FINANCE INTERVIEW QUESTION

1. What is mutual funds and types?

Mutual fund is a company that pools money from many investors and invests the
money in securities such as stocks, bonds, and short term debts.
Equity
Debt
Hybrid
Index
Money market
Sector funds
Global funds

2. Diff between private equity and venture capital.

PE and VC are both forms of investment in companies
Private equity: focuses on matured companies, involves larger investments and aims
for operational improvements and controls.
Venture capital: targets startups and early stage companies has smaller investments,
higher risks and focuses on growth and innovation.

3. What are bonds and its types?

Bonds is a type of security. A fixed income instrument that represents a loan made by
an investor to a borrower.
Govt bonds
Corporate bonds
Municipal bonds
Zero coupon bonds
Convertible bonds
Inflation indexed bonds

4. Diff between bonds and loans.

A loan obtains funding from a lender, like a bank or specific organizations.
Bonds obtain money from the public when companies sell them.

5. What is exchange traded fund and mutual fund?

An exchange traded fund is an investment fund that holds a collection of assets, such
as stocks, bonds, or commodities, and is traded on stocks exchange. ETFs allow
investors to buy shares that represent a fraction of the ownership in a portfolio of
assets, similar to buying shares of a stocks.

6. What are derivatives and types?

Derivatives are financial instruments whose value is derived from other underlying
assets.
 Future
Forwards
Options
Swaps

7. What are international financial reporting standards and GAAP?

International financial reporting standards commonly called IFRs are accounting
standards issued bye the IFRs foundation and the international standards board.
GAAP stands for generally accepting principles. Which are the generally accepted
standards for financial reporting in the united states.

8. What is financial statement?

Financial statements are formal records that summarize the financial activities and
position of a business, person, or other entity.

9. Diff between stocks and bonds.

Stocks represent partial ownership in a company, giving shareholders potential
dividends and capital appreciation, but also exposing them to higher risk and
volatility. Bonds, on the other hand, are loans made to corporations or governments,
offering fixed interest payments and lower risk, with the principal returned at the
bond’s maturity.
10. What are mergers and acquisition and recent merger?

Mergers and Acquisitions (M&A) refer to the consolidation of companies or assets. A

merger occurs when two companies combine to form a new entity, while an acquisition
happens when one company purchases another, absorbing it into its operations.

Recent Merger:
One notable recent example is the Microsoft acquisition of Activision Blizzard. In
2023, Microsoft completed the acquisition of the video game company Activision
Blizzard for nearly $69 billion. This move is significant for Microsoft's expansion into
the gaming industry, particularly as it builds its presence in cloud gaming.

11. What is retained earnings?

Retained earnings refer to the portion of a company's net income that is kept or
"retained" within the company rather than distributed to shareholders as dividends.
These earnings are used to reinvest in the business, pay off debt, or save for future
use, contributing to the company's growth and financial stability over time. Retained
earnings accumulate over the years and appear on the company's balance sheet
under shareholders' equity.

12. What is PE ratio and PEG ratio?

 The Price-to-Earnings (P/E) ratio measures the price investors are willing to pay for a
company's earnings. It is calculated by dividing the current share price by the
earnings per share (EPS). A higher P/E ratio suggests that investors expect higher
growth in the future, while a lower P/E may indicate the stock is undervalued or that
growth expectations are low.

The Price/Earnings-to-Growth (PEG) ratio adjusts the P/E ratio by accounting for the
company's expected earnings growth. It is calculated by dividing the P/E ratio by the
earnings growth rate. A PEG ratio of 1 indicates a stock is fairly valued, while a value
less than 1 may suggest it is undervalued relative to its growth potential.

13. What is callable and non callable bonds?

Callable bonds are bonds that can be redeemed or "called" by the issuer before their
maturity date, typically at a specified call price. This gives the issuer flexibility to repay
the bond early, often to refinance debt if interest rates fall, but it exposes the bondhol der
to the risk of losing future interest payments.

Non-callable bonds, on the other hand, cannot be redeemed early by the issuer and must
be held until their maturity. This provides the bondholder with greater certainty regarding
future interest payments and the bond's final payout.

