Financial Analyst interview Questions and Answers
This series of questions pulled from an actual financial analyst interview are excellent to test out your problem solving and analytical skills – they are almost like the brainteasers that you could see on a GMAT or LSAT test, so have fun with them. We highly recommend that you try to solve these problems on your own before reading the answers that we have provided. Here is the actual interview question (first you will need to read some background information):
Our company partners with colleges and universities to coach their students to be more successful in school, typically beginning in the student’s first year. The colleges and universities are our clients.
Below we present some sample data from one of our clients. In order to show our client how effective our coaching is, we separated students into 2 different groups – 1 group in which all of the students received coaching and another group (also called the “control” group), in which NONE of the students received any coaching. The term “control” group is a scientific term used when comparing the effect of a particular treatment on some group of people (or whatever it is that’s being studied), versus people who did not receive that treatment. In this case, that “treatment” is our coaching/tutoring service for colleges.
Comparing Coached retention to Control retention provides the basis for measuring our enrollment impact and return on investment in coaching. Retention is just a term that refers to the percentage of students that were “retained”, or basically the percentage of students who stayed in school and made it to their next year in college.
In the table below, we have enrollment numbers for people who started their 1st and 2nd years in both the coached and non coached groups.
|Group||Began 1st year in college||Began 2nd year in college|
|Not Coached (“Control” Group)||200||155|
Financial Analyst Interview Question part 1 A –
According to the figures above, how many 2nd year students are still in college due to our coaching?
Let’s break the question down – it specifically asks us how many students made it to their 2nd year in college because they were coached. So, we want to make sense of the numbers presented above and find out how effective the coaching was in helping students stay in college for one more year.
The answer to Financial Analyst Interview Question part 1 A
You might take a look at the numbers above and notice that 155 people made it to their 2nd year both in the control group (composed of people who were not coached) and the group which received coaching. This may lead you to believe that the coaching was not effective at all, because exactly the same number of people made it to their 2nd year in college as people who were not even coached! However, you would be completely wrong to say this. And this is where attention to detail and analytical skills are very important.
Notice that 180 people began their freshman year in the control group, but 200 people began their freshman year in the “control” group. This of course means that there were more people in the control group to begin with, which means that comparing just the number of people who made it to their 2nd year (the 155 people) is not a valid or accurate way to compare the 2 groups. So, what is an accurate and meaningful way to compare the 2 groups? Well, with percentages of course! When comparing results from 2 different groups of different sizes, the only meaningful way to do that is to use percentages.
Now that we know we must use percentages, let’s do some more analysis on these numbers. In the control group, we can say that 200 (# who started their 1st year) – 155 (# who started their 2nd year) = 45 people did not start their 2nd year. As a percentage, this means that 45/200 = .225 = 22.5% of students in the control group “dropped out” (which just means that they failed to make it to their 2nd year). Remember that the control group consists of students who did not receive any coaching, so, based on the results from the control group, we can say that given a group of any size, 22.5% of those students will drop out. Of course, that number may change from group to group, but the control group is used as a basis of comparison.
Notice again that the group of students that were coached started out with 180 people. So, we should ask ourselves if those students were not coached, how many of them would have made it to their 2nd year? Well, we can take the 22.5% that we came up with from our analysis on the control group, and multiply it against the 180 people – so .225 * 180 = 40.5 people, or rounding up – 41 people. This means that 41 people would have dropped out of a group of 180 if they did not receive coaching, or that 180-41 = 139 people would have made it to the 2nd year in college if they didn’t receive coaching.
But how many people did actually make it to their 2nd year college in the group of students that were coached? Well, that’s easy – it’s 155 people. So, if 139 people would have made it if they did not receive coaching, and 155 people who did receive coaching made it to their second year, the difference between those numbers (155-139 = 16) tells us that 16 students are still in college because of the coaching provided by the company, which is our answer!
The key thing to note here is that the number of people that are in each group is different – the interviewer deliberately phrased the question this way because the question would have been very simple if the number of people in both groups were the same. And, this allows the interviewer to test your analytical skills, attention to detail, and ability to apply mathematical analysis to come out with a meaningful result.
Part B: If tuition at the client college is $20,000, then how much extra revenue is that for the client college?
This question is just asking if 16 students are still in college because of coaching/tutoring then how much extra revenue is that for the college? That’s simple enough – 16*$20,000 = $320,000. So the extra revenue for the college is $320,000.
Part C: If we had charged $1,000 per student to coach these freshmen for one year, how much ADDITIONAL revenue does the client get to keep (minus the cost of the coaching)?
Because 180 students started out in the coached group, this means that 180 * $1,000 = $180,000 is the cost of coaching (at $1,000 per student). Because the extra revenue for the client college by having the 16 students for one extra year is $320,000, and the cost of coaching is $180,000 – this means that the college’s additional revenue is $320,000 – $180,000 = $140,000 – this is the profit that college gets to keep.
What’s the “return on investment” (profits / costs)?
Because the cost of coaching is $180,000 and the profit is $140,000, this means the the return on investment is 140,000/180,000 = 77.78%.
What if it turns out that the groups were improperly balanced, with the coached groups getting a bigger share of lower-retaining “at-risk” students?
This question is just saying that the “control” group and the “coached” group did not receive a proper balance of ‘good’ and ‘bad’ students – because the “coached” group had more students who were “at-risk”, which just means that they were more likely not to make it to the 2nd year. This is most likely because they were simply not good students.
If what the question above states is true, and the groups were improperly balanced, then that means the coaching provided by the company was actually more effective than thought before – because the coached group had more “at-risk” students than the “control” group. This also means that the ROI (Return on Investment) for the client must be higher than the 77.78%.
Click the next button below to read the 2nd part of this interview question.