to work here every day. I’ve already spoken to X, Y, and Z people and I believe that I’ll make a great fit with the other team members.

3. Describe your ideal work environment?

• The most important things about your work environment, especially in finance where people spend many hours together, are the people you work with every day.
• Talk about the fact that you want to be in a work environment with others who are all as driven, dedicated, and hard-working as you are, where everyone can rely on one another to get tasks done efficiently.
• Talk about your ideal environment as one that allows you to excel due to great teamwork and communication, one that allows you to grow intellectually and professionally, where your performance evaluations are directly correlated to your rewards.

In my mind, at least in finance, the most crucial aspect of the working environment is the people you are working with on a daily basis. Suppose you do not enjoy the company of your colleagues or teammates. In that case, the environment will be especially challenging because you’ll often be working countless hours per week, over multiple years, with these same people.

My ideal workplace is one where everyone works hard, communicates well, and trusts each other to get the job done right and on time. As a result, the team is then rewarded and evaluated based on our performance.

4. What would your last boss tell me about you?/Tell a story about a time when your boss praised you for a job you performed exceptionally well.

• highly motivated
• hard-working
• strong analytical and quantitative skills
• a good team player
• Be sure to talk about a quality your boss observed that may not be clearly listed on your resume. For example, your ability to put clients at ease upon meeting them or that you’re a great leader who sees the best in every team member.

My boss from last summer’s internship would say I worked extremely hard with maximum dedication and minimal supervision. On one occasion, he actually tell me to go home when it was getting late and I was still at my desk. He even reminded me it was just a summer internship . 

Since I really strived to get the most out of my time with the internship, I guess I just didn’t want to leave any task unfinished, even if it would have been OK with my boss. At the end of the summer, my boss telling me how dedicated I was to the position was one of the biggest compliments he had to have given me.

5. What makes you think you can put up with the stress, pressure, and long hours of a career in finance?

Talk about a time in your life when you worked long hours and managed many different tasks.

The story can be from work, school, home, or a combination of all of them. For example, maybe during finals week, you had to study for two exams, finalize the school newspaper, write three papers, and still go to soccer practice.

It’s vital to ensure that you explain that while your past experience has not been as intensive as working full time as a finance professional, you are still 100% dedicated to succeeding, you feel as well prepared as anyone, and you’re willing to do whatever it takes to get the job done.

I am as prepared as anyone else coming out of college to handle the long hours of working in finance. In fact, when you add up all the time I spent doing all my extracurricular activities, my school hours were almost as long as a full-time position. Every day I was up at 7:30 for classes that ran from 8:15 until 1:00. Then, after class, I would grab lunch and then go to soccer practice, which means I didn’t get back until 5:00.

Then I would grab dinner and work in either the library or my room until I was done. This would typically go pretty late at night or into the morning. So while I know it isn’t the same time commitment and stress as working in finance, I feel my experience has left me well prepared for this career.

Knowing the culture of each hedge fund before walking into an interview is one of the secrets to connecting with the interviewer and walking out with an offer.

The following section features 5 exclusive questions that interviewers have asked in the world’s biggest hedge funds (Point72, Bridgewater Associates, Millennium Partners , etc.) during interviews. These should give you a jumpstart to help with your training for the respective hedge funds interviewing you.

• What roles are you applying for right now? What types of firms?
• What do you consider your greatest failure?
• What is your strength?
• What feedback did you receive from your last job/internship?
• What motivates you?

WSO Free Resource:

To view WSO’s sample answers and walkthroughs for the above-mentioned exclusive fund-specific behavioral questions, check out WSO’s free Hedge Fund Interview Questions page.

Logical puzzles, brainteasers , and riddles are typically used in the interview process to gauge the candidate's critical thinking abilities.

In this part of the interview, your interviewers aren’t focused on whether you can answer the riddles correctly or not. Instead, they are really focused on trying to figure out your thought process and how you arrive at your answer when solving the riddles presented before you.

Given this, it is critical to walk your interviewer through your thinking as you progress through the riddle. They may even probe you with questions to assist you or test your logic. By occasionally asking if you’re headed in the right direction and giving them a rundown of your thoughts demonstrates your ability to reflect and approach a problem with composure.

However, it is still beneficial to foresee these brainteasers in order to avoid being put in an awkward position and caught off guard in the interview. The next section has 5 commonly asked logical puzzles that you can practice beforehand to impress your interviewer.

1. How many NYSE-Listed companies have 1 letter ticker symbols?

It could be 26 as that’s how many letters are in the English alphabet, but in this case it is only 24 because I & M are already saved for Microsoft and Intel, in case they change their minds.

2. A stock is trading at 10 and 1/16. There are 1 million shares outstanding. What is the stock’s market cap?

This question is just a test of your mental math abilities. 

• If a fourth is 0.25
• An eighth is 0.125
• A sixteenth is 0.0625

As a result, the stock price is 10.0625 and the Market Cap is 10 .0625 million.

3. What is the probability that the first business day of a month is a Monday?

Each day has a 1 in 7 chance of being the first day of the month. However, if the month starts on a Saturday or a Sunday, the first business day of the month will be a Monday. Therefore, the chances of the first business day being a Monday is 3 in 7 since if the month starts on Saturday, Sunday, or Monday, the first business day is a Monday.

4. You have 10 black marbles, 10 white marbles, and 2 buckets. I am going to pick one of the two buckets at random and select one marble from it at random. How would you fill the two buckets with marbles to maximize the odds that I select a white marble?

For this scenario, you want to put one white marble in one bucket and put the other 19 marbles in the other bucket. Due to this setup, the bucket with the lone white marble will be chosen nearly 50% of the time. When the alternative bucket is selected, the odds that a white marble is pulled are still nearly 50%. Setting up the situation this way makes the overall odds of a white marble selection almost 75%.

5. A 10x10 Rubik's Cube is dropped into a bucket of paint. How many of the individual cubes have paint on them?

The trick is to realize that cubes on the edge of any one of the 6 faces have a side on two faces (3 faces for corner cubes). This prevents you from simply calculating the number of cubes on a single face and multiplying by the number of faces. One of the most intuitive ways to solve this problem is to calculate the total number of individual cubes in a 10x10x10 Rubik’s cube. Once you have that you want to subtract the number of all internal cubes with no facings on the outside. There are 10x10x10 total individual cubes on this Rubik's cube. On the inside of a 10x10x10 cube, is an 8x8x8 cube with no outside facings. The 8x8x8 cube contains 512 individual cubes. Therefore, there are 1,000 - 512 = 488 cubes on the outside of the Rubik’s cube with paint on them.

The majority of questions and sample answers covered in this free guide were obtained directly from WSO’s very own Hedge Fund Interview Course , which features:

• 814 questions across 165 hedge funds
• 10+ exclusive case videos with detailed pitches
• Long, short, equity, credit, event-driven, macro+ questions

Think about it - if this page alone can set you miles ahead of the competition, imagine what our complete course can do for you. The WSO Hedge Fund Interview Prep Course will guide you through each step of the interview process and ensure you're in the strongest position to land the job at a hedge fund. Click the button below to check it out!

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Sign Up to The Insider's Guide on How to Land the Most Prestigious Buyside Roles on Wall Street.

Additional WSO resources:

The following are additional resources as forum posts posted by WSO and WSO’s users alike over the last 15 years and are recommended by WSO for taking a look at.

• Equity Research Resume Guidelines
• Overview Of The Equity Research Industry
• Hedge Fund Careers: Getting A Hedge Fund Job Out Of Undergrad And Beyond
• Anatomy Of The 10-K
• WSO Financial Dictionary

The following are some of the biggest of the 750+ hedge funds firms WSO has data on in its company database :

Bridgewater Associates | Bridgewater Associates Overview | Bridgewater Associates Site The Tudor Group | The Tudor Group Overview | The Tudor Group Site Brandes Investment Partners | Brandes Investment Partners Overview | Brandes Investment Partners Site Renaissance Capital | Renaissance Capital Overview | Renaissance Capital Site Millennium Partners Group | Millennium Partners Overview | Millennium Partners Site Alpine Woods | Alpine Woods Overview | Alpine Woods Site Carlson Capital | Carlson Capital Overview | Carlson Capital Site 360 Global Capital | 360 Global Capital Overview | 360 Global Capital Site GSO Capital Partners | GSO Capital Partners Overview | GSO Capital Partners Site

Additional interview resources

To learn more about interviews and the questions asked, please check out the additional interview resources below:

• Investment Banking Interview Questions and Answers
• Private Equity Interview Questions and Answers
• Hedge Funds Interview Questions and Answers
• Finance Interview Questions and Answers
• Accounting Interview Questions and Answers

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By Dheeraj Vaidya, CFA, FRM

(ex. J.P. Morgan & CLSA Equity Analyst with 20+ years of training experience)

Equity Research Interview Questions (with Answers)

Last Updated :

21 Aug, 2024

Blog Author :

Wallstreetmojo Team

Edited by :

Ashish Kumar Srivastav

Reviewed by :

Dheeraj Vaidya, CFA, FRM

Table Of Contents

Equity Research Interview Questions

If you are called for an equity research interview, you can be asked any question from anywhere. However, you should not take this lightly as this can change your Finance career. Equity Research interview questions are a mix of technical and tricky questions. So, you need to have a thorough knowledge of financial analysis , valuation, financial modeling, the stock market, current events, and stress interview questions.

Let's find below the top 20 Equity Research interview questions that are repeatedly asked for the positions of equity research analysts .

Table of contents

Recommended articles.

Question #1 – Do you know the difference between equity and enterprise values? How are they different?

This is a simple conceptual equity research interview question, and you need first to mention the definition of enterprise value and equity value and then tell the differences between them.

Enterprise value can be expressed as follows –

• Enterprise Value = Market Value of Common Stock + Market Value of Preferred Stock + Market Value of Debt + Minority Interest – Cash & Investments.

Whereas, the equity value formula can be expressed as follows –

• Equity Value = Market Capitalization + Stock Options + Value of equity issued from convertible securities – Proceeds from converting convertible securities.

The basic difference between enterprise value and equity value is enterprise value helps investors get a complete picture of a company's current financial affairs. In contrast, equity value helps them shape future decisions.

Question # 2- What are the most common ratios used to analyze a company?

It can be classified as the most common equity research interview question. Here is the list of common ratios for financial analysis that can be divided into seven parts –

#1 - Solvency Ratio Analysis

• Current Ratio
• Quick Ratio

#2 - Turnover Ratios

• Receivables Turnover
• Days Receivables
• Inventory Turnover
• Days Inventory
• Accounts Payable Turnover
• Days Payable
• Cash Conversion Cycle

#3 - Operating Efficiency Ratio Analysis

• Asset Turnover Ratio
• Net Fixed Asset Turnover
• Equity Turnover

#4 - Operating Profitability Ratio Analysis

• Gross Profit Margin
• Operating Profit Margin
• Return on Total Assets
• Return on Equity

#5 - Business Risk

• Operating Leverage
• Financial Leverage
• Total Leverage

#6 - Financial Risk

• Leverage Ratio
• Debt to Equity Ratio
• Interest Coverage Ratio 
• Debt Service Coverage Ratio

#7 - External Liquidity Risk

• Bid-Ask Spread Formula

Question #3 What is Financial Modeling, and how is it useful in Equity Research?

