Tips to Ace the Corporate Finance Interview: The Insider’s Guide
How does compounding work actually? Would I Be better oﬀ with 12% annual or semi? What about 8% semi annually vs. 12% annually?
Compounding refers to the process of earning interest on interest that has been previously earned. It can be done on a regular basis, such as annually or semi-annually. The frequency of compounding will affect the overall growth of your investment.
In general, the more frequently interest is compounded, the better it is for the investor. So, if given the choice, it would be better to choose 12% annually compounded over 12% semi-annually compounded.
Comparing 8% semi-annually to 12% annually, the 12% annually compounded will generally result in a larger overall return, but it is important to consider the length of time you plan to invest and the amount of money you plan to invest. It's always better to consult with the experts or do a compound interest calculator for more accurate answer.
Tell me currently where is US trade deﬁcit now?
The current U.S. trade deficit is $79.6 billion, down 6.2% from the previous month. Exports totaled $260.8 billion, up 1.7%, and imports totaled $340.4 billion, down 0.3%. The next release of U.S. trade data will be on Wednesday, September 7, 2022.
Explain me the main diﬀerence between Macauley and modiﬁed duration?
Macaulay duration and modified duration are both measures of the sensitivity of a bond's price to changes in interest rates.
Macaulay duration, named after Frederick Macaulay, is a measure of the average time, in years, that it takes for a bond to receive all of its cash flows. It is calculated by weighting each cash flow by the time at which it is received and then averaging those times. Macaulay duration is useful for determining the bond's price sensitivity to changes in interest rates.
Modified duration, on the other hand, is a modified version of Macaulay duration, which takes into account the bond's convexity. It is a measure of the percentage change in a bond's price for a 1% change in interest rates. It's calculated by dividing Macaulay duration by (1+yield to maturity/frequency of compounding per year).
In summary, Macaulay duration gives an idea of the average time it takes to get cashflows, while modified duration gives an idea of how the bond prices changes with interest rate changes.
What is the biggest debt market by product in the USA? Rank the top 3 markets.
The three biggest debt markets by product in the USA are Treasury (35.16%), Corporate Debt (21.75%), and Mortgage Related (22.60%).
Tell me what does liquidity allow an investor?
Liquidity allows an investor the ability to quickly buy or sell an investment without significantly affecting the asset's price. In other words, it refers to how easily an investment can be bought or sold without affecting the market price.
For example, stocks and bonds are considered to be liquid investments because they can be easily bought or sold on a stock exchange or over-the-counter market. Real estate, on the other hand, is considered to be less liquid because it can take longer to sell and the price can be affected by the specific condition of the property and the real estate market.
Having liquid investments in a portfolio allows an investor to quickly respond to market changes or to take advantage of new opportunities as they arise. It also allows for flexibility in managing cash flow and risk management. It's important to note that liquidity is trade off with return, less liquid investments usually offers higher returns than more liquid ones.
What is unique about the US treasury Market vis a vis the rest of the debt market? How does a swap work?
The US Treasury market is unique in that its bonds are generally seen as default-free and are considered to be the benchmark for all other debt markets. A swap is a financial derivative contract in which two parties agree to exchange cash flows between a fixed and a floating rate holding. The party that receives the fixed rate flows on the swap increases their risk that rates will rise, while the party that receives the floating rate flows is exposed to the risk of rates falling. In exchange for taking on the risk, the party that receives the fixed rate flows requires a fee on top of the fixed rate flows, which is known as the swap spread.
What are the two basic problems ﬁnancial manager faces nowadays?
Financial managers today face a variety of challenges, but two basic problems that they commonly face are:
Risk management: Financial managers must balance the need to earn a return on their investments with the need to minimize the risk of losing money. This includes assessing and managing the risks associated with different types of investments, as well as ensuring that the overall portfolio is diversified to reduce overall risk.
Capital allocation: Financial managers must decide how to allocate the company's resources among different investments and projects. This includes determining the appropriate level of investment in fixed assets, such as property, plant, and equipment, as well as deciding how much to invest in working capital and other liquidity needs.
Both of these challenges require a combination of technical knowledge, analytical skills and the ability to make sound judgement, as well as constant monitoring and review of the market conditions, economic indicators, and the company's performance.
Deﬁne Balance Sheet?
A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It lists the company's assets, liabilities, and equity.
The balance sheet is divided into two sections: assets on the left-hand side and liabilities and equity on the right-hand side. The assets section lists the resources that a company owns or controls, such as cash, accounts receivable, inventory, and fixed assets. The liabilities section lists the obligations and debts that a company owes to others, such as accounts payable, loans, and bonds. The equity section shows the residual interest in the assets of the entity after deducting liabilities, this includes common stock, retained earnings, and other reserves.
