Finance Interview Preparation Guide

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There are several reasons for a company to issue stock rather than debt. The first is if it believes its stock price is inflated and it can raise money by issuing stock. The second is when the projects for which the money is being raised may not generate predictable cash flows in the immediate future. A simple example of this is a startup company. The owners of startups generally will issue stock rather than take on debt because their ventures will probably not generate predictable cash flows, which is needed to make regular debt payments, and also so that the risk of the venture is diffused among the company's shareholders. A third reason for a company to raise money by selling equity is if it wants to change its debt-to-equity ratio. This ratio in part determines a company's bond rating. If a company's bond rating is poor because it is struggling with large debts, they may decide to issue equity to pay down the debt.

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) & their growth expectations. Based on that will prepare provisional P&L acct & Balance sheet. I also will check whether there is any possibility in cost cutting and make the adjustments accordingly to arrive at expected profit.

The term derivative indicates that it has no independent value that is its value is entirely derived from the values of the underlying assets. The underlying asset can be securities, commodities , bullion, currency, livestock or anything else.

This question is actually a question about your academic qualifications and the thoughts with which you have decided to join the profession of investment banking.
To answer this question perfectly, you would have to go back to your books and understand the concepts that were taught to you in business school. Make sure that you put across the point that being good with numbers, being in the knowledge of current and past market status, and having a good financial strategy that is unfailing are some of the most important qualities for a career in investment making.

Fair Value is an accounting expression, originally defined by the SEC.Under GAAP, the Fair Value of an asset is the amount at which that asset could be bought or sold in a current transaction between willing parties, other than in a liquidation. On the other side of the balance sheet, the Fair Value of a liability is the amount at which that liability could be incurred or settled in a current transaction between willing parties, other than in a liquidation.
If available, a quoted market price in an active market is the best evidence of Fair Value and should be used as the basis for the measurement. If a quoted market price is not available, prepares should make an estimate of Fair Value using the best information available in the circumstances. In many circumstances, quoted market prices are unavailable. As a result, making estimates of Fair Value is often difficult.

The main difference lies in the motive of the two parties. The main motive of the hedger is to hedge(minimize) the risk from the occurrence of some events. The motive of the speculator is to gamble in the market in order to make the profit by buying/selling the derivative products.
Hedger is a risk avoider and speculater is risk lover. Speculator is high riskier in market,it is short term, hedger is minimizing risk from occurrence of some event.

Outsourcing is a strategic management model wherein business processes are transferred to another company. The concept is to let a third party service provider perform the management and/or day-to-day execution of one or more business functions. This third party service provider is in sourcing those same processes. Outsourcing occurs when a company uses an outside firm to provide a necessary business function that might otherwise be done in-house.

When a company or corporation earns a profit or surplus, that money can be put to two uses it can either be re-invested in the business called retained earnings or it can be paid to the shareholders as a dividends.

Call option gives the buyer the right but not the obligation to buy a given quantity of the underlying asset, at a given price on or before, depending upon the type of option at given future date.

In economic terms, inflation is the rise in the prices of goods and services in the given economy over a period of time. As the prices rise, each unit of the country's currency will buy fewer goods and services.

EFT is short for Electronic Funds Transfer. An EFT is a method of transferring money from one bank account directly to another account without any paper money actually changing hands. The two accounts do not have to be in the same bank.

If you are applying for an investment management firm as an MBA, you would better have a good answer for this one. Also, if you think you are going to say it has outperformed the S&P each year, you better be well prepared to explain why you think this happened.

EBITDA stands for earnings before interest, taxes, depreciation, and amortization. EBITDA came into wide use among private capital firms, wanting to calculate what they should pay for a business.

An investor that wants the upside potential of equity but wants to minimize risk would buy preferred stock. The investor would receive steady interest-like payments (dividends) from the preferred stock that are more assured than the dividends from common stock. The preferred stock owner gets a superior right to the company's assets should the company go bankrupt. A corporation would invest in preferred stock because the dividends on preferred stock are taxed at a lower rate than the interest rates on bonds.

A demat account is the account which is required for an individual to trade the securities to buy stocks or sell the stocks)in the stock market and it is also taken care by SEBI to control, guide and promotes the securities and to protect the interest of the investors.

Crossover rates have to do with the amount of earnings that are generated by two different but similar projects. The crossover rate is the point at which the two projects achieve the same net present value. In terms of investments, calculating a crossover rate between two similar securities can help an investor determine what to buy and what to sell.

RAROC is a risk adjusted framework for profitability measurement and profitability management. It is a tool for measuring risk-adjusted financial performance. And it provides a uniform view of profitability across businesses (Strategic Business Units / divisions). RAROC and related concepts such as RORAC and RARORAC are mainly used within (business lines of) banks and insurance companies. RAROC is defined as the ratio of risk-adjusted return to economic capital.

Nominal money is related to the measure of counting. Nominal figure is what is written on the bill. Where as real money relates to it is purchasing power.
Example:
If 10 units in nominal money can buy 2 chocolates in 1980 and 1 chocolate in 2000, in the same way, 10 units of nominal money is 10 units of real money in 1980 and 5 units of real money in 2000.

In terms of financial management Net Worth of a company is share capital plus reserve and surplus reserve could be general reserve or reserve for bad & doubtful debts and in terms of accounting net worth is total assets minus total liabilities.

Accounting management is the piratical application of management techniques to control and report on the financial health of the organisation. It involves the analysis, planning, implementation and control of programs designed to provide financial data reporting for managerial decision making.

A trial Balance is statement of balances of all the accounts in the ledger prepared to prove the arithmetical accuracy of the books of accounts. It is also a list of Debit and Credit or a list of Debit & Credit Balance of all the ledger accounts prepared on any particular date.

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.

The bondholder is always more senior. Stockholders (including those who own preferred stock) must wait until bondholders are paid during a bankruptcy before claiming company assets.

Treasury bills are money market instruments to finance the short term requirements of the Government of India. These are discounted securities and thus are issued at a discount to face value.

Tact is nothing but a situational rating power. Once I had gone to a government office for getting a certification. There I was told to offer excess fee more than the prescribed amount. I dealt tactfully just by asking the concerned person to acknowledge the excess fee. I also told him that the acknowledgement is for claiming educational allowance by my father. The person caught in the dilemma and dropped the issue.