• This is again one of the most common equity research interview questions. Financial modeling is nothing but projecting the company's finances in a very organized manner. As the companies that you evaluate only provide historical financial statements, this financial model helps equity analysts understand the fundamentals of the company – ratios, debt, earnings per share , and other important valuation parameters.
• In financial modeling, you forecast the company's balance sheet, cash flows, and income statement for the future years.
• You may refer to examples like the Box IPO Financial Model  and  Alibaba Financial Model  to understand more about Financial Modeling.

Question #4 – How do you do a Discounted Cash Flow analysis in Equity Research?

If you are new to the valuation model, please go through this Free training on Financial Modeling.

• Financial modeling starts with populating the company's historical financial statements in a standard format.
• After that, we project these three statements using a step-by-step financial modeling technique .
• The three statements are supported by other schedules like the Debt and Interest Schedule, Plant and Machinery & Depreciation Schedule, Working Capital, Shareholders Equity , Intangible and Amortization Schedules, etc.
• Once the forecast is done, you move to valuations of the firm using the DCF approach,
• Here you are required to calculate Free Cash Flow to Firm or Free Cash Flow to Equity and find the present value of these cash flows to find the fair valuation of the stock.

Question #5 – What is Free Cash Flow to a Firm ?

This is a classic equity research interview question. Free cash flow to the firm is the excess cash that is generated after considering the working capital requirements and the cost associated with maintaining and renewing the fixed assets. The firm's free cash flow goes to the debt holders and the equity holders.

Free Cash Flow to Firm or FCFF Calculation = EBIT x (1-tax rate) + Non Cash Charges + Changes in Working capital – Capital Expenditure

You can learn more about FCFF here.

Question #6 – What is Free Cash Flow to Equity?

Though this question is frequently asked in valuation interviews, this can be an expected equity research question. FCFE measures how much "cash" a firm can return to its shareholders and is calculated after taking care of the taxes, capital expenditure , and debt cash flows.

The FCFE model has certain limitations. For example, it is useful only in cases where the company's leverage is not volatile and cannot be applied to companies with changing debt leverage.

FCFE Formula = Net Income + Depreciation & Amortization + Changes in WC + Capex + Net Borrowings

You can learn more about FCFE here .

Question #7 – What's the earning season? How would you define it?

Appearing for an equity research interview? – Be sure to know this equity research interview question.

source: Bloomberg.com

In our industry, companies will announce a specific date when they declare their quarterly or annual results. These companies will also offer a dial-in number using which we can discuss the results.

• One week before that specific date, the job is to update a spreadsheet, reflecting the analyst's estimates and key metrics like EBITDA, EPS, Free Cash Flow, etc.
• On the day of the declaration, the job is to print the press release and swiftly summarize the key points.

You can refer to this article to learn more about the earning season .

Question #8 – How do you do a Sensitivity Analysis in Equity Research?

One of the technology equity research interview questions.

• Sensitivity analysis using excel is one of the most important tasks after you have calculated the fair value of the stock.
• Generally, we use the base case assumptions of growth rates, WACC, and other inputs, which result in the base valuation of the firm.
• However, to provide the clients with a better understanding of the assumptions and their impact on valuations, you must prepare a sensitivity table.
• The sensitivity table is prepared using DATA TABLES in Excel.
• Sensitivity analysis is popularly done to measure the effect of changes in WACC and the company's growth rate on Share Price.

• As we see above, in the base case assumption of a Growth rate of 3% and WACC of 9%, Alibaba's Enterprise Value is $191 billion.
• However, when we can make our assumptions to say a 5% growth rate and WACC of 8%, we get the valuation of $350 billion!

Question #9 – What is the "restricted list," and how does it affect your work?

This is a nontechnical equity research interview question. To ensure that there is no conflict of interest, a "restricted list" is being created.

When the investment banking team is working on closing a deal that our team has covered, we're not allowed to share any reports with the clients, and we will not be able to share any estimates. Our team will also be restricted from sending any models and research reports to clients. We will also not be able to comment on the merits or demerits of the deal.

Question #10 – What are the most common multiples used in valuation?

Expect this expected equity research interview question. There are a few common multiples that are frequently used in valuation –

• Price to Cash Flow

Question #11 – How do you find the Weighted Average Cost of Capital of a company?

WACC is commonly referred to as the Firm's Cost of Capital. This is because the cost to the company for borrowing the capital is dictated by the external sources in the market and not by the company's management. Its components are Debt, Common Equity, and Preferred Equity.

The formula of WACC = (Wd*Kd*(1-tax)) + (We*Ke) + (Wps*Kps).

• Wd = Weight of Debt
• Kd = Cost of Debt
• tax - Tax Rate
• We = Weight of Equity
• Ke = Cost of Equity
• Wps = Weight of Preferred Shares
• Kps = Cost of Preferred Shares

Question #12 – What is the difference between Trailing PE and Forward PE?

Trailing PE Ratio is calculated using the earnings per share of the past; however, Forward PE Ratio is calculated using the forecast earnings per share. Please see below an example of Trailing PE vs. forwarding PE Ratio.

• Trailing Price Earning Ratio formula = $234 / $10 = $23.4x
• Forward Price Earning Ratio formula = $234 / $11 = $21.3x

For more details, have a look at  Trailing PE vs. Forward PE

Question #13 – Can Terminal value be Negative?

This is a tricky equity research interview question. Please note that it can happen but only in theory. Please see the formula below for Terminal Value.

If for some reason, WACC is less than the growth rate, then Terminal Value can be negative. High growth companies may get negative terminal values only due to misuse of this formula. Please note that no company can sustain growth at a high pace for an infinite period. The growth rate used here is a steady growth rate that the company can generate over a long period. For more details, please look at this detailed Guide to Terminal value .

Question #14 – If you were a portfolio manager with $10 million to invest, how would you do it?

This equity research interview question is asked repetitively.

The ideal way to answer this question is to pick a few good stocks large cap , mid-cap stock , & small cap, etc.) and pitch the interviewer about the same. You would tell the interviewer that you would invest $10 million in these stocks. You need to know about the key management executives, a few valuation metrics (PE multiples, EV/EBITDA, etc.), and a few operational statistics of these stocks to use the information to support your argument.

Similar types of questions where you would give similar answers are –

• What makes a company attractive to you?
• Pitch me a stock etc.

Question #15 – What PE ratio of a high-tech company is higher than the PE of a mature company?

The basic reason for which the high tech company's PE is higher is that the high tech company may have higher growth expectations.

• Why is it relevant? Because the expected growth rate is a PE multiplier –
• Here, g = growth rate; ROE = Return on Equity & r = cost of equity.

It would help if you used a PEG Ratio for high-growth companies instead of a PE Ratio.

Question #16 – What is BETA?

This is among the top 5 most expected equity research interview questions. Beta is a historical measure representing a tendency of a stock's return compared to the change in the market. Beta is usually calculated by using regression analysis .

A beta of 1 would represent that a company's stock would be equally proportionate to the change in the market. A beta of 0.5 means the stock is less volatile than the market. And a beta of 1.5 means the stock is more volatile than the market. Beta is a useful measure, but it's a historical one. So, beta can't accurately predict what the future holds. That's why investors often find unpredictable results using beta as a measure.

Let us now look at Starbucks Beta Trends over the past few years. The beta of Starbucks has decreased over the past five years. This means that Starbucks stocks are less volatile than the stock market. We note that the Beta of Starbucks is at 0.805x.

Question #17 – Between EBIT and EBITDA, which is better?

Another tricky equity research interview question.  EBITDA stands for Earnings before interest, taxes, depreciation, and amortization. And EBIT stands for Earnings before interest and taxes. Many companies use EBITDA multiples in their financial statements. The issue with EBITDA is that it considers the depreciation and amortization as they are "non-cash expenses." So even if EBITDA is used to understand how much a company can earn, it still doesn't account for the cost of debt and its tax effects.

For the above reasons, even Warren Buffett dislikes EBITDA multiples and never likes companies that use it. According to him, EBITDA can be used where there is no need to spend on "capital expenditure," but it rarely happens. So every company should use EBIT, not EBITDA. He also gives examples of Microsoft, Wal-Mart & GE, which never use EBITDA.

Question #18 – What are the weaknesses of PE valuation?

This equity research interview question should be very simple to answer. However, there are a few weaknesses of PE valuation, even if PE is an important ratio for investors.

• Firstly, the PE ratio is too simplistic. Just take the current price of the share and then divide it by the company's recent earnings. But does it take other things into account? No.
• Secondly, PE needs context to be relevant. If you look at only the PE ratio, there is no meaning.
• Thirdly, PE doesn't take growth/any growth into account. Many investors always take growth into account.
• Fourthly, P (the price of share) doesn't consider debt. As the market price is not a great measurement of market value, debt is an integral part of it.

Question #19 Let's say that you run a Donut franchise. You have two options. The first is to increase the price of each of your existing products by 10% (imagining that there is price inelasticity). And the second option would be to increase the total volume by 10% due to a new product. Which one should you do and why?

This equity research interview question is purely based on economics. So you need to think through and then answer the question.

First of all, let's examine the first option.

• In the first option, the price of each product is increased by 10%. As the price is inelastic, there would be a meager change in the quantity demanded , even if the price of each product gets increased. So that means it would generate more revenue and better profits.
• The second option is to increase the volume by 10% by introducing a new product. In this case, introducing a new product needs more overhead and production costs. And no one knows how this new product would do. So even if the volume increases, there would be two downsides – one, there would be uncertainty about the sales of the new product, and two, the cost of production would increase.

After examining these two options, the first option would be more profitable for you as a franchise owner of KFC.

Question #20 – How would you analyze a chemical company (chemical company – WHAT?)?

Even if you don't know anything about this equity research interview question, it's common sense that chemical companies spend a lot of their money on research & development. So, if one can look at their D/E (Debt/Equity) ratio, it would be easier for the analyst to understand how well the chemical company utilizes its capital. A lower D/E ratio always indicates that the chemical company has strong financial health. Along with D/E, we can also look at Net Profit margin and P/E ratio.

This article has been a guide to Equity Research Interview Questions. Here we provide you with the list of most common techniques and nontechnical equity research interview questions with answers. You may have a look at these other recommended resources to learn more –

• Top Financial Modeling Interview Questions (With Answers)
• Valuation Interview Questions
• Private Equity Interview
• Corporate Finance Interview Questions (with Answers)

Prepare well and give your best shot. All the best for your Equity Research interview!

30 Equity Research Analyst Interview Questions and Answers

Common Equity Research Analyst interview questions, how to answer them, and example answers from a certified career coach.

In the world of finance, equity research analysts play a pivotal role in uncovering investment opportunities and providing valuable insights to investors. To excel in this field, you need not only exceptional analytical skills but also strong communication abilities to convey complex financial information effectively. As you prepare to enter an interview for an Equity Research Analyst position, showcasing your expertise in these areas will be paramount.

To help guide you through the interview process and highlight your strengths as a candidate, we’ve compiled a list of common Equity Research Analyst interview questions along with tips on how to approach them with confidence and competence.

1. Can you explain the difference between top-down and bottom-up approaches in equity research?

This question aims to assess your understanding of the two main methodologies used in equity research. Demonstrating your knowledge of top-down and bottom-up approaches not only showcases your expertise in the field but also highlights your ability to apply different analytical techniques to evaluate investment opportunities based on macroeconomic factors, industry trends, or company-specific attributes.

