Interview Questions & Answers

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finance interview questions & answers basics

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<p>What is the difference between p &amp; l ac and income &amp; expenditure statement? P&amp;L A/c is prepared by trading organizations to find out the net profit or loss from business operations. Income and expenditure A/c is prepared by non-trading organizations to find out whether they have enough income to meet the expense or not there may be surplus or deficiency.What is the difference between JOURNAL ENTRY &amp; LEDGER? A journal is also called as a book of prime entry. Transactions occurred are first entered in this book to show. Which accounts should be debited and which should be credited.On the basis of entries made in the journal, accounts are prepared; the book which contains the accounts is called a ledger. Transactions entered in the journal are classified according to their nature and posted in their respective accounts in ledger. It is also called as book of final entry. Journal is a book of original entry. It is a book where all the transactions of company have been recorded relating to that particular financial year. It is also known as the mother of the ledger. Here all the accounts are divided into two parts according to the rules of debit and credit.Whereas the ledger means, the book which contains all the specified accounts in separated manner taken from the original book of journal. It is also called as child of journal. Journal is book of accounts which occurred in daily transactions and it is a systematic record. Ledger is separate the accounts based on the journal accounts which aspect of debit or credit maintaining the individual transaction accounts.What is Bull Market? Bull market is that market where stock value are expected rise and people will have tendency to sell their stock so as to earn profit out of it. Thus sudden push from the suppliers will gradually neutralize the market.What is Discount Cash Flow Management? The DCF for an investment is calculated by estimating: the cash that you will have to pay out, and the cash which you expect to receive back. The timeframes that you expect to receive the payments must also be estimated. Each cash transaction must then be recalculated, by subtracting the opportunity cost of capital between now and the moment when you will pay or receive the cash. Those cash flows which have considering the time factors of money in respect on cost of capital are known as discounted cash flow.What is money market? A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year. Money market securities consist of negotiable certificates of deposit (CDs), bankers acceptances, U.S. Treasury bills, commercial paper, municipal notes, federal funds and repurchase agreements (repos). The money market is a component of the financial markets for assets involved in short-term borrowing and lending with original maturities of one year or shorter time frames. Trading in the money markets involves Treasury bills, commercial paper, bankers' acceptances, certificates of deposit, federal funds, and short-lived mortgage- and asset-backed securities.[1] It provides liquidity funding for the global financial system. Money markets and capital markets are parts of financial markets.Being the finance manager being of a company how will you make finance forecasting? First I will review the previous year's financial statements to get an Idea about the financial operations. Then will discuss with the management about the current year's targets (viz. sales / services) &amp; their growth expectations. Based on that will prepare provisional P&amp;L acct &amp; Balance sheet. I also will check whether there is any possibility in cost cutting and make the adjustments accordingly to arrive at expected profit.What is the entry for deprecation? It is the permanent and gradual decrease in the value of an asset due to usage of it, lapses of time and wear and tear of assets Profit &amp; Loss a/c DrTo deprecation a/cAnd Depreciation a/c DrTo assets a/cWhat is Secondary Market? Secondary market refers to market where securities are traded after being initially offered to the public in the primary market and/or listed on the stock exchange.Why do you want to do MBA in Finance? How will the combination of B.Com degree support you? Doing MBA after B.com is a very good idea for career development as one has basic accounting knowledge in finance which will definitely help in solving various complex problems for any Financial Company.</p> <p>What is the difference between costing and cost accounting? Costing is the process of ascertaining costs whereas cost accounting is the process of recording various costs in a systematic manner, in order to prepare statistical date to ascertain cost.What is the difference between asset management and invest management? Investment and asset are really close in meaning. Investment is when you put your money in stock, bond or other financial instruments. Whereas Asset is what you own generally referred to land, proprietorship, factory, etc. Investment is also known as assets. Both terms are two sides of coin. But in practice life whenever we heard the name assets, it means a assets in which can be seen, like Land &amp; building, Plant &amp; Machinery, computers, power backups, Vehicle etc. and investment mean's Investment in Stock, Bonds, Insurance etc.Why would a company distribute its earnings through dividends to common stockholders? Regular dividend payments are signals that a company is healthy and profitable. Also, issuing dividends can attract investors (shareholders). Finally, a company may distribute earnings to shareholders if it lacks profitable investment opportunities. A stockholder may buy shares to get profit so if he will not get the return he can switch over to other company's share. It is bad for the company. By issuing dividends to the shareholders increases the goodwill to the company. Everyone invests the money where they earn the profits periodically Shareholder expects reasonable returns on their investment by way of Dividend Company fulfill their expectations.What is insider trading and why is it illegal? Undergraduates may get this question as feelers of their business knowledge. Insider trading describes the illegal activity of buying or selling stock based on information that is not public information. This is to prevent those with privileged information (company execs, I-bankers and lawyers) from using this information to make a tremendous amount of money unfairly.What is meant by Take Over? In business, a takeover is the purchase of one company by another. In business, a takeover is the purchase of one company (the target) by another (the acquirer, or bidder). In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company. Hostile takeovers are when another company, often using leverage (loans from banks and investment houses that add power to buy the company in question) try to buy enough shares in the company to control it. "Hostile" simply means it is against the wishes of the companyWhat is EPS? Earnings per share thats portion of companys profit.. EPS is the profit after tax is divided by the total no. of outstanding shares of a company in simple word it show that what is the earning of company per equity share, here share