Questions For A Finance Interview – eduCBA list down the basic finance interview questions 2016 which could help you crack the technical round at various finance interviews.
Questions For A finance Interview
- finance job interview questions
1. What is Deferred Revenue Expenditure? Give some examples.
Deferred Revenue Expenditure is a type of expenditure which does not result into the acquisition of any fixed asset and the benefits from such expenditure is not received during the period which they are paid for. For example – Initial Advertisement Expenditure, Research and development Expenditure, Preliminary Expenses.
2. What is Contingent Liabilities?
A contingent liability is an obligation, relating to a past transaction or other event or condition, that may arise in consequence, as a future event now deemed possible but not probable. Thus such liabilities as may arise in future are called contingent liabilities. For example, a guarantee to a bank for the loan advanced to a third party, possible penalties, fines and penalties payable to the government or income tax authorities etc. Future losses from natural calamities are not contingent liabilities. They are not recorded in books of account. They do not appear on the liabilities side of the balance sheet. They are shown by way of a footnote at the bottom of the balance sheet.
3. Explain Explicit cost and Implicit cost.
An explicit cost is a cost which is external to the business like the wage, rent, and materials. It gives a clear picture of the cash outflow from a business which is used to decrease the end result of profitability. This directly affects the revenue of the company. Implicit cost is the result of one person who tries to satisfy his needs in search of an activity which gives no reward to him by money or another form of payment. It includes benefits and satisfaction. For example- goodwill. It is not counted in terms of money and it is indirect intangible cost.
4. Explain Earnings Per Share (EPS). How is it calculated? What is its significance?
Earnings per share (EPS) is the number of earnings per each share of a company’s stock. Companies require the EPS for them each income statement which shows the continuing operations, discontinued operations, net income and outstanding items. EPS doesn’t depend on the increase or decrease of the earning power of the company and gets calculated over a number of years. How is it calculated? Earnings per share ratio (EPS Ratio) is calculated by dividing the net profit after taxes and preference dividend by the total number of equity shares. It is a small variance of return on equity capital ratio. The formula of Earning per share ratio is given as:- “[Earnings per share (EPS) Ratio = (Net profit after tax – Preference dividend) / No. of equity shares (common shares)]” What is its significance? Earnings per share is a measure of profitability and it is viewed as the comparative earnings or the earning power of the respected firms. It is used from last four quarters but it can also be used to estimates the expected earnings of the next quarters as well.
5. Questions For A Finance Interview Explain following bond types.
a) Floating rate bonds
Floating rate notes (FRNs) are the bonds which have a comparable ratio with the money market reference rate and they are also termed as a variable coupon. It is made up of federal funds rate and spread which is the rate that remains constant. FRNs got the coupons where the holders can pay out the interest every three months and this is also called as quarterly coupons.
b) Zero coupon bonds
Zero coupon bonds are also termed as a discount bond or deep discount bond which is been bought at a price lower than its face value which will be given back at the time of maturity. This type of bond doesn’t make payments of interest in periods. It has already been paid when the bond reaches the maturity level and its investors are in great advantage of receiving huge about of sum equal to the initial investment Example includes U.S. Treasury bills. It is used or both long-term and short-term investments.
c) Deep discount bonds
It is also been explained above in the zero coupon bonds but this kind of bond is used to sell in discount from par value. In this, the bond which is selling at a discount from par value has fewer rates of fixed income and securities than other bonds and it also has risk profile as well. This also contains the market price of 20% or more but it is below its face value. They are a bit riskier than other similar bonds. They are also termed as low-coupon bonds and are used in long term.
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