Example: “Certainly. In equity research, the top-down approach starts with a macroeconomic analysis to identify industries or sectors that are expected to perform well in the current economic environment. Analysts then narrow down their focus within those promising sectors to find individual companies with strong fundamentals and growth potential. This method emphasizes the importance of broader market trends and sector performance in driving stock prices.

On the other hand, the bottom-up approach focuses primarily on the analysis of individual companies, regardless of the industry or sector they belong to. Analysts examine company-specific factors such as financial statements, management quality, and competitive advantages to determine the intrinsic value of a stock. The idea behind this approach is that if a company has strong fundamentals, it will eventually outperform its peers and deliver returns to investors, irrespective of the overall market conditions.

Both approaches have their merits, and many analysts use a combination of both methods to make informed investment decisions. While the top-down approach helps identify attractive sectors in a given economic climate, the bottom-up approach ensures that investments are made in fundamentally sound companies.”

2. What is your experience with financial modeling, and which types of models have you built?

Your ability to create and analyze financial models is a cornerstone skill for an equity research analyst. Interviewers want to gauge your expertise in this area and understand your experience with different types of models such as discounted cash flow, leveraged buyout, and mergers & acquisitions. These models are essential for making investment recommendations, understanding market trends, and assessing the financial health of companies. Showcasing your proficiency in financial modeling can help demonstrate your value as a potential candidate for the role.

Example: “Throughout my career as an equity research analyst, I have gained extensive experience in financial modeling. I have built various types of models to analyze and forecast company performance, which has been instrumental in making informed investment decisions.

Some of the key models I’ve worked on include discounted cash flow (DCF) models for valuation purposes, three-statement models that project income statements, balance sheets, and cash flow statements, and sensitivity analysis models to assess how changes in certain variables impact a company’s value. Additionally, I have experience with merger and acquisition (M&A) models, where I analyzed potential synergies and accretion/dilution scenarios.

My proficiency in financial modeling software, such as Excel, along with my strong understanding of accounting principles and industry-specific drivers, allows me to create accurate and insightful models that support strategic decision-making processes.”

3. How do you determine a company’s intrinsic value using discounted cash flow (DCF) analysis?

A deep understanding of financial valuation methods is essential for an equity research analyst. The DCF analysis is a widely used technique to evaluate a company’s intrinsic value. Interviewers want to ensure that you have a strong grasp of this method and can apply it in real-life scenarios to provide accurate valuations that will guide investment decisions and recommendations. Your answer should demonstrate your knowledge of the DCF process and your ability to critically analyze a company’s financial health.

Example: “To determine a company’s intrinsic value using discounted cash flow (DCF) analysis, I start by projecting the company’s free cash flows for a specific period, usually five to ten years. Free cash flow is calculated as operating cash flow minus capital expenditures. These projections are based on historical financials, industry trends, and any relevant information about the company’s growth prospects.

Once I have projected the free cash flows, I calculate the present value of these cash flows by discounting them using the company’s weighted average cost of capital (WACC). WACC represents the required rate of return for both equity and debt holders and serves as an appropriate discount rate in DCF analysis. After obtaining the present value of the projected cash flows, I estimate the terminal value, which represents the present value of all future cash flows beyond the projection period. The terminal value is typically calculated using either the perpetuity growth method or the exit multiple method.

Finally, I add the present value of the projected cash flows and the terminal value to arrive at the company’s intrinsic enterprise value. To obtain the intrinsic equity value, I subtract the net debt from the enterprise value and divide the result by the number of outstanding shares. This gives me the estimated intrinsic value per share, which can be compared with the current market price to identify potential investment opportunities.”

4. Describe your process for conducting industry and competitive analysis.

Hiring managers are keen to know whether you have a solid methodology for researching and analyzing industries and competitors, as this is a core responsibility of an equity research analyst. Your approach to gathering data, identifying trends, and analyzing financial statements will be critical in delivering accurate and insightful recommendations to clients and stakeholders. A well-structured and efficient process speaks to your expertise and ability to effectively perform in the role.

Example: “When conducting industry and competitive analysis, I start by identifying the key players in the market and their respective market shares. This helps me understand the competitive landscape and determine which companies are dominating or emerging within the sector.

I then analyze macroeconomic factors that may impact the industry, such as regulatory changes, technological advancements, and consumer trends. This provides a broader context for understanding how external forces might influence the performance of individual companies.

To assess each company’s competitiveness, I examine their financial statements, management team, product offerings, and growth strategies. Additionally, I perform SWOT (Strengths, Weaknesses, Opportunities, Threats) analyses to identify potential advantages and challenges they face compared to their competitors. Finally, I synthesize all this information into actionable insights and investment recommendations, ensuring my clients have a comprehensive understanding of the industry dynamics and the relative strengths of the companies within it.”

5. What are some key financial ratios that you use to evaluate a company’s performance?

Understanding financial ratios is essential for an equity research analyst, as they provide a snapshot of a company’s financial health and performance. When interviewers ask this question, they want to know if you have the necessary knowledge and analytical skills to make informed decisions and recommendations based on these ratios. Showcasing your ability to efficiently analyze financial data using key ratios demonstrates your competency and value as an equity research analyst.

Example: “As an equity research analyst, I rely on several key financial ratios to evaluate a company’s performance. Some of the most important ones include:

1. Price-to-Earnings (P/E) Ratio: This ratio compares the market price of a stock to its earnings per share, helping me assess whether a company is overvalued or undervalued relative to its peers and historical averages.

2. Debt-to-Equity Ratio: This metric measures a company’s leverage by comparing its total debt to shareholders’ equity. A higher ratio may indicate increased risk, while a lower ratio suggests more conservative financing practices.

3. Return on Equity (ROE): ROE calculates the return generated on shareholders’ investments by dividing net income by average shareholders’ equity. It helps me gauge management’s effectiveness in generating profits from invested capital.

4. Gross Margin: Calculating gross profit as a percentage of revenue, this ratio provides insight into a company’s pricing strategy and cost structure, which can be useful for comparing companies within the same industry.

5. Current Ratio: This liquidity measure compares a company’s current assets to its current liabilities, indicating its ability to meet short-term obligations. A higher ratio suggests better financial health and lower liquidity risk.

These ratios, among others, provide valuable insights into a company’s financial health, profitability, and overall performance, allowing me to make informed investment recommendations.”

6. Explain how you would analyze a company’s balance sheet, income statement, and cash flow statement.

Delving into a company’s financial statements is a critical aspect of an equity research analyst’s role, as it helps to determine the overall financial health and value of the organization. By asking this question, interviewers want to gauge your ability to analyze and interpret financial data, your understanding of key financial concepts, and your attention to detail, all of which are important for making informed investment recommendations.

Example: “When analyzing a company’s financial statements, I start with the balance sheet to assess its overall financial health. I examine key ratios such as the current ratio, quick ratio, and debt-to-equity ratio to understand the company’s liquidity, solvency, and capital structure. This helps me determine if the company has sufficient resources to meet short-term obligations and how it manages long-term debt.

Moving on to the income statement, I focus on revenue growth, gross margin, operating margin, and net profit margin to evaluate the company’s profitability and efficiency. Analyzing trends in these metrics over time can reveal potential strengths or weaknesses in the business model. Additionally, I compare these figures to industry peers to gauge the company’s performance relative to competitors.

Finally, I analyze the cash flow statement to gain insight into the company’s ability to generate cash from operations, investing activities, and financing activities. Free cash flow is a particularly important metric, as it indicates the amount of cash available for reinvestment or distribution to shareholders. A positive trend in free cash flow suggests that the company is effectively managing its resources and has the potential for future growth.”

7. How do you stay up-to-date on market trends and news relevant to the industries you cover?

Keeping your finger on the pulse of market trends and news is essential for an equity research analyst. Employers want to know that you have effective strategies in place to stay informed and up-to-date on the industries you cover. This demonstrates your commitment to providing accurate and insightful analysis, which ultimately helps your firm make well-informed decisions about investments and portfolio management.

Example: “Staying up-to-date on market trends and news is essential for an Equity Research Analyst, as it directly impacts the quality of our analysis and recommendations. To ensure I’m well-informed, I start my day by reading financial news from reputable sources such as The Wall Street Journal, Financial Times, and Bloomberg. This helps me stay current with any major events or announcements that could affect the industries I cover.

Furthermore, I subscribe to industry-specific newsletters and follow relevant blogs, podcasts, and social media accounts to gain insights into emerging trends and developments. Additionally, I attend conferences and webinars to learn from experts in the field and network with other professionals. This combination of daily news updates, targeted industry resources, and continuous learning opportunities allows me to maintain a comprehensive understanding of the industries I cover and provide valuable insights to clients.”

8. Have you ever had to change your recommendation on a stock due to new information or changing circumstances? If so, please describe the situation.

Being an equity research analyst requires adaptability and an openness to changing perspectives based on new information or market shifts. When interviewers ask this question, they’re looking for evidence of your ability to analyze new data and adjust your investment recommendations accordingly. They want to know that you’re not stubbornly clinging to your initial views but are instead able to recognize when a change in strategy is warranted for the best interest of clients and stakeholders.

Example: “Yes, I have experienced a situation where I had to change my recommendation on a stock due to new information. I was covering a pharmaceutical company that was in the process of developing a promising drug for a rare disease. My initial analysis and valuation indicated a strong buy recommendation based on the potential market size and the company’s solid financial position.

However, during the clinical trial phase, the company released an update stating that the drug had failed to meet its primary endpoint, which significantly impacted its chances of receiving regulatory approval. This new information prompted me to reevaluate my recommendation. I conducted a thorough reassessment of the company’s pipeline, factoring in the setback and its implications on future revenue projections.

After this comprehensive review, I changed my recommendation from a strong buy to a hold, as the risk associated with the company’s growth prospects had increased substantially. In situations like these, it is essential to remain adaptable and responsive to new information, ensuring that our clients receive accurate and timely advice to make informed investment decisions.”

9. What factors do you consider when determining a target price for a stock?

Analyzing stocks is a complex process that requires a deep understanding of both financial fundamentals and the broader market environment. Interviewers ask this question to gauge your proficiency in assessing a company’s intrinsic value and determining an appropriate target price. They want to ensure you can take into account various factors, such as financial performance, industry trends, competitor analysis, and macroeconomic factors, and synthesize them into a coherent investment recommendation.

Example: “When determining a target price for a stock, I consider several factors to ensure a comprehensive analysis. First, I analyze the company’s financial statements, focusing on key metrics such as revenue growth, profit margins, and return on equity. This helps me understand the company’s historical performance and its ability to generate profits.

Another critical factor is industry trends and competitive landscape. I research market dynamics, potential disruptors, and competitors’ strategies to gauge the company’s position within the sector and identify any threats or opportunities that may impact its future performance.

I also incorporate valuation multiples into my analysis, comparing the company’s current valuation with its peers and historical averages. Commonly used multiples include Price-to-Earnings (P/E), Enterprise Value-to-EBITDA (EV/EBITDA), and Price-to-Sales (P/S). These ratios help me determine if the stock is overvalued or undervalued relative to its industry and historical norms.

Taking these factors into account, along with any qualitative aspects specific to the company, I develop a financial model to project future earnings and cash flows. Based on these projections, I use discounted cash flow (DCF) analysis to estimate the intrinsic value of the stock, which ultimately informs my target price recommendation.”

10. Can you discuss any recent mergers or acquisitions in the sector(s) you follow and their implications for the companies involved?

