Finance Interview Questions and Answers - 3

17. If you are required to value a company, which methods would you follow?

Following are some methods you can use to value a company:

i.) Market valuation
ii.) Leveraged Buyout Model (LBO)
iii.) Liquidation Value
iv.) Discounted Cash Flow
v.) Study comparable companies

18. What does WACC tell you?

WACC stands for Weighted Average Cost of Capital. It tells me:

i.) Cost of raising new capital by a company.
ii.) Riskiness of a business.

19. What is FCF?

FCF means Free Cash Flow.

It is the amount of actual cash that can be paid to debt and equity holders of a company.

20. What do you know about Beta?

It is the measure of volatility of an investment in comparison to the market.

i.) Market is considered to have a beta value of 1.
ii.) Investments with beta > 1 are more volatile than market.
iii.) Investments with beta < 1 are lesser volatile than market.

21. How is cash-base accounting different from accrual?

Cash base accounting considers sales and expenses when the actual money transaction takes place while accrual based accounting takes expenses and income into consideration as and when they are incurred. It doesn’t wait for actual cash transaction.

22. What are the sources of short term finance for a company?

The sources of short term finance for a company are:

i.) Bank Overdraft - Someone owning a current account can use this facility offered by banks. Banks allow you to withdraw money more than you have in your account but charge you an interest. Limit is set by bank.

ii.) Unsecured Bank Loan - No property or other collateral is required to get this loan.

iii.) Trade Credit - It works on mutual trust between the buyer and seller where the seller agrees to receive the money after a specified date.

23. What is EPS? What are its different types?

EPS  - Earnings per Share of the firm.

It acts as an indicator of a company’s profitability.

There are three main types of EPS.

i.) Basic EPS - Useful when the company has no convertible securities outstanding like Convertible bonds, Convertible preference shares/ stocks.  

ii.) Dilutive EPS - It is used when company has convertible securities outstanding which dilute the earnings.

iii.) Anti-Dilutive EPS - Here the convertible securities increase the earnings.

24. What is a bond? What are its different types?

Bond is an instrument that provides the owner a security of fixed payment by the issuer annually or as per the specified conditions.

The different types of bonds are:

i.) Fixed Rate Bonds
ii.) Floating Rate Bonds
iii.) Zero Interest Rate Bonds
iv.) Inflation Linked Bonds
v.) Perpetual Bonds
vi.) Subordinated Bonds
vii.) Bearer Bonds
viii.) War Bonds
ix.) Serial Bonds
x.) Climate Bonds