The balance sheet must balance, meaning that the total assets must equal the total liabilities and equity. This equation is often represented as: Assets = Liabilities + Equity
The balance sheet is one of the three primary financial statements, along with the income statement and cash flow statement, used to evaluate a company's financial health and performance.
If any corporate bond increase by 10 basis point what would be impact?
If a corporate bond increases by 10 basis points (0.10%), it would have an impact on the bond's price and yield.
When the interest rate in the market increases, the value of existing bonds decreases. This is because new bonds will be issued at a higher rate of interest, making existing bonds less attractive to investors. As a result, the price of the bond will decrease, which will result in an increase in the bond's yield. So, when a corporate bond increases by 10 basis points, the bond's price will decrease and its yield will increase.
It's important to note that the impact on the bond's price and yield will depend on a variety of factors, such as the bond's credit rating, maturity date, and coupon rate, as well as the overall state of the bond market.
Also, it's important to consider that the bond holder's portfolio who holds the bond will be affected by the change in the bond price, if the bond holder is looking to sell the bond the decrease in price will result in a lower return, on the other hand, if the bond holder is looking to hold the bond till maturity, the bond holder may not be affected by the change in bond price.Top of Form
Currently you working for the ﬁnance division of our company and you receive a project to advice our client how would you decide whether or not to invest in a project?
When deciding whether or not to invest in a project, I would consider the potential return on investment, the risk associated with the project, the timeline for completion and the impact on other projects. I would review any available data and research to get a better understanding of the project's potential. I would also seek advice from other professionals in the field who have had experience with similar projects. Lastly, I would analyze the cost-benefit analysis of the project to ensure that the benefits outweigh the cost.
Explain me what is Deferred Tax Liability and what is impact of DTL?
A deferred tax liability (DTL) is a liability that a company records on its balance sheet to account for the future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. A temporary difference is a difference between the carrying amount of an asset or liability for financial reporting purposes and its tax basis.
For example, if a company has an asset that is depreciated for tax purposes at a faster rate than it is depreciated for financial reporting purposes, it will result in a deferred tax liability. This is because the company will owe more taxes in the future when it eventually sells the asset, as the tax basis will be lower than the financial reporting basis.
The impact of a deferred tax liability on a company's financial statements is that it increases the company's liabilities and reduces its net income. This can make the company's financial position appear less favorable than it would be without the DTL. However, it is important to note that DTLs are not a cash obligation, they are a future tax liability that may or may not materialize in the future depending on the company's future performance and tax laws.
Another impact of DTL is that it can affect the company's ability to borrow funds, or it's creditworthiness as the lender or credit rating agencies may consider the DTL as a liability in their analysis.
In summary, DTL is a liability that reflects a company's future tax obligation resulting from temporary differences between the financial reporting and tax basis of assets and liabilities. It can have an impact on the company's financial position and creditworthiness, but it doesn't affect the company's cash flow.
Tell me what is P/E Ratio and how you calculate?
The price-to-earnings (P/E) ratio is a commonly used valuation metric that compares a company's stock price to its earnings per share (EPS). It is calculated by dividing the current market price per share by the earnings per share.
The P/E ratio can be used to evaluate the relative value of a stock and compare it to others in the same industry or to the overall market. A high P/E ratio may indicate that a stock is overvalued, while a low P/E ratio may indicate that a stock is undervalued. However, it's important to note that P/E ratio should be used with caution, as there are many factors that can affect the ratio and it should be considered in the context of the company's financials, industry and overall market conditions.
The formula to calculate P/E ratio is: P/E Ratio = Market Price per Share / Earnings per Share (EPS)
For example, if a company's stock is trading at $50 per share and its earnings per share (EPS) is $5, the P/E ratio would be 10 (50/5). This means that investors are willing to pay $10 for every $1 of earnings.
It's worth noting that P/E ratio can be calculated in different ways, such as Trailing P/E, Forward P/E, Cyclical P/E, etc. It's important to understand which type of P/E ratio is being used and the context it's being used in.
Explain me what is Stock Options?
Stock options are contracts that give the holder the right, but not the obligation, to buy or sell shares of a stock at a specific price (strike price) within a specific time period (exercise period). There are two types of stock options: call options and put options.
A call option gives the holder the right to buy a stock at a certain price (strike price) within a certain period of time. For example, if an investor holds a call option with a strike price of $50 and the stock's current market price is $60, the investor has the right, but not the obligation, to buy the stock at $50. If the investor decides to exercise the option, they will pay $50 for the stock and immediately sell it in the market for $60, resulting in a $10 profit.
A put option gives the holder the right to sell a stock at a certain price (strike price) within a certain period of time. For example, if an investor holds a put option with a strike price of $50 and the stock's current market price is $40, the investor has the right, but not the obligation, to sell the stock at $50. If the investor decides to exercise the option, they will sell the stock at $50 and make a $10 profit.