As an equity research analyst, staying informed about current market trends, mergers, and acquisitions is a fundamental part of your job. Your ability to analyze these events and their potential impact on the companies you follow demonstrates your knowledge and understanding of the industry. Interviewers ask this question to gauge your expertise and ensure that you’re up-to-date with the latest events, capable of providing valuable insights to clients or colleagues.

Example: “One recent merger that caught my attention was the acquisition of Slack Technologies by Salesforce in December 2020. This deal, valued at $27.7 billion, aimed to strengthen Salesforce’s position in the enterprise software market and expand its product offerings beyond customer relationship management (CRM) solutions.

The implications for both companies are significant. For Salesforce, acquiring Slack allows them to better compete with rivals like Microsoft, which offers a similar collaboration tool called Teams. Integrating Slack into their ecosystem will enable Salesforce to provide a more comprehensive suite of services to clients, potentially driving increased revenue and user engagement. Additionally, this acquisition could help Salesforce attract new customers who were previously using other communication platforms.

On the other hand, Slack benefits from the resources and reach of Salesforce, one of the largest players in the industry. With Salesforce’s backing, Slack can accelerate its growth and development, allowing it to scale faster and enhance its features. Furthermore, being part of Salesforce’s extensive network may open up opportunities for cross-selling and upselling, ultimately boosting Slack’s overall performance and value proposition.”

11. How do you handle situations where your investment thesis is challenged by colleagues or clients?

Navigating conflicting opinions is a key aspect of working in finance, especially as an equity research analyst. When interviewers ask this question, they want to know that you can handle constructive criticism, engage in thoughtful discussions, and ultimately remain open-minded. It’s important for them to see that you can maintain professionalism, defend your investment thesis when necessary, and adapt your perspective when presented with new information. This ability to collaborate and learn from others is essential for making well-informed investment decisions.

Example: “When my investment thesis is challenged, I see it as an opportunity to refine and strengthen my analysis. First, I listen carefully to the concerns raised by colleagues or clients, ensuring that I fully understand their perspective. This helps me identify any gaps in my research or potential biases that may have influenced my conclusions.

After considering their input, I revisit my original analysis and reevaluate the assumptions and data points used. If necessary, I conduct further research to address the concerns raised and adjust my thesis accordingly. Throughout this process, I maintain open communication with those who challenged my thesis, discussing the changes made and providing a rationale for my decisions.

This approach not only improves the quality of my work but also fosters a collaborative environment where diverse opinions are valued. Ultimately, handling challenges constructively leads to better investment recommendations and strengthens relationships with both colleagues and clients.”

12. Describe your experience with earnings calls and investor presentations. How do you prepare for them?

The interviewer wants to gauge your experience and ability to gather, analyze, and interpret financial information from these sources. Earnings calls and investor presentations are an integral part of an equity research analyst’s role, as they provide valuable insights into a company’s financial performance and outlook. Your preparation and ability to extract the most relevant information will be essential in making informed investment recommendations.

Example: “As an equity research analyst, I have participated in numerous earnings calls and investor presentations. To prepare for these events, I first conduct thorough research on the company’s financials, industry trends, and recent news to gain a comprehensive understanding of its current position and potential future performance.

I then analyze the company’s historical earnings reports and compare them with analysts’ consensus estimates to identify any discrepancies or patterns that may provide insights into the upcoming results. Additionally, I review previous investor presentations and conference call transcripts to familiarize myself with management’s communication style and anticipate possible questions from investors.

During the actual event, I take detailed notes on key points discussed by the management team, focusing on their outlook, growth strategies, and any updates on ongoing projects or initiatives. Afterward, I use this information to update my financial models and recommendations accordingly, ensuring that my analysis remains relevant and accurate for clients and stakeholders.”

13. What tools and resources do you use to conduct your research and analysis?

Digging deep into the financial world is essential for an Equity Research Analyst. By asking this question, interviewers want to know if you have the right skills and know-how to navigate the vast ocean of data, sources, and tools available. They’re looking for candidates who can efficiently and effectively use these resources to gather information, analyze trends, make informed predictions, and ultimately, contribute to well-founded investment decisions.

Example: “As an equity research analyst, I rely on a combination of tools and resources to conduct thorough research and analysis. First and foremost, I utilize financial databases such as Bloomberg Terminal, FactSet, and Capital IQ to access company financials, industry data, and market information. These platforms provide me with real-time data and historical trends that are essential for understanding the performance of companies and industries.

Another valuable resource is company filings, including annual reports (10-K), quarterly reports (10-Q), and earnings call transcripts. These documents offer insights into management’s perspective on the company’s performance, strategy, and future outlook. Additionally, I keep up-to-date with news sources like The Wall Street Journal, Financial Times, and specialized industry publications to stay informed about market developments and emerging trends.

To complement these resources, I also use various analytical tools and techniques, such as discounted cash flow (DCF) models, comparable company analysis (CCA), and precedent transaction analysis (PTA). These methods help me evaluate a company’s intrinsic value and compare it against its peers in the market. Ultimately, by leveraging this diverse set of tools and resources, I can deliver well-informed investment recommendations backed by comprehensive research and analysis.”

14. How do you prioritize your coverage universe and manage your time effectively?

Efficient time management and prioritization skills are essential for an equity research analyst, as it ensures that you can effectively cover multiple stocks and industries while delivering timely, high-quality research. Interviewers ask this question to gauge your ability to balance competing demands and focus on the most significant tasks, which ultimately demonstrates your potential to excel in this fast-paced, high-stakes environment.

Example: “Prioritizing my coverage universe and managing time effectively is essential for an Equity Research Analyst, as it ensures that I can provide valuable insights to clients in a timely manner. To achieve this, I first categorize the companies within my coverage universe based on their market capitalization, industry sector, and overall relevance to our client base. This helps me identify high-priority stocks that require more frequent analysis and updates.

Once I have established priorities, I create a structured schedule to allocate appropriate time for each company. For high-priority stocks, I closely monitor news, earnings releases, and other relevant events, while also conducting regular in-depth analyses. For lower-priority stocks, I maintain periodic reviews and stay informed about significant developments. Additionally, I set aside dedicated time for ad-hoc research requests from clients or colleagues, ensuring that I can address any urgent needs without compromising my ongoing work.

This systematic approach allows me to efficiently manage my workload, deliver accurate and timely research, and ultimately support our clients’ investment decisions with well-informed recommendations.”

15. What is your approach to risk management when making investment recommendations?

Navigating risk is a critical component of an Equity Research Analyst’s role. The ability to balance potential rewards with the risks involved can directly impact the success of investment recommendations. By asking this question, interviewers want to gauge your understanding of risk management principles, how well you apply them, and your ability to communicate these strategies to clients and stakeholders. This insight helps them determine if you can make well-informed decisions that align with the company’s goals and risk tolerance.

Example: “When making investment recommendations, my approach to risk management involves a combination of thorough research and diversification. First, I conduct in-depth analysis on the company’s financials, industry trends, and competitive landscape to gain a comprehensive understanding of its potential risks and rewards. This includes evaluating key financial ratios, assessing management quality, and identifying any red flags that could impact future performance.

Once I have gathered sufficient information, I incorporate diversification into my recommendations by suggesting investments across various sectors, industries, and asset classes. This helps mitigate the overall portfolio risk while still providing opportunities for growth. In addition, I continuously monitor the recommended investments and macroeconomic factors to identify any changes in risk profiles, allowing me to adjust the recommendations accordingly and maintain an optimal balance between risk and return.”

16. Can you provide an example of a successful stock pick you made and the rationale behind it?

Interviewers want to gauge your ability to analyze financial data, identify trends, and make informed investment decisions. By asking for a specific example of a successful stock pick, they’re looking for evidence of your critical thinking skills, financial acumen, and ability to communicate your thought process. This helps them determine whether you have the expertise and foresight necessary to excel in the role of an equity research analyst.

Example: “Certainly, one of my most successful stock picks was Company XYZ in the renewable energy sector. At the time, I noticed a growing trend towards clean energy solutions and increasing government support for such initiatives. Additionally, Company XYZ had recently secured several significant contracts that would contribute to their revenue growth.

I conducted thorough research on the company’s financials, management team, and competitive landscape. My analysis revealed strong fundamentals, including an impressive track record of revenue growth, healthy profit margins, and a robust balance sheet. Furthermore, the company’s innovative technology positioned it as a leader within the industry, giving it a competitive edge over its peers.

Based on these factors, I recommended investing in Company XYZ, which proved to be a wise decision as the stock price appreciated significantly over the following months. This example demonstrates my ability to identify promising investment opportunities by analyzing market trends, conducting comprehensive research, and evaluating a company’s overall potential for success.”

17. How do you communicate your research findings and recommendations to clients or internal stakeholders?

The ability to communicate research findings and recommendations effectively is essential for an equity research analyst. Your findings can have significant impacts on investment decisions, and stakeholders rely on your expertise to guide them. Interviewers ask this question to assess your communication skills, your ability to present complex information in an accessible manner, and your understanding of the importance of clear communication in the world of finance.

Example: “When communicating my research findings and recommendations to clients or internal stakeholders, I prioritize clarity and conciseness. First, I present a high-level summary of my analysis, highlighting the key takeaways and investment thesis. This allows the audience to quickly grasp the main points and understand the rationale behind my recommendations.

Following the summary, I delve into the supporting details, such as financial metrics, industry trends, and company-specific factors that led me to my conclusions. To ensure my message is clear, I use visual aids like charts and graphs to illustrate data and trends effectively. Additionally, I tailor my communication style based on the audience’s level of expertise in the subject matter, ensuring they can easily comprehend the information presented.

Throughout the presentation, I encourage questions and feedback, fostering an open dialogue with the audience. This not only helps clarify any uncertainties but also provides valuable insights that may further refine my analysis. Ultimately, my goal is to deliver well-researched, actionable recommendations that enable informed decision-making for clients and stakeholders.”

18. Are there any specific sectors or industries that you specialize in or prefer to cover?

Your interviewer wants to gauge your knowledge, expertise, and passion for particular sectors or industries. This question provides valuable insight into your ability to dive deep into a specific subject matter, keep up with industry trends, and apply that knowledge to make informed investment decisions. Additionally, understanding your preferred focus areas can help the company determine if your interests align with their current or future research needs.

Example: “As an equity research analyst, I have had the opportunity to cover various sectors throughout my career. However, I particularly enjoy covering the technology sector due to its dynamic nature and potential for growth. The rapid pace of innovation in this industry presents unique challenges when it comes to analyzing companies and forecasting their performance.

My expertise in the technology sector has allowed me to develop a deep understanding of key trends, such as cloud computing, artificial intelligence, and cybersecurity. This knowledge enables me to provide valuable insights to clients and make informed recommendations on investment opportunities within the sector. Additionally, staying up-to-date with technological advancements keeps me engaged and motivated in my work, ultimately contributing to better analysis and decision-making.”

19. How do you incorporate macroeconomic factors into your analysis of individual stocks?

Understanding the macroeconomic landscape is essential for equity research analysts as it helps them to better evaluate the potential risks and opportunities for individual stocks. By asking this question, interviewers want to see that you can take a holistic approach to your analysis, integrating both company-specific information and broader economic trends to form well-rounded investment recommendations. This demonstrates your ability to provide valuable insights and contribute to the team’s overall investment decision-making process.

Example: “When analyzing individual stocks, I consider macroeconomic factors as an essential component of my research process. These factors help me understand the broader economic context in which a company operates and can significantly impact its performance.