means those shares which are available in market for buy and sell in the market.it is calculated by following formula EPS = *Profit available for equity shareholders / No. of equity shareholders Earnings per share are generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-to-earnings valuation ratio.What is capital structure? What are the principles of capital structure management? Capital structure is a term which is referred to be the mix of sources from which the long term funds are required for business purposes which are raised to improve the capital of the company. To fund an organization plan this capital structure is required which is the combination of debt and equity. The management ensures the capital structure accesses which are needed to fund future growth and enhance financial performance. The principles of capital structure management which are essentially required are as follows:-1. Cost Principle2. Risk Principle3. Control Principle4. Flexibility Principle5. Timing PrincipleWhat is composite cost of capital? Explain the process to compute it? Composite cost of capital is also known as weighted average cost of capital which is a measurable unit for it. It also tells about the component costs of common stock, preferred stock, and debt. Each of these components is given weightage on the basis of the associated interest rate and other gains and losses with it. It shows the cost of each additional capital as against the average cost of total capital raised. The process to compute this is first computing the weighted average cost of capital which is the collection of weights of other costs summed together. The formula is given as:- WACC=WeKe + WrKr+ WpKp + WdKd (Weight or Proportion of Equity x Cost of Equity) + (Weight or Proportion of Reserves &amp; Surplus x Cost of Reserves &amp; Surplus) + (Weight or Proportion of Preference shares x Cost of Preference shares) + (Weight or Proportion of Debt x Cost of Debt) In this the cost of debt is calculated in the beginning and it is used to find out the cost of capital and other weights of cost is been calculated after the calculation each and every individual weight of the component is added and then it gives the final composite cost.Why do capital expenditures increase assets (PP&amp;E), while other cash outflows, like paying salary, taxes, etc., do not create any asset, and instead instantly create an expense on the income statement that reduces equity via retained earnings? Capital expenditures are capitalized because of the timing of their estimated benefits? The lemonade stand will benefit the firm for many years. The employees work, on the other hand, benefits the period in which the wages are generated only and should be expensed then. This is what differentiates an asset from an expense.What is a deferred tax asset and why might one be created? Deferred tax asset arises when a company actually pays more in taxes to the IRS than they show as an expense on their income statement in a reporting period. Differences in revenue recognition, expense recognition (such as warranty expense), and net operating losses (NOLs) can create deferred tax assets.</p> <p>Walk me through a cash flow statement.Cash flow means movement of cash in and out of non-cash items. Receipt of cash from a non-cash item is termed as cash inflow while cash payment in respect of such items as cash outflow.Cash Flow Statement shows: The cash generated and utilized by a company. It shows changes in cash position from one period to another. It shows inflow and outflow of cash and cash equivalents from various activities of a company during a specific period.As-3 Accounting standard -3 divides Cash Flow Statement into three categories: Cash flow from Operating Activities: Operating activities represent the principal revenue-producing activities of the company. Cash inflow from Operating Activities: Cash receipt from the sale of goods and rendering of services. Cash receipts from royalties, fees, commission and other revenues Cash receipts of an insurance enterprise for premiums and claims, annuities and other policies benefits Cash refunds of income taxes unless they can be specifically identified with financing activities. Cash outflow from Operating Activities: Cash payment to suppliers for goods and services Cash payment to and on behalf of employees Cash payment to insurance enterprise for premiums and claims Cash payments or refunds of income taxes unless they can be specifically identified with financing and investing activities Cash flow from Investing Activities: Investing activities relate to purchase (acquisition) and sale (disposal) of long term assets or fixed assets such as plant, machinery, furniture, land and building and transactions related to long term investments Cash flow from Financing Activities: Financing activities relate to long term funds or capital of an enterprise. These activities result in the changes in the size and composition of the share capital and borrowings of the company. Repayment / Reissue of Debt / Loans / Equity Share Capital paying dividends Adding cash flows from operations, cash flows from investments, and cash flows from financing gets you to total change of cash.Beginning-of-period cash balance plus change in cash allows you to arrive at end-of-period cash balance.What are the various systems of Accounting? Explain them. Cash System of Accounting: This system records only cash receipts and payments. This system assumes that there are no credit transactions. In this system of accounting, expenses are considered only when they are paid and incomes are considered when they are actually received. This system is used by the organizations which are established for nonprofit purpose. But this system is considered to be defective in nature as it does not show the actual profits earned and the current state of affairs of the organization. Mercantile or Accrual System of Accounting: In this system, expenses and incomes are considered during that period to which they pertain. This system of accounting is considered to be ideal but it may result into unrealized profits which might reflect in the books of the accounts on which the organization have to pay taxes too. All the company forms of organization are legally required to follow Mercantile or Accrual System of Accounting.What are deferred tax assets and liabilities? Why they should be created? Deferred Assets: They arise when a company actually pays more in taxes than they show as an expense on their income and expenditure list in a reporting period. They should be created for recognition of revenue, expenses and operating losses. It is good way to keep track of all these Deferred Liabilities: They are expenses which are reported on a companys income and expenditure list which are not actually paid but they are expected to be paid in near future This should be created to keep track of the difference between the companys books and IRS reporting or financial reporting.What is capitalization? How important is it? It is a term with diverse meanings in both financial and accounting contexts. In accounting, it means the cost to buy any assets which is included in price of asset. But in terms of finance, it is the cost which is required to buy an asset; it includes the price of asset with the retained earnings of the company. Capitalization is very important aspect in d...</p>