14. What is yield to maturity and yield to call?

Yield to Maturity (YTM) is the total return an investor can expect to earn if they
hold a bond until its maturity date. It accounts for the bond’s current market price,
face value, coupon interest payments, and the time remaining until maturity. YTM
assumes that all coupon payments are reinvested at the same rate and that the bond
is held until maturity.

Yield to Call (YTC) is the yield an investor can expect if the bond is called (redeemed
early by the issuer) before its maturity date, typically at a specified call date and call
price. YTC is relevant for callable bonds and calculates the return based on the
assumption that the bond will be called at the earliest possible date, which can result in
a lower return than YTM if the bond is called early.

15. What is Call option and Put option, Bid and Ask, Stock split and Buy back of
shares?

A Call Option gives the buyer the right to purchase an asset at a specified price before
a set expiration date.

A Put Option gives the buyer the right to sell an asset at a specified price before a set
expiration date.
Bid is the highest price a buyer is willing to pay for an asset, while Ask is the lowest
price a seller is willing to accept.

A Stock Split divides a company's existing shares into multiple shares, reducing the
share price without affecting the company's total market value.

A Buyback of Shares is when a company repurchases its own shares, reducing the
number of outstanding shares and often boosting their value.

16. What are bonds v/s debentures?

Bonds are debt securities issued by governments, corporations, or other entities to raise
capital, usually secured by specific assets or collateral, providing investors with regular
interest payments and return of principal at maturity.

Debentures are a type of bond that is typically unsecured, meaning they are not backed
by any specific assets but rely on the issuer's creditworthiness and reputation, offering
higher interest rates to compensate for the higher risk.

17. What is convertible bonds and CAT bonds?

Convertible Bonds are a type of debt security that can be converted into a
predetermined number of the issuer's equity shares at specific times during the bond's
life. This feature allows bondholders to benefit from potential stock price appreciation
while receiving regular interest payments.

CAT Bonds (Catastrophe Bonds) are a form of insurance-linked security issued by

insurers to transfer risk related to natural disasters (such as hurricanes or earthquakes)
to investors. If a specified catastrophic event occurs, the bond's principal is used to
cover the insurer's losses; otherwise, investors receive their principal back plus interest
at maturity.

18. What are masala bonds?

Masala Bonds are rupee-denominated bonds issued by Indian entities in overseas

markets to raise funds from foreign investors. These bonds allow issuers to tap into
foreign capital while mitigating the currency risk for investors, as the bonds are issued
in Indian rupees rather than in foreign currencies. Masala bonds help Indian companies
finance infrastructure projects, business expansions, or other capital requirements while
also enhancing India's global investment presence.

19. What is primary and secondary market?

The primary market is where new securities are issued and sold for the first time,
allowing companies or governments to raise capital directly from investors. In this
market, transactions typically occur through initial public offerings (IPOs) or private
placements.

The secondary market is where previously issued securities are bought and sold
among investors. In this market, the company that issued the securities does not receive
any proceeds from the transactions, and trading occurs on stock exchanges or over-the-
counter markets.

20. What is deep discount bonds?

Deep Discount Bonds are bonds that are issued at a significantly lower price than their
face value (or par value) and do not pay periodic interest (coupons). Instead, the
investor receives the full face value at maturity. The difference between the purchase
price and the face value represents the investor's return. These bonds are often issued
by companies or governments facing financial challenges or looking to attract investors
with lower upfront costs, making them appealing for those seeking potential capital
gains.

21. What is zero coupon bonds?

Zero Coupon Bonds are debt securities that do not pay periodic interest (coupons)
during their life. Instead, they are issued at a significant discount to their face value and
pay the full face value upon maturity. The difference between the purchase price and
the face value represents the investor's return. These bonds are appealing to investors
looking for a lump sum at maturity rather than regular interest payments, making them
suitable for long-term investment strategies, such as saving for a future goal.

22. What is stock v/s debentures?

Stocks represent ownership in a company, giving shareholders a claim on the

company's assets and earnings, along with voting rights in corporate decisions.
Investors in stocks can benefit from capital appreciation and dividends, but they also
face higher risk as their investment is subject to market fluctuations.

Debentures, on the other hand, are a type of debt instrument issued by companies to
raise capital. They represent a loan made by investors to the issuer, which pays fixed
interest over time and returns the principal at maturity. Debenture holders have a higher
claim on the company's assets than shareholders in the event of liquidation, but they do
not have ownership rights or voting privileges.