I start by identifying key macroeconomic indicators relevant to the industry or sector the company belongs to, such as GDP growth, interest rates, inflation, unemployment rate, and consumer sentiment. This helps me gauge the overall health of the economy and potential headwinds or tailwinds for the industry. Next, I analyze how these factors have historically affected the company’s financial performance and stock price, looking for patterns and correlations that may provide insights into future trends.

Once I’ve gathered this information, I incorporate it into my fundamental analysis of the company, adjusting revenue projections, earnings estimates, and valuation multiples accordingly. This holistic approach allows me to better assess the potential risks and opportunities associated with a particular stock, ultimately leading to more informed investment decisions.”

20. What role does technical analysis play in your overall research process, if any?

As an equity research analyst, it’s essential to have a well-rounded approach to evaluating and recommending investments. Interviewers want to know if you can incorporate technical analysis into your overall research process, and if so, how you balance it with other methods like fundamental analysis. By understanding your approach to this aspect of investment analysis, they can gauge your ability to provide accurate, comprehensive, and timely recommendations for clients or internal decision-makers.

Example: “Technical analysis plays a complementary role in my overall research process. While I primarily focus on fundamental analysis to evaluate the intrinsic value of stocks, technical analysis helps me identify entry and exit points for investments based on market trends and price movements.

I use technical indicators such as moving averages, relative strength index (RSI), and support and resistance levels to gauge the stock’s momentum and potential trend reversals. This information assists me in making more informed decisions about when to initiate or close positions, which can be particularly useful during periods of increased market volatility.

However, it is important to note that I consider technical analysis as an additional tool rather than a standalone method for investment decision-making. My primary emphasis remains on understanding the company’s financial health, competitive position, and growth prospects through thorough fundamental analysis. Combining both approaches allows me to make well-rounded investment recommendations that take into account both long-term value and short-term market dynamics.”

21. Can you explain the concept of beta and its relevance in portfolio management?

This question aims to test your understanding of key financial concepts and their practical applications in the world of finance. Beta is a measure of a stock’s volatility in relation to the market, and it plays a significant role in portfolio management. By discussing beta, you demonstrate your knowledge of risk assessment and how it can be used to optimize investment strategies, which is a vital skill for an equity research analyst.

Example: “Beta is a measure of an individual stock’s or investment’s volatility in relation to the overall market. In other words, it represents the sensitivity of a security’s returns to fluctuations in the broader market index. A beta value greater than 1 indicates that the investment is more volatile than the market, while a beta less than 1 signifies lower volatility. A beta equal to 1 implies that the investment moves in tandem with the market.

In portfolio management, beta plays a critical role in assessing and managing risk. Portfolio managers use beta to construct well-diversified portfolios by combining assets with different levels of risk exposure. For instance, they may balance high-beta stocks with low-beta investments to achieve a desired level of risk-adjusted return. Additionally, understanding beta helps investors gauge how their investments might perform during various market conditions, enabling them to make informed decisions about asset allocation and risk tolerance.”

22. How do you assess the quality of a company’s management team?

Evaluating a company’s management team is a critical aspect of equity research, as the effectiveness of the leadership directly influences the company’s performance and investment potential. By asking this question, interviewers want to gauge your ability to identify key factors that determine the quality of a management team, such as their track record, communication skills, strategic vision, and ability to make sound decisions. This will provide insight into your analytical skills and understanding of the importance of strong leadership in driving a company’s growth and success.

Example: “Assessing the quality of a company’s management team is an essential aspect of equity research, as it can significantly impact the company’s performance and investment potential. One approach I use to evaluate management teams involves analyzing their track record in terms of strategic decision-making, financial performance, and industry experience.

I start by reviewing the executives’ backgrounds, including their education, previous roles, and achievements within the industry. This helps me understand their expertise and how well-suited they are for their current positions. Next, I examine the company’s historical financial performance under the current management, focusing on key metrics such as revenue growth, profitability, and return on equity. Consistent improvement in these areas often indicates effective leadership.

Furthermore, I pay attention to the management’s communication with investors through earnings calls, presentations, and interviews. Transparency, clarity, and responsiveness to investor concerns reflect positively on the management team. Finally, I consider any recent strategic decisions made by the management, such as mergers, acquisitions, or divestitures, and assess whether those choices align with the company’s long-term goals and create shareholder value. Combining these factors allows me to form a comprehensive view of the management team’s quality and its potential impact on the company’s future prospects.”

23. What is your experience with using Bloomberg terminals or other financial data platforms?

Hiring managers ask this question because proficiency in financial data platforms, like Bloomberg terminals, is a key skill for an equity research analyst. These tools are essential for gathering financial data, performing analysis, and drawing insights that drive investment decisions. Demonstrating your experience and comfort with these platforms illustrates that you can hit the ground running and efficiently contribute to the team from day one.

Example: “During my time as an intern at a financial services firm, I had the opportunity to extensively use Bloomberg terminals for various tasks. I primarily used them for gathering real-time market data, tracking news and events related to specific companies or industries, and analyzing historical trends. This allowed me to develop a strong understanding of how to navigate the platform efficiently and utilize its features effectively.

Apart from Bloomberg terminals, I have also worked with other financial data platforms such as FactSet and Thomson Reuters Eikon. These experiences have helped me become proficient in extracting relevant information and conducting comprehensive analyses to support investment decisions. My familiarity with these tools has been instrumental in enhancing the quality of my research and ensuring that I can provide valuable insights to the team.”

24. Describe a time when you had to meet tight deadlines for multiple research reports.

In the fast-paced world of finance, your ability to juggle multiple tasks and meet tight deadlines is critical. Interviewers want to hear about your time management skills, prioritization strategies, and ability to deliver high-quality work even under pressure. Sharing a real-life example demonstrates your capability to handle the demands of an equity research analyst role and assures them that you can thrive in a high-stress environment.

Example: “During my time at XYZ Financial, there was an instance when I had to prepare research reports for three different companies within the same industry, all with tight deadlines due to upcoming earnings releases. To manage this workload effectively, I prioritized tasks and allocated sufficient time for each report.

I started by gathering relevant data and information for all three companies simultaneously, as they shared some common industry trends and market factors. This allowed me to save time on research and maintain consistency across the reports. Next, I focused on analyzing the financials of each company individually, diving deep into their respective strengths, weaknesses, and growth prospects.

To ensure timely completion, I set intermediate milestones for myself and communicated my progress regularly with my manager. Additionally, I collaborated with colleagues who were familiar with these companies or had expertise in the specific sector, which helped me gain valuable insights and improve the quality of my analysis. Ultimately, I successfully delivered all three reports before the deadline, providing our clients with accurate and timely investment recommendations.”

25. Have you ever faced any ethical dilemmas in your role as an equity research analyst? If so, how did you handle them?

Navigating ethical dilemmas is an important aspect of being an equity research analyst. The financial industry requires professionals to maintain high ethical standards and adhere to regulatory guidelines. Interviewers want to ensure that you are aware of these responsibilities and can make sound ethical decisions, even in challenging situations. Sharing your experience in handling such dilemmas demonstrates your integrity, professionalism, and commitment to upholding the trust that clients and employers place in you.

Example: “Yes, I have faced ethical dilemmas in my role as an equity research analyst. One particular instance involved receiving non-public information about a company that could significantly impact its stock price. In this situation, it was essential to adhere to the principles of integrity and professionalism.

I immediately informed my supervisor about the information I had received and ensured that I did not act on or share this information with anyone else. We then consulted our compliance department to determine the appropriate course of action. They advised us to maintain confidentiality and refrain from making any investment decisions based on this information until it became public knowledge.

This experience reinforced the importance of upholding ethical standards in the financial industry and reminded me of my responsibility to protect the interests of investors and maintain the integrity of the market.”

26. Can you discuss any recent regulatory changes that have impacted the equity research industry?

This question is designed to test your understanding of the equity research industry and your ability to stay up-to-date on relevant regulatory shifts. Being aware of regulatory changes is essential for an equity research analyst, as these changes can significantly impact the way you conduct your analyses and make recommendations to clients. Interviewers want to see that you are proactive in staying informed and can adapt to a changing industry landscape.

Example: “One significant regulatory change that has impacted the equity research industry is the implementation of MiFID II (Markets in Financial Instruments Directive II) in January 2018. This European Union regulation aims to increase transparency and investor protection within financial markets.

A key aspect of MiFID II affecting equity research is the unbundling of research costs from trading commissions. Previously, asset managers received research as a bundled service alongside trade execution, making it difficult to determine the true cost of research. With MiFID II, investment firms are now required to separate these costs, which has led to increased scrutiny on the value of research provided by sell-side analysts.

This shift has resulted in several consequences for the industry, including reduced research budgets, increased focus on quality over quantity, and consolidation among research providers. As an equity research analyst, staying informed about such regulatory changes is essential to adapt to evolving market conditions and maintain a competitive edge in providing valuable insights to clients.”

27. What are some challenges you foresee for the equity research profession in the coming years?

The finance landscape is always evolving, and this question aims to gauge your understanding of current trends and potential challenges facing the equity research profession. Interviewers want to know that you are not only well-versed in the industry but also forward-thinking and adaptable to changing market conditions, regulatory shifts, and technological advancements. Demonstrating your ability to anticipate and adapt to future challenges will make you a valuable addition to any team.

Example: “One of the primary challenges I foresee for the equity research profession in the coming years is the increasing reliance on artificial intelligence and automation. As these technologies advance, they have the potential to perform some tasks traditionally done by analysts, such as data collection and basic analysis. This development may lead to a shift in the role of equity research analysts, requiring them to focus more on providing unique insights and value-added recommendations that cannot be easily replicated by machines.

Another challenge is the growing emphasis on environmental, social, and governance (ESG) factors in investment decisions. Investors are increasingly considering ESG criteria when evaluating companies, which means equity research analysts need to adapt their methodologies to incorporate these non-financial aspects into their analyses. This requires staying up-to-date with evolving ESG standards and understanding how different industries and companies are impacted by various ESG issues. Ultimately, addressing these challenges will require continuous learning and adaptation to maintain relevance and provide valuable insights in an ever-changing market landscape.”

28. How do you ensure the accuracy and reliability of the information used in your analysis?

Accuracy and reliability are the cornerstones of equity research. When analyzing companies and industries, the quality of your research is only as good as the data you rely on. Interviewers want to ensure that you have a strong process in place for gathering, verifying, and cross-referencing information to minimize errors and produce solid, well-informed recommendations for investors. This question also gives you a chance to showcase your attention to detail and commitment to maintaining high standards in your work.

Example: “To ensure the accuracy and reliability of information used in my analysis, I employ a multi-pronged approach. First, I gather data from reputable sources such as company financial statements, industry reports, and government publications. This helps me establish a solid foundation for my research.

Once I have collected the necessary data, I cross-verify it with multiple sources to confirm its accuracy. For instance, if I’m analyzing a company’s earnings report, I might compare their reported figures with analyst estimates or historical trends to identify any discrepancies. Additionally, I stay up-to-date with relevant news and events that could impact the companies or industries I cover, ensuring that my analysis incorporates the latest developments.

Throughout this process, I maintain open communication with colleagues and other experts in the field, discussing findings and seeking feedback on my work. This collaborative approach not only helps validate my conclusions but also exposes me to different perspectives, ultimately enhancing the quality and reliability of my analysis.”