Stock options are typically granted to employees as a form of compensation or incentive, they are also traded on the options market. They can be used as a way to speculate on the future price of a stock or as a way to hedge against potential losses in a portfolio.
It's important to note that the value of stock options is influenced by several factors, such as the current stock price, the strike price, the expiration date, and volatility of the underlying stock.
What is the difference between Stock Split and Stock Dividend?
Stock split and stock dividend are both ways that a company can increase the number of shares outstanding, but they are slightly different in nature and purpose.
A stock split is a corporate action in which a company increases the number of shares outstanding by issuing more shares to current shareholders. This is done to reduce the per-share price of the stock, making it more affordable to a wider range of investors. For example, if a company conducts a 2-for-1 stock split, a shareholder who previously owned 100 shares will now own 200 shares, but the value of their investment will remain the same.
A stock dividend, on the other hand, is a way for a company to distribute a portion of its earnings to shareholders in the form of additional shares of stock. This is done when a company wants to retain its earnings for reinvestment but still wants to reward its shareholders. For example, if a company declares a 5% stock dividend, a shareholder who previously owned 100 shares will now own 105 shares, and the value of their investment will also increase by 5%.
In summary, Stock split is a way for a company to increase the number of shares outstanding by issuing more shares to current shareholders, and it is done to make the stock more affordable. Stock dividend is a way for a company to distribute a portion of its earnings to shareholders in the form of additional shares of stock, and it is done to reward the shareholders without affecting the company's cash position.
Explain me the main clean price and dirty price of bond?
The clean price and dirty price of a bond are two different ways of expressing the value of a bond.
The clean price, also known as the flat price, is the bond's price without considering any interest that has accrued since the last interest payment. It is the price at which the bond can be bought or sold on the secondary market, and it does not include any accrued interest.
The dirty price, on the other hand, is the bond's price that includes the accrued interest from the last coupon payment until the settlement date. It is the price at which the bond is bought or sold on the secondary market with the accrued interest added.
To calculate the dirty price, you would add the clean price with the accrued interest. The formula to calculate the dirty price is: Dirty Price = Clean Price + Accrued Interest
It's important to note that the clean price is usually used when trading bonds in the secondary market, while the dirty price is used when determining the bond's value for accounting and tax purposes.
In summary, the clean price is the bond's price without considering any interest that has accrued since the last interest payment, and the dirty price is the bond's price including the accrued interest from the last coupon payment until the settlement date.
Tell me what two most basics ﬁnancial statements prepared by the companies?
The two most basic financial statements prepared by the companies are the income statement and balance sheet. The other two financial statements - cash flow statement and statement of owner's equity - provide more detailed information about a company's financial position.
Explain formula of WACC and how you will calculate?
The weighted average cost of capital (WACC) is a financial metric that represents a company's cost of capital. It is the average cost of all the capital a company has raised, including both debt and equity, with each component weighted according to its proportion in the company's capital structure.
The formula for WACC is:
WACC = (E/V x Re) + (D/V x Rd x (1- Tc))
Where: E = Market value of the company's equity V = Market value of the company's equity + market value of the company's debt Re = Cost of equity (usually calculated using the Capital Asset Pricing Model - CAPM) D = Market value of the company's debt Rd = Cost of debt (usually calculated as the Yield to maturity of the company's bonds) Tc = Corporate tax rate
To calculate WACC, a company will need to determine the cost of its equity, the cost of its debt, and its overall capital structure (the proportion of debt and equity in its financing). The company can then use these figures to calculate the WACC using the formula above.
It's important to note that WACC is a long-term average, it should not be used to evaluate the performance of a company in a specific period. Also, WACC is a forward-looking metric, it's based on the company's expectation of its cost of capital in the future and it should be used with caution.
In summary, WACC is a metric that represents a company's cost of capital and it's calculated by taking into account the cost of equity and cost of debt, weighted by their proportion in the company's capital structure.
Explain me about a proﬁt maximization?
Profit maximization is a goal of a business that aims to generate the highest level of profit possible. Profit maximization is the process of making decisions that lead to the highest level of profit for a given level of investment. It involves finding the optimal level of output and pricing that results in the highest profit margin.
There are several ways that a company can maximize its profits, including:
Increasing sales by increasing the number of customers or by raising prices
Reducing costs by cutting expenses or by increasing efficiency
Investing in new technology or equipment that can help reduce costs or increase productivity
Diversifying the business by expanding into new markets or products
Profit maximization is a goal of a business but it's not the only goal, it's important to consider other factors such as social and ethical responsibilities, customer satisfaction, long-term sustainability, etc. It's important to note that there are different types of profit, such as accounting profit, economic profit, or normal profit, each one has a different definition and context.