23. What are indicators and its types Technical analysis and Fundamental analysis?
Indicators are tools or metrics used in financial analysis to assess the performance and
potential future movements of securities or markets. They help investors make
informed decisions by providing insights into market trends, asset value, and overall
economic conditions. The two main types of indicators are Technical Analysis
Indicators and Fundamental Analysis Indicators.

Technical analysis focuses on historical price movements and trading volume to predict
future price behavior

Fundamental analysis evaluates the intrinsic value of a security based on economic,

financial, and other qualitative and quantitative factors.

24. What is monitory policy?

Monetary policy is the process by which a country's central bank or monetary

authority manages the money supply, interest rates, and overall economic activity to
achieve specific macroeconomic objectives, such as controlling inflation, promoting
employment, and ensuring economic stability.

25. What is WACC?

WACC (Weighted Average Cost of Capital) is a financial metric that calculates a

company's average cost of capital from all sources, including equity, debt, and other
financing methods, weighted according to their proportion in the overall capital
structure. It represents the minimum return that a company must earn on its investments
to satisfy its investors, including equity holders and debt holders.

26. When WACC will hire either when company having a more of debt or less of debt?

WACC is likely to be lower when a company has an optimal amount of debt, as debt
generally has a lower cost due to tax deductibility. However, if a company has
excessive debt, the increased financial risk can lead to a higher WACC, while having
very little debt typically results in a higher WACC due to the reliance on more
expensive equity financing.

27. What is CAPM?

CAPM (Capital Asset Pricing Model) is a financial model used to determine the
expected return on an investment based on its systematic risk, represented by beta (β).
The model establishes a linear relationship between the expected return of an asset and
its risk compared to the overall market.

28. What is leverages and its types?

Leverage refers to the use of borrowed capital or debt to increase the potential return
on investment. By using leverage, a company or investor can amplify their purchasing
power and potentially increase profits; however, it also increases financial risk. There
are several types of leverage:

Operational leverage, combined leverage, financial leverage, margin leverage

29. What is equity shares and preference shares?

Equity shares represent ownership in a company, granting shareholders voting rights

and the potential for variable dividends based on the company's performance, but they
carry higher risk as they are last in line for asset claims during liquidation. In contrast,
preference shares provide a fixed dividend and priority over equity shares in asset
claims during liquidation, but typically do not offer voting rights, making them less
risky compared to equity shares.

30. What is bonus shares and right shares/issues?

Bonus shares are additional shares issued to existing shareholders at no extra cost,
typically in proportion to their current holdings, as a way to reward them and improve
liquidity. In contrast, rights shares are offered to existing shareholders at a discounted
price, allowing them the opportunity to purchase additional shares in proportion to their
holdings, enabling the company to raise capital while giving shareholders the chance to
maintain their ownership stake.

31. What is underwriting?

Underwriting is the process by which an investment bank or financial institution

assesses and assumes the risk of issuing new securities, such as stocks or bonds, for a
company. The underwriter guarantees that the issuer will receive a specified amount of
capital by purchasing the entire issue of securities and then reselling them to investors,
thus facilitating capital raising and managing associated risks.

32. What is measurement of financial planning of a company?

The measurement of financial planning in a company involves evaluating key financial

metrics and indicators, such as budgeting accuracy, cash flow projections, return on
investment (ROI), and variance analysis, to assess the effectiveness of financial
strategies and ensure alignment with the company's goals and objectives.

33. What is ratio analysis?

Ratio analysis is a quantitative method used to evaluate the financial performance and
health of a company by comparing various financial metrics from its financial
statements. This analysis helps investors, analysts, and management assess a company's
efficiency, profitability, liquidity, and solvency, enabling informed decision-making.

34. What is budget?

A budget is a financial plan that outlines an organization’s projected revenues and

expenses over a specific period, typically one year. It serves as a guide for allocating
resources, controlling costs, and achieving financial goals by detailing how much
money is expected to be earned and spent during that period.

35. What is cost of capital?

Cost of capital is the rate of return that a company must earn on its investments to
satisfy its investors, including equity holders and debt holders. It represents the
opportunity cost of using capital for a specific investment rather than investing it
elsewhere at a comparable risk. Cost of capital is crucial for making financial decisions,
evaluating investment projects, and determining the company's overall financial health.