29. In your opinion, what qualities make a successful equity research analyst?

Assessing your understanding of the key qualities needed to excel in this role is important for interviewers. They want to see that you not only possess these qualities but can also articulate their significance in the context of equity research. Demonstrating your ability to think analytically, communicate effectively, and stay up-to-date with industry trends will show that you are well-prepared for the challenges of the job and can contribute positively to the team.

Example: “A successful equity research analyst possesses a combination of strong analytical skills and effective communication abilities. Analytical skills are essential for interpreting complex financial data, identifying trends, and evaluating the potential risks and rewards associated with investment opportunities. This includes having a solid understanding of financial statements, valuation techniques, and industry-specific metrics.

Effective communication is equally important, as analysts must be able to clearly convey their findings and recommendations to clients, portfolio managers, and other stakeholders. This involves presenting complex information in an easily digestible format, both in written reports and verbal presentations. Additionally, a successful analyst should have excellent time management skills, as they often need to juggle multiple projects and deadlines while staying up-to-date on market developments and company news.”

30. Can you provide an example of a situation where you had to defend your investment thesis against opposing views?

Your ability to defend your investment thesis is a key skill for an equity research analyst. It demonstrates your analytical prowess, your understanding of the financial markets, and your ability to communicate your ideas effectively. Interviewers want to see that you can think critically, stand by your research, and confidently present your findings—even when faced with challenging questions or dissenting opinions. This question helps them gauge your resilience, your conviction in your work, and your ability to navigate complex discussions.

Example: “During my time as an equity research analyst, I was tasked with evaluating a mid-cap technology company that had recently undergone significant management changes. After conducting thorough research and analysis, I developed an investment thesis supporting the company’s growth potential based on its new leadership team and innovative product pipeline.

However, during our internal review meeting, one of my colleagues presented a bearish outlook on the company, citing concerns about increased competition and market saturation. This led to a healthy debate among the team members, where I defended my investment thesis by highlighting the unique competitive advantages of the company’s products and the strong track record of the new management in driving growth at their previous companies.

I also provided data-driven insights into the addressable market size and demonstrated how the company could capture a larger share of it through strategic partnerships and targeted marketing efforts. Ultimately, my well-reasoned arguments and evidence-based approach convinced the majority of the team to support my bullish stance on the stock. This experience taught me the importance of being prepared to defend my investment thesis against opposing views while remaining open to constructive feedback and alternative perspectives.”

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Equity Research Interview Questions

Below are real examples of the most common questions (and answers) used to hire equity research analysts and associates at banks

What are the Most Common Equity Research Interview Questions?

Based on our first-hand experience, as well discussions with  equity research professionals , we’ve compiled a list of the top questions to be asked by a research analyst when interviewing an associate. We’ve also added what we think are the best answers to these challenging interview questions.  Here are the top equity research interview questions and answers…

If you had $1 million to invest, what would you do with it?

Tell me about a company you admire and what makes it attractive., pitch me a stock (typically will be followed-up with a challenge – e.g., why has the market not priced this in).

These are all variants on one of the most common equity research interview questions – pitch me a stock .  Be prepared to pitch three or four stocks – for example, a large cap stock, a small cap stock, and a stock that you would short.  For any company you are going to pitch, make sure that you have read a few analyst reports and know key information about the company.  You must know basic valuation metrics (EV/EBITDA multiples, PE multiples, etc.), key operational statistics, and the names of key members of the management team (e.g., the  CEO ).  You also must have at least three key points to support your argument.

How do you value a stock?

The most common valuation methods are DCF valuation methods and relative valuation methods using comparable public companies (“Comps”) and precedent transactions (“Precedents”).

Why might a high tech company have a higher PE than a grocery retailer?

It can also be shown that the Price-Earnings multiple is driven by (1 – g/ROE) / (r – g) where r is the cost of equity, g is the growth rate, and ROE is return on equity .  A high tech company may have a higher PE because growth expectations for the stock are higher.

What drives the PB multiple? Or, how can two companies in the same industry have very different PB multiples?

The PB multiple or Price-to-Book ratio can be shown to be PE x ROE.  It is therefore driven by return on equity and the drivers of the PE multiple.  It can also be shown that the PE multiple is driven by (1 – g/ROE) / (r – g) where r is the cost of equity, g is the growth rate, and ROE is return on equity.

Since the PB multiple is PE x ROE, this means the PB multiple is ( ROE – g ) / (r – g).  If we assume a zero growth rate, the equation implies that the market value of equity should be equal to the book value of equity if ROE = r.  The PB multiple will be higher than 1 if a company delivers ROE higher than the cost of equity (r).

Tell me when you would see a company with a high EV/EBITDA multiple but a low PE multiple.

This relationship implies a significant difference between the firm’s enterprise value and its equity value.  The difference between the two is “net debt”.  As a result, a company with a significant amount of net debt will likely have a higher EV/EBITDA multiple .

What is a beta?

Beta is a measure of market (systematic) risk. Beta is used in the capital asset pricing model (CAPM) to determine a cost of equity. Beta measures a stock’s volatility of returns relative to an index. So a beta of 1 has the same volatility of returns as the index, and a beta higher than 1 is more volatile.

Why do you unlever beta?

When you look up beta on Bloomberg , it’s levered to reflect the debt of each company. But each company’s capital structure is different and we want to look at how “risky” a company is regardless of what percentage of debt or equity it has. To get that, we need to unlever beta each time. You look up the beta for a group of comparable companies, unlever each one, take the median of the set, and then lever it based on your company’s capital structure. Then you use this Levered Beta in the Cost of Equity calculation. For your reference, the formulas for unlevering and re-levering Beta are below:

Unlevered Beta = Levered Beta / (1 + ((1 – Tax Rate) x (Total Debt/Equity))) Levered Beta = Unlevered Beta x (1 + ((1 – Tax Rate) x (Total Debt/Equity)))

What’s the difference between enterprise value and equity value?

This question is commonly asked in banking, but could easily be one of the frequently asked equity research interview questions as well.  Enterprise value is the value of the company that is attributable to all investors.

Equity value only represents the portion of the company belonging to shareholders.  Enterprise value incorporates the market value of the equity plus the market value of net debt (as well as other sources of funding, if used, such as preferred shares, minority interests, etc.).

Can a company have an equity value larger than its enterprise value?

Technically, yes.  Enterprise value is the sum of the market value of equity and net debt (gross debt less cash).  If a company has no interest bearing debt but does have cash, then it will lead to a situation where the equity value is greater than the enterprise value.

What are the major valuation methodologies?

• DCF valuation methods
• Relative valuation methods – using comparable public companies and precedent transactions
• Break-up valuation methods – looking at the liquidation or break-up value of the business
• Real options valuation methods – rarer
• Here is an overview of all valuation methods

When would you not use a DCF valuation methodology?

You would not use a DCF valuation methodology when a company does not have forecastable cash flows .  An example of this would be a start-up company. Below is a screenshot of a DCF model from CFI’s online financial modeling courses .

What are the most common multiples used to value a company?

This is one of the most common equity research interview questions.  Here are the main types of valuation multiples :

Why does Warren Buffett prefer EBIT multiples to EBITDA multiples?

EBITDA excludes depreciation and amortization on the basis that they are “non-cash items.”  However, depreciation and amortization also are a measure of what the company is spending or needs to spend on capital expenditure.  Warren Buffett is credited as having said: “Does management think the tooth fairy pays for capital expenditures?” Here is an article on why Buffett does not like EBITDA .

Compare EBIT vs EBITDA .

How is valuing a resource company (e.g., oil and gas, a mining company, etc.) different from valuing a standard company?

First, you need to project the prices of commodities and the company’s reserves. Rather than a standard DCF, you use a Net Asset Value (NAV) model.  The NAV model is similar, but everything flows from the company’s reserves rather than a simple revenue growth / EBITDA margin projection.  You also look at industry-specific multiples such as P / NAV in addition to the standard multiples. Here are more mining valuation methods .

Why do DCF projections typically go out between 5 and 10 years?

The forecast period is driven by the ability to reasonably predict the future.  Less than 5 years is often too short to be useful.  More than 10 years becomes difficult to forecast reliably.

What do you use for the discount rate in a DCF valuation?

If you are forecasting free cash flows to the firm, then you normally use the Weighted Average Cost of Capital ( WACC ) as the discount rate.  If you are forecasting free cash flows to equity, then you use the cost of equity.

How do you calculate the terminal value in a DCF valuation?

This is one of the classic equity research interview questions.  Terminal values either use an exit multiple or the perpetual growth method.

Explain why we would use the mid-year convention in a DCF valuation?

With standard DCF, there is an assumption that all cash flows occur at the end of the year.  The mid-year convention adjusts for this distortion by making the assumption that all cash flows come mid-way through the year.  Instead of using discount periods of 1 for the first year, 2 for the second year, etc., in the DCF formula, we use 0.5 for the first year, 1.5 for the second year, and so on. For training on financial modeling,  click here .

More Interview Questions

We hope this has been a helpful guide to equity research interview questions and answers!  If you want more practice, take a look at our other interview guides and  interactive career map to advance your finance career:

• FP&A interview questions
• Investment banking interviews
• Credit analyst Q&A
• Accounting interviews
• Behavioral questions
• See all career resources
• See all capital markets resources
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Equity Research Interview Questions (Top 50 With Answers)

April 14, 2019

After you get hired, it’s now time to face the equity research interviews.

Usually, it has four parts:

• First screening
• Interview with Human Resources
• Financial Modeling tests
• Interview with Equity Research Department

Usually, the fourth part is one of the difficult ones. I’m here to prepare you for it. Here are the 50 Equity Research interview questions you must get ready for.

Technical Equity Research Interview Questions and Answers

Q.1: what is contained in an equity research report.

An equity research report is a recommendation to clients which convince them to either BUY, SELL or HOLD equity securities.

The preparer must justify each recommendation. As such, the following components must be found:

• Industry Overview – gives the reader a summary of the trends that affect the industry covering the company
• Company Financials and Ratio – Key metrics are shown here, example: liquidity, solvency, sales turnover and market share
• Valuations and Projections – based on the financial performance of the company , the research attempts to measure the future value of each share
• Management Overview – Who are the management team? Are they highly qualified to run the company?
• Recommendation – After a-d, the researcher will now recommend to either BUY, SELL or HOLD the security.

Q.2: What is the earnings season?

Earnings season is the time of the year, where companies declare the results of their operations. It is usually in the 2 nd quarter of each year.

Q.3: Describe the Equity Research Hierarchy

The organizational chart of equity research looks like this:

Q.4: What is the difference between Enterprise Value and Equity Value?

Equity value and enterprise value is essential when you are using valuations to find the fair value of stocks.

To compute Equity Value, we will add the following:

• Equity Value – is typically the total market value of the company’s equity shares.
• Enterprise Value – is Equity Value plus Net Debt.

Net Debt – is the total of short-term debt (including a portion of long-term debt), long-term debt, all non-controlling interest, preferred shares and then deduct cash and cash equivalents.

Q.5: What are the standard ratios used for company analysis?

Quick Assets Ratio – use to determine the ability of the company to pay its current liabilities using its highly liquid assets like cash, deposits and short-term investments.