In summary, Profit maximization is the process of making decisions that lead to the highest level of profit for a given level of investment, it's a goal of a business but it's not the only goal and it should be considered in the context of other factors such as social and ethical responsibilities, customer satisfaction, long-term sustainability, etc.
What is a Revenue Expenditure?
Revenue expenditure is a type of expense that is incurred in the normal course of business operations and is expected to provide benefits over a period of time less than one year. It is a cost incurred by a business that is related to the ongoing operations of the business, such as the cost of goods sold, wages, rent, utilities, and other operating expenses. These costs are incurred in order to generate revenue, and they are matched against revenue in the same period in which they were incurred in order to calculate the profit or loss of a period.
Examples of revenue expenditure include:
Cost of goods sold (COGS) such as raw materials, labor, and manufacturing expenses
Sales and marketing expenses
Rent, utilities, and other operating expenses such as office supplies, insurance, etc
Wages and salaries
Repair and maintenance of equipment
Depreciation on assets used in the production of revenue
Revenue expenditure is considered to be a non-capital expenditure as it does not result in the acquisition of a long-term asset. It's different from capital expenditure which is an expense incurred to acquire or improve a long-term asset that is expected to generate benefits for more than one year.
In summary, Revenue expenditure is a type of expense incurred in the normal course of business operations that is expected to provide benefits over a period of time less than one year, it's a cost incurred by a business that is related to the ongoing operations of the business, such as the cost of goods sold, wages, rent, utilities, and other operating expenses.
what is the Reserves and Surpluses in the balance sheet?
Reserves and surpluses are items that appear on a company's balance sheet, which is a financial statement that provides a snapshot of a company's financial position at a specific point in time.
Reserves are funds set aside by a company for specific purposes, such as to cover potential losses or to fund future investments. Examples of reserves include:
Retained earnings: These are the profits that a company has chosen to keep rather than distribute as dividends. Retained earnings can be used to fund future growth or to pay off debt.
Legal reserves: These are funds set aside to cover potential legal settlements or judgments.
Asset reserves: These are funds set aside to cover potential losses on assets such as investments or property.
Surpluses are funds that are not allocated for a specific purpose, but that are available for general use by the company. Examples of surpluses include:
Capital surplus: This is the amount by which a company's assets exceed its liabilities. It can be used to fund future growth or to pay off debt.
Share premium: This is the amount by which the sale price of a share exceeds its par value.
Both reserves and surpluses are considered as equity items, they represent the residual interest in the assets of the entity after deducting liabilities. They are reported in the equity section of the balance sheet
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Tell me about the deferred revenue expenditure?
Deferred revenue expenditure, also known as capitalized expenses, is an expenditure that is initially recorded as an asset on the balance sheet and then recognized as an expense over a period of time, rather than in the period in which it was incurred. This type of expenditure is related to the acquisition or development of a long-term asset and is expected to provide future economic benefits.
Examples of deferred revenue expenditure include:
Research and development costs
Costs of obtaining a patent or trademark
Costs of acquiring or developing a new product or process
Costs of building a new factory or acquiring new equipment
Costs of training employees for a new job or process
In accounting, deferred revenue expenditure is treated as an asset on the balance sheet until it is fully amortized or written off over the expected useful life of the underlying asset. This process is called capitalization. The expense is then recognized in the income statement over time through amortization or depreciation.
In summary, Deferred revenue expenditure is an expenditure that is initially recorded as an asset on the balance sheet and then recognized as an expense over a period of time, it's related to the acquisition or development of a long-term asset and is expected to provide future economic benefits. It's different from revenue expenditure which is an expense incurred in the normal course of business operations that is expected to provide benefits over a period of time less than one year.
Just think you take some project and putting lot of efforts and you getting failed so how you will came out from there?
When I'm faced with a project that has failed, the first step I take is to reflect on what went wrong and what could have been done differently. I try to look at the project objectively and identify specific areas that need improvement. I then work on a plan to address these issues and make sure they are resolved before starting the project again. Additionally, I make sure to communicate with everyone involved in the project to ensure that everyone is in agreement with the changes that need to be made. This helps to ensure that the project is successful in the future.
Tell me why you interested in this area of corporate ﬁnance?
I am interested in finance because the field is just the right match for my skills, strengths, and personality. I have always enjoyed working with money and understanding financial statements, which has motivated me to pursue a career in corporate finance. I am also drawn to the challenging nature of the industry and how fast-paced it is. I am passionate about helping companies to create, grow, and manage their finances in order to achieve success and I believe that a career in corporate finance offers me the opportunity to be at the centre of how a business operates. Additionally, I thrive under the pressure of deadlines and the complexity of financial analysis, which makes it a perfect fit for me.