36. What is different types of valuation?

Valuation is the process of determining the worth or value of an asset, company, or

investment. Different methods are used based on the context, the type of asset, and the
available data. Here are some of the primary types of valuation:

Market, income, asset based, discount cashflow, liquidation valuation, some-of-the-

part.

37. What is DCF?

Discounted Cash Flow (DCF) is a financial valuation method used to estimate the
value of an investment based on its expected future cash flows, which are adjusted for
the time value of money. This method helps investors and analysts determine the
intrinsic value of an asset or company by assessing how much those future cash flows
are worth today.

38. What is terminal value?

Terminal value is a critical component of the discounted cash flow (DCF) valuation
method that estimates the value of an investment or business at the end of the explicit
forecast period. It represents the present value of all future cash flows beyond the
forecast horizon, assuming a stable growth rate into perpetuity or a defined exit
multiple. Terminal value captures the bulk of the total value in a DCF analysis,
especially for companies with long-term growth potential.

39. What is IRR & NPV?

Net Present Value (NPV) is a financial metric that calculates the difference between
the present value of cash inflows generated by an investment and the present value of
cash outflows, helping to assess the profitability of a project; a positive NPV indicates a
good investment. Internal Rate of Return (IRR) is the discount rate at which the NPV
of an investment equals zero, representing the expected annualized rate of return, with
higher IRR values suggesting more attractive investment opportunities.

40. What is profitability index?

The Profitability Index (PI) is a financial metric used to evaluate the attractiveness of
an investment or project by comparing the present value of future cash flows to the
initial investment cost. It indicates the relative profitability of an investment and is
particularly useful in capital budgeting to rank projects.

41. What is net worth (shareholders funds and its components)?

Net worth, often referred to as shareholders' equity or owners' equity, represents the
residual interest in the assets of a company after deducting its liabilities. It reflects the
value that belongs to the shareholders and is an important indicator of a company's
financial health.

42. What is capital structure?

Capital structure refers to the specific mix of debt and equity that a company uses to
finance its operations and growth. It indicates how a firm funds its overall operations
and growth by utilizing various sources of financing, including debt (loans and bonds)
and equity (stocks).

43. What is enterprise value?

Enterprise Value (EV) is a comprehensive measure of a company's total value, often

used as a more accurate alternative to market capitalization for assessing the worth of a
business. It represents the entire value of a company, taking into account not just its
equity but also its debt and other financial obligations.

44. What is EBIT/EBITDA?

EBIT (Earnings Before Interest and Taxes) and EBITDA (Earnings Before
Interest, Taxes, Depreciation, and Amortization) are two important financial metrics
used to evaluate a company's profitability and operational performance. Both measures
provide insights into a company's ability to generate earnings from its core operations,
but they differ in what expenses are excluded.

EBIT represents a company's earnings from its core operations before accounting for
interest expenses and taxes. It reflects the profitability of the company's operations and
is often used to assess the operating performance of a business.

EBITDA expands on EBIT by also excluding depreciation and amortization expenses.

This metric focuses on a company's operational performance by stripping out non-cash
expenses, providing a clearer view of cash flows from operations.

45. What is block chain technology?

Blockchain technology is a decentralized and distributed digital ledger system that

securely records transactions across multiple computers in a way that the registered
information cannot be altered retroactively. This technology underpins cryptocurrencies
like Bitcoin but has a wide range of applications beyond digital currencies.

46. What is CRYPTO currency?

Cryptocurrency is a type of digital or virtual currency that uses cryptography for

security and operates on a technology called blockchain, which is a decentralized ledger
that records all transactions across a network of computers. Unlike traditional
currencies issued by governments (fiat currencies), cryptocurrencies are typically not
regulated by any central authority, making them immune to government interference or
manipulation.

47. What is CAGR?

CAGR (Compound Annual Growth Rate) is a useful metric that describes the mean
annual growth rate of an investment over a specified time period, assuming the
investment has grown at a steady rate. It provides a smoothed annual rate of growth that
helps investors compare the historical performance of investments or portfolios.