• Solvency Ratios – these are ratios used to measure the company’s ability to pay its financial obligations.
• Current Ratio – current assets / current liabilities
• Current Liability to Inventory – current liabilities/ inventory
• Total liabilities to net worth – Total Liabilities / Equity

Turnover Ratios

• Accounts Payable Turnover
• Days Payable
• Cash Conversion Cycle
• Inventory Turnover
• Receivables Turnover
• Days Receivables
• Days Inventory

Operating Efficiency Ratios

• Equity Turnover
• Asset Turnover Ratio
• Net Fixed Asset Turnover

Operating Profitability Ratios

• Return on Total Assets
• Return on Equity
• Dupont Model for Return on Equity
• Gross Profit Margin
• Operating Profit Margin

Financial Risk

• Debt Service Coverage Ratio
• Interest Coverage Ratio
• Debt to Equity Ratio
• Leverage Ratio

Q.6: What is Financial modeling in Financial Analysis?

Historical financial statements cannot give us the future value of the stocks.

Only through financial modeling that we will be able to take a glimpse of the estimated value of those shares.

The most common ways to value a company is Discounted Cash Flows and Comparable Companies analysis.

You’ll be able to find the fair value of the shares using these financial modeling techniques.

Compare those share values with the current market price to conclude.

If Market Value is lower than fair value, then BUY because the share prices are expected to go up.

Otherwise, the recommendation should be SELL or HOLD.

Q.7: How do you do a Discounted Cash Flow?

Discounted Cash Flow is a valuation method that values a company using its discounted future cash flows.

The discount rate used is the Weighted Average Cost of Capital.

Discounted Cash flows model is done generally in 6 steps:

• Computed the discount rate, which is the Weighted Average Cost of Capital
• Compute Free Cash Flows that is the discounted cash flows within the projected period.
• Compute Terminal Value; it is equal to the discounted cash flows outside the projected period.
• Computed the diluted number of shares
• Compute Equity Value and Enterprise Value
• Compare the estimated fair value and market value, then recommend either BUY, SELL or HOLD

Q.8: How do you do Comparable Companies Analysis?

Comparable companies’ analysis is comparing one share over other shares in the same industry using valuation multiples.

This method is being done generally on six steps.

• Collect financial information about the company. This is usually composed of the three primary financial statements.
• Project the income statements to 3 years, five years, or whatever length you deemed necessary.
• Compute the Equity and Enterprise Value
• Determine the total number of diluted shares
• Compute forecasts and valuation multiples
• Based on valuation multiples, compute the fair value of each share.
• Evaluate results and make recommendations.

Q.9: What is Free Cash Flows?

Free Cash Flows is the cash available to debt and equity security holders after deducting all outflows related to working capital and Capex.

To compute free cash flows:

• Start with the after-tax net income
• Add back all non-cash expenses (because they reduced income but not cash, e.g. depreciation)
• Deduct all non-cash income (because they increased income but not cash, e.g. accrued income)
• A decrease in assets must be deducted because they reduce cash but do not affect net income. The opposite happens when assets increase.
• An increase in payables decreases cash but does not affect net income, and so, we must deduct it. The opposite has the opposite effect.

Q.10: What is Free Cash Flow to Equity?

Free Cash Flows to Equity is the amount of cash that is available to equity shareholders after deducting all expenses related to capital outlays, debts and taxes.

Q.11: What is Sensitivity Analysis?

Sensitivity analysis is the technique to determine the effect of an independent variable on other dependent variables.

Q.12: What is the use of Sensitivity Analysis in Equity Research?

Sensitivity is used in Equity Research in a variety of ways. Instead of assuming a single scenario, a range of scenarios of factors is being investigated.

Independent variables that are often used are discount rates, growth rates or Sales.

Thus, the recommendations are not based on a single scenario but a range of scenarios that could happen considering their possibility ratios.

Sensitivity analysis is presented using a sensitivity analysis table through DATA tables in Excel.

Q.13: What are the common valuation multiples used in Equity Research?

• Price Earnings Ratio
• EV / Assets
• Price-Earnings Growth Ratio
• Price / Book Value

Q.14: How do you compute the Weighted Average Cost of Capital for Discounted Cash Flows?

Q.15: what is the difference between a training pe and a forward pe.

Trailing PE Ratio is computed using the financial figures of the past period (usually a year).

On the other hand, a forward PE is a ratio calculated using projected data (usually one year ahead).

Q.16: What is BETA?

Beta is the measure of a stock price’s sensitivity to changes in the stock market. This is derived using historical figures using regression analysis.

A beta of 1 means that it moves equally proportionated to the movement of the stock market.

A beta lower than one means that it is less volatile, or less movement than the stock market movement.

A beta is higher than 1 means that its price is more volatile than the market.

Q.17: Which is better between EBIT and EBITDA?

The issue should be which one is more interesting to decision-makers.

The only difference between the two is that EBITDA is after depreciation and amortization, unlike EBIT.

If the depreciation and amortization are very significant, decision-makers most likely consider using EBITDA.

Q.18: What are the disadvantages of using the Price-Earnings Ratio?

a . It is too simple . Aside from current price and net income, it doesn’t take into account other factors that could affect the fair value of the company.

• Price-Earnings need other multiples to have meaning.
• PE Ratio does not take into account growth.
• PE Ratio doesn’t consider debt

Q.19: How does oil price changes affect our economy?

Oil and other petroleum products are the main inputs in most of our industries.

Increasing oil prices will increase the costs of producing products and services, especially in the manufacturing and transportation sectors.

On the micro-level, increases in oil prices decrease a household’s spending power.

It also dramatically reduces a company’s ability to pay, especially organizations that are heavily reliant on gasoline (e.g. bus companies)

On the macro level, oil price increases tend to reduce economic growth and increase inflation.

Q.20: Suppose your grandma’s broker told her to SELL already here Apple stocks, how would you react to this?

I’ll first ask my grandma to tell her broker to send her an equity research report.

I’ll explain to my grandma each part of that report (assuming she doesn’t know yet), and how it could affect her decision of buying, holding or selling stocks.

I’ll take a look at the equity research report, and if I see something off, I’m going to do further research on my own.

If time permits, I’ll even do comprehensive research for my grandma.

Q.21: How do you value a stock?

There are a lot of ways to value a stock. The most common is to use Discounted Cash Flows.

Discounted cash flows use the future cash flows of a company to determine the current fair value of a stock.

We can also use multiples to value a company.

We use relative valuation methods such as Comparable companies analysis and the Precedent transaction valuation method.

Q.22: If a company has a higher Price-Earnings ratio than another company, what could be the reason?

The formula for Price-Earnings ratio is:

Based on this formula, the PE ratio could go higher if the Price per share is high relative to earnings per share.

Price per share is high if investors assess that the growth potential of the company is high. As such, they will also value the shares higher in the market.

Q.23: What can you imply with a company that has a low PE multiple but a high EV/EBITDA multiples?

The difference between the two multiples is Net Debt.

Net Debt is the total of short-term debt (including a portion of long-term debt), long-term debt, all non-controlling interest, preferred shares and then deduct cash and cash equivalents.

As such, the difference in the multiples means that eh company has a significant amount of net debt.

Q.24: Why is it sometimes necessary to unlever a beta?

To unlever a beta means that to remove the effect of debt of the company to the movements of the stock’s price.

Unlevering data means that you only want stockholder’s equity to affect it.

Unlevered beta is assumed to be a more accurate measure of a stock’s volatility due to the removal of the effect of debt securities.

The beta you get from tools like Bloomberg is levered data.

Unlevered data is computed by:

Un-Levered Beta = Levered Beta / (1 + ((1 – Tax Rate) x (Total Debt/Equity)))

Q.25: Is it possible for a stock to have an Equity Value that is higher than its Enterprise Value?

Yes. Based on the formula Enterprise value = total equity market value + Gross Debt less Cash, Equity value is higher when it has no interest-bearing debt but have cash.

Q.26: What is the disadvantage of Discounted Cash Flows?

DCF cannot be used when the analyst cannot reliably forecast the cash flows of the company.

This usually happens when the company is just in the beginning, and do not have stable operations yet (e.g. Tech start-ups)

Q.27: Based on Warren Buffett, why are EBIT multiples more preferable than EBITDA multiples?

This is what Warrant Buffett says about EBIT vs EBITDA.

“Does management think the tooth fairy pays for capital expenditures?”

“It amazes me how widespread the use of EBITDA has become. People try to dress up financial statements with it.”

“We won’t buy into companies where someone’s talking about EBITDA.

If you look at all companies and split them into companies that use EBITDA as a metric and those that don’t, I suspect you’ll find a lot more fraud in the former group.

Look at conglomerates like Wal-Mart, GE, and Microsoft — they’ll never use EBITDA in their annual report.”

Including depreciation and amortization is a less accurate value of the company.

For example, the depreciation of an aging factory is not a factor in the current fair value of a stock.

Q.28: Why do we use 5-10 years as the projection period for Discounted Cash Flows?

The reason is that of the relevance and usability of the report. Less than five years is a relatively short measure of the future of the company.

It will be hard to look in the long-term if you are looking at less than five years’ projections.

On the other hand, the projection of more than ten years is already too far ahead.

There are already a lot of unseen factors that could affect the company in more than ten years.

Q.29: What is the discount rate used in Discounted Cash Flows?

The most common discount rate used in DCF is the Weighted Average Cost of Capital (WACC).

WACC is composed of Cost of Debt, Cost of Preferred Shares and Cost of Common Shares. As such, you will need to compute three items.

Q.30: How do you compute the terminal value in a Discounted Cash Flow?

Terminal value is the present value of all cash flows beyond the projected period. It is commonly computed using the Gordon growth model or using exit multiples.

Q.31: What is a mid-year convention in Discounted Cash Flows?

Midyear convention is DCF is used to reduce the effect of assuming cash flows are done at the end of the year.

Midyear convention assumes that cash flows are done in the middle of the year instead of at the end of the year.

As such, instead of using discount rates of 1 for the first year, 2 for the second year, etc., the analyst uses 1.5, 2.5 and so on and so forth.

Q.32: Pitch me a stock.

This is a sell-side pitch, meaning you want the person to buy the stocks. As such, you need to highlight the strengths so that he’ll buy them.

You’ll need to have the following in advance so that you can make a successful pitch during an interview:

• A company of your choice. You must completely agree that this company’s stock price is going up.
• An equity research report you made
• Valuations, Models, Ratios that will support your pitch

Q.33: Tell me about a company that you admire, and that makes you buy a significant amount of its stocks.

This is similar to “pitch me a stock”, so you’ll do the same.

Prepare in advance an equity research report you made along with all your justifications (valuations, etc.).

You might also want to highlight the strength of the management, the industry or the products of the company.

Q.34: Suppose you have USD$1M, how would you invest it?

This question has a very high chance of being asked, and so, you must be ready.

You can even prepare a portfolio mix through Excel, which you can show the interviewers.

Should you just include stocks? No. Include fixed income securities as well because your target is to diversify your assets.

Ideally, your portfolio mix is one that is considered quite risky. Why? Because you are a sophisticated investor given your advanced knowledge in financial instruments.

This kind of combination has stocks as the most significant percentage, followed by corporate bonds and then government bills.

Q.35: What is the difference between Fundamental Analysis and Technical Analysis?

Both are methods to analyze and project future prices of stocks.

Fundamental analysis uses extensive analysis of financial statements, non-financial data and external factors to determine the future price of the stock.

Technical analysis is merely analyzing the stock chart in an attempt to find trends and patterns that will determine the future value of the stock.

Now, below you will read about non-technical Equity Research Interview Questions

Non-Technical Research Analyst Interview Questions

Q.36: how much does money motivate you in your career.

The amount of money especially, the number of salaries motivate me in such a way that I can live comfortably with a higher wage, that’s why I went to finance, notably investment banking .

However, it’s not the one thing which composes the 100% of my motivation. In this early part of my career, I highly value having a company and a manager that will guide me and make me leap to the next level of my career .

Q.37: What keeps you motivated?

“New learnings and new experiences. I’m motivated that every I get to learn new things and that someday I’ll be respected equity research professional.”

Q.38: Do you consider leaving your job in the future to start your own company?

The employer wants you to hearsay NO to this question.

“I’m currently enjoying all that’s happening to my career right now.

I’m good with the fact that I am under the tutelage of experienced senior professionals.

At the same time, I am happy that I am under the wing of an established company.

I don’t have to think about the ‘operations’ side of things and focus only on equity research itself.

Q.39: In equity research, what is the difference between analysts and associate?

In a firm or department, analysts have higher positions than associates.

Analysts have the responsibility of checking and reviewing the work of associates, before submission to senior analysts or equity research head.

This is in contrast to investment banking where associates have higher roles than analysts.

Q.40: What skills are needed in equity research?

Q.41: what is a restricted list in equity research.

The restricted list is a list of shares that the research firm is not allowed to report based to avoid conflicts of interest.

The most common basis of this is when the investment banking arm of the same company is working on an IPO of that company.

Q.42: How do you explain equity research to a 5-year old kid?

Equity research is a career where adults advise adults about whether it’s good to buy a goodie.

That goodie is good to buy when after some months that goodie is going to be worth higher.

For example, a goodie now is worth $1.

The equity researcher will do his work and then realizes that the goodie will be $2 after six months.

He will then tell other adults to buy that goodie for $1 now and then sell it after six months for $2.

And so, the adults will get $2 instead of having just$1.

To gain a deeper understanding, read this step-by-step guide on equity research career .

Q.43: What is the difference between sell-side and buy-side equity research?

Sell-side and equity side in research refers to the motives of clients for buying stocks.

Sell-side firms buy and sell shares to earn from fluctuations in stock prices.

Sell-side firms include investment banks , commercial banks, stockbrokers, market makers, and private firms.

Buy-side entities buy stocks to add to their investments. They earn by growing that company and then exiting when the share prices are already favourable.

Buy-side firms include asset management firms, hedge funds , institutional and retail investors.

Q.44: Why Equity Research and Are you prepared for stressful work?

Before I decided to be an equity researcher, I already knew that this is a very tough job.

I know for sure that there would be long working hours and various deadlines throughout the day.

To get me ready for it, I improved my skills so that I can work even faster.

For example, I memorized a lot of Excel shortcuts so that I can save time. I also make sure that I know the valuation methods by heart.

I also practised writing reports so that it would be easier for me when I’m already on the job.

I hope you’re enjoying this list of Equity Research Interview Questions?

Q.45: What does an Equity Research associate do?

They usually maintain files of companies under the sector they are assigned to.

They provide a fundamental analysis of those companies consistently. They develop financial models, industry analysis and sector databases.

They must always be in-the-loop in terms of news related to the industries and sectors they cover. This is very crucial as it is part of their fundamental analysis.

They assist the heads in publications of research reports.

Q.46: What does an Equity research Head do?

The head of equity research provides support and leadership to achieve goals and strategies set by the brokerage firm.

They ensure that all pricing is estimated based on best practices.

They supervise the publication of research reports, as well as recommendations for both internal and external use.

They also usually talk with other brokerage firms, research consultants, equity research analyst, portfolio manager, or fund managers.

Q.47:Some firms do have Senior Analysts, how do they support the Equity Research Head?

They coordinate research reports before releasing for publication.

As such, they provide notes, additional texts, comments, reports or edits to the research reports submitted by associates.

They are also the ones who coordinate or regulate the distribution of research products, ensuring that all legal or company policies are being followed.

Because of this, they must have a high level of knowledge of regulatory functions together with their finance knowledge.

Q.48: What is MiFID II?

What is MiFID II?

MiFID 2 (Markets Financial Instruments Derivative 2) is legislation by the European Union (EU) that will increase the integrity of European markets, protect investors from biased research reports and improve the competitiveness of the financial markets.

MiFID II affects different financial markets such as stock, fixed income, currency, futures and forwards and derivatives markets.

Q.49: How does MiFID II affect the equity research profession?

Like others, this question is also essential, so we included in our list of Equity Research Interview Questions

Among the provisions of MiFID II is the disallowance of giving free equity research reports.

Such reports are usually, technically, are paid as part of the brokerage fee. As a result, firms can only get paid if they can broker stocks.

There could be a tendency to create the report in such a way that it will entice the reader to buy.

This bias is what MiFID II is trying to avoid.

As such, research reports and brokerage fees would now be unbundled, meaning, paid separately.

Because of this change, this could significantly lower the number of clients of equity research, as a lot would not opt to pay for the reports. Some equity research firms are planning to cut employees.

There would be less working opportunities in equity research.

On the other hand, it could improve equity research reports because of the unbundling of services.

Q.50: What are some soft skills in Equity research that you think you’ll significantly need?

• Report Writing Skills
• Accounting Skills
• Excel Skills
• Financial Valuation and Modeling

I hope you find this guide helpful about Equity Research Interview Questions that includes 50  (Technical as well as Non-Technical equity research interview questions with complete answers).

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Equity Research Interview Questions

The most important interview questions for Equity Researchs, and how to answer them

Getting Started as a Equity Research

• What is a Equity Research
• How to Become
• Certifications
• Tools & Software
• LinkedIn Guide
• Interview Questions
• Work-Life Balance
• Professional Goals
• Resume Examples
• Cover Letter Examples

Interviewing as a Equity Research

Types of questions to expect in a equity research interview, technical questions, market insight and industry-specific questions, modeling and forecasting questions, behavioral questions, stock pitch and investment thesis questions, current events and news analysis questions, stay organized with interview tracking.

Preparing for a Equity Research Interview

How to do interview prep as an equity research analyst.

• Understand the Firm and Its Coverage Universe: Research the firm's focus areas, the sectors and companies it covers, and its investment philosophy. Knowing the firm's top picks and recent research reports can provide valuable context for your discussions.
• Master Financial Modeling and Valuation: Be prepared to discuss and demonstrate your proficiency in financial modeling, DCF, comparable company analysis, and precedent transactions. You may be tested on these skills during the interview process.
• Stay Current with Market Trends: Have a solid grasp of current events and understand how they affect the markets and your sector of interest. Be ready to discuss recent news and its potential impact on the stocks you may be covering.
• Prepare to Pitch a Stock: You may be asked to pitch a stock during your interview. Choose a company you are familiar with, prepare a thorough analysis, and be ready to defend your investment thesis with confidence.
• Analyze the Firm's Recent Reports: Reviewing the firm's recent publications will give you insight into their reporting style and the metrics they emphasize. This can guide you in aligning your approach to their standards.
• Practice Behavioral and Technical Questions: Be ready to answer behavioral questions that explore your past experiences and work ethic. Also, prepare for technical questions that test your industry knowledge and analytical skills.
• Develop Insightful Questions: Prepare thoughtful questions that demonstrate your interest in the role and your understanding of the equity research field. This can also help you assess if the firm's culture and values align with your career goals.
• Engage in Mock Interviews: Practice with mentors, peers, or through mock interviews online. This will help you refine your delivery, manage interview nerves, and receive constructive feedback on your performance.

Equity Research Interview Questions and Answers

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Equity Research Job Title Guide

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Start Your Equity Research Career with Teal

9 Equity Research Interview Questions With Answers

Q1- tell me is there any possibilities terminal value can be negative.

Suggested Answer: It is theoretically possible, but not in practice. The terminal value of a company is the value of its expected free cash flow after the period covered by the explicit projected financial model.

Terminal Value = (FCFF x (1+Growth Rate))/(WACC - growth rate)

If, for some reason, the WACC is less than the growth rate, the terminal value may be less than the growth rate.

Q2- Why PE ratio high of a tech company is higher than the PE of a mature company?

Suggested Answer: Moreover, it can be demonstrated that the Price-Earnings multiple is driven by the ratio (1–g/ROE) / (r– g), where r represents the cost of equity, g represents the growth rate, and ROE represents the return on equity. A high-tech company's price-to-earnings ratio (PE) may be higher because investors expect the stock to grow more rapidly.

Q3- Explain me about your investment philosophy and how you look your own investment strategy?

Suggested Answer: According to what I want to accomplish for myself, my investment strategy is different each time.

When used in conjunction with a large number of derivatives and options, it can be a very aggressive investment strategy; when used in conjunction with a long-term investment strategy, it is much more conservative. If I want to earn a 30 percent return in three months, or a 5 percent return per year for five years, the underlying strategies must be distinct. The basic rule is to look for high-quality companies or funds with strong management and balance sheets that are in a growing industry, and then to hold onto them for a minimum of five years after discovering them.

Q4- Suppose you analyze a listed company and you have to find deep detail of the company then what you question will be with yourself?

Suggested Answer:

Is the management team delivering on their promises on a consistent basis?

Is there a clear plan for the future in place from the top down at the company?

Is the management team up to the task of dealing with the crisis?

Is the management team putting together the best possible product mix?

Is the management reliant on a small number of products and a small number of clients?

Is the management spending enough money on research and development?

Is there anything the management is doing to keep their best employees?

Is the management team allocating their resources wisely to new products and business expansion?

Is the management team prepared to accept the changes and challenges that lie ahead?

Is the management team more concerned with the bottom line or the margins?

Is the management team focusing on temporary solutions or on long-term solutions for a specific problem?

Is their business module a long-term, financially viable component? Does the company's management distribute its profits to its stockholders? Is the company's management communicating with its stakeholders and providing them with reassurance if the company is struggling? Is the company's management open and transparent?

Q5- Imagine you attend a earning call What questions you would ask a company management?

Suggested Answer: It all depends, but I'll ask some questions like, for example,

What is the most beneficial use of the cash on the balance sheet of the company? Is there a plan in place for the company to raise capital in order to fund future growth?

When it comes to sales, where do you see them heading in the next 12 to 24 months?

When it comes to your industry, who are the up-and-coming competitors you should be looking out for.

Q6- Tell me between EBIT and EBITDA, which is better?

Suggested Answer: Because depreciation and amortization are non-cash expenses, they are excluded from EBITDA calculations. Alternatively, the cost of debt and its tax consequences. As a result, EBIT is superior.

Q7- Imagine you are facing conflict with a colleague and other team member and how you deal with it?

Suggested Answer: I understand that different people have varying points of view, which can lead to miscommunication and conflict between people. The direction of the project was determined after we each explained our respective perspectives and thought processes to one another. When it comes to conflict resolution, communication is essential.

Q8- What factors affect price of copper?

Suggested Answer: Copper is used extensively in our industrial production, and copper wire has a significant impact on the telecommunications industry as well.

Copper's price is influenced by a number of important factors.

Situation of the World's Economy

Copper consumption is primarily concentrated in the industrialized countries of the world. A greater influence on copper prices is exerted by the economic conditions of these countries such as the United States, Japan, Western Europe, and other countries.

Seasonal Variables The price of copper fluctuates according to the season. Typically, the lowest copper price is reached in January, and the highest price is reached in August.

Q9- Is EBITDA a good proxy for cash flow?

Suggested Answer: With the exception of capital-intensive industries such as oil and gas, EBITDA is positive.

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