48. What is fixed income securities?

Fixed income securities are financial instruments that provide returns in the form of
regular, fixed interest payments and the return of principal at maturity. These securities
are typically issued by governments, municipalities, and corporations to raise capital.
They are called "fixed income" because they offer predictable income streams, which
makes them popular among conservative investors seeking stable returns.

49. What is monitory policy, SLR, CRR, LIBOR?

Monetary policy refers to the actions taken by a country's central bank or monetary
authority to control the money supply, interest rates, and inflation to achieve
macroeconomic objectives such as stable prices, full employment, and economic
growth.

Statutory Liquidity Ratio (SLR) is a regulatory requirement for commercial banks to

maintain a certain percentage of their net demand and time liabilities (NDTL) in the
form of liquid cash, gold, or other securities. It is a tool used by the central bank to
control credit growth and ensure liquidity in the banking system.

Cash Reserve Ratio (CRR) is the percentage of a bank's net demand and time
liabilities that must be held in reserve in the form of cash with the central bank. Like
SLR, it is a monetary policy tool used by the central bank to control liquidity and
manage inflation.

London Interbank Offered Rate (LIBOR) is the average interest rate at which major
global banks lend to one another in the international interbank market. It serves as a
benchmark for various financial products, including loans, derivatives, and mortgages.

50. Refer each every item of Balance sheet, income statement & cashflow?

Certainly! Below is a breakdown of the key items typically found in the Balance
Sheet, Income Statement, and Cash Flow Statement.

1. Balance Sheet

The balance sheet provides a snapshot of a company’s financial position at a specific

point in time. It consists of three main components: Assets, Liabilities, and
Shareholders' Equity.
Assets

• Current Assets:
o Cash and Cash Equivalents
o Accounts Receivable
o Inventory
o Prepaid Expenses
o Short-term Investments
• Non-Current Assets:
o Property, Plant, and Equipment (PP&E)
o Intangible Assets (e.g., patents, trademarks)
o Long-term Investments
o Goodwill
o Deferred Tax Assets

Liabilities

• Current Liabilities:
o Accounts Payable
o Short-term Debt
o Accrued Liabilities
o Current Portion of Long-term Debt
o Deferred Revenue
• Non-Current Liabilities:
o Long-term Debt
o Deferred Tax Liabilities
o Pension Obligations
o Lease Liabilities

Shareholders' Equity

• Common Stock
• Preferred Stock
• Additional Paid-in Capital
• Retained Earnings
• Accumulated Other Comprehensive Income
• Treasury Stock

2. Income Statement

The income statement summarizes a company’s revenues and expenses over a

specific period, resulting in net income or loss.

Revenue

• Sales Revenue (Net Sales)

• Service Revenue
• Other Income (e.g., interest income)

Cost of Goods Sold (COGS)

• Direct Costs of Producing Goods Sold (materials, labor)

Gross Profit

• Calculated as Revenue minus COGS

Operating Expenses

• Selling Expenses
• General and Administrative Expenses
• Research and Development Expenses
• Depreciation and Amortization

Operating Income

• Calculated as Gross Profit minus Operating Expenses

Other Income and Expenses

• Interest Expense
• Interest Income
• Gains or Losses from Sales of Assets

Income Before Tax

• Calculated as Operating Income plus Other Income and Expenses

Income Tax Expense

• Taxes owed based on income

Net Income

• Calculated as Income Before Tax minus Income Tax Expense

3. Cash Flow Statement

The cash flow statement provides insights into a company’s cash inflows and
outflows over a specific period, categorized into three sections: Operating,
Investing, and Financing activities.

Operating Activities

• Cash Receipts from Customers

• Cash Payments to Suppliers and Employees
• Interest and Dividends Received
• Interest Paid
• Income Taxes Paid

Investing Activities

• Cash Outflows for Purchases of Property, Plant, and Equipment

• Cash Inflows from Sales of Assets
• Cash Outflows for Acquisitions
• Cash Inflows from Sale of Investments

Financing Activities

• Cash Inflows from Issuance of Stock

• Cash Outflows for Repurchase of Stock (Treasury Stock)
• Cash Inflows from Borrowing (Loans)
• Cash Outflows for Repayment of Debt
• Cash Dividends Paid

Net Increase (Decrease) in Cash

• The change in cash balance during the period calculated by summing cash flows
from Operating, Investing, and Financing activities.