20+ Interview Questions and Answers

Short-term solvency ratios used to assess a company's ability to meet its fixed charge obligations.

• Fixed Charge Service Ratio (FCSR) measures the ability of a company to meet its fixed charge obligations such as interest and lease payments.

• Weighted Average Cost of Capital (WACC) is the average cost of all the capital a company has raised and is used to evaluate investment opportunities.

• Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a meas...read more

Financial statements are connected through the flow of information and transactions between them.

• The income statement shows the company's revenues and expenses, which directly impact the net income reported on the statement of cash flows.

• The balance sheet reflects the company's financial position at a specific point in time, with assets equaling liabilities and equity, which is also reflected in the statement of cash flows.

• The statement of cash flows reconciles the beginning ...read more

The profit considered for giving a loan to a company includes net profit, operating profit, and EBITDA.

• Net profit: Indicates the overall profitability of the company after all expenses are deducted from revenue.

• Operating profit: Shows the profit from the core business operations before interest and taxes.

• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): Reflects the company's operating performance without accounting for capital structure or tax environ...read more

The cost of goods sold will decrease if a company buys raw materials at a cheaper rate.

• Lower cost of raw materials will lead to lower cost of goods sold

• Increased profit margin due to cost savings

• Competitive advantage in pricing products

The 40% increase in sales for Colgate could be due to a merger with another company, resulting in access to new customers.

• Mergers can lead to an increase in market share and customer base.

• Access to new distribution channels and markets can boost sales.

• Synergies from combining resources and expertise can drive growth.

• Increased brand recognition and loyalty from customers of the merged company can contribute to higher sales.

Equity value (EV) is the market value of a company's equity, calculated by adding market capitalization, debt, minority interest, and preferred shares, and subtracting cash and cash equivalents.

• EV = Market Capitalization + Debt + Minority Interest + Preferred Shares - Cash & Cash Equivalents

• Market capitalization is the total market value of a company's outstanding shares.

• Debt includes all interest-bearing liabilities of the company.

• Minority interest refers to the portion of a...read more

Credit worthiness of a company can be measured by analyzing financial statements, credit history, industry trends, and management quality.

• Review financial statements such as balance sheet, income statement, and cash flow statement to assess profitability, liquidity, and leverage.

• Check credit history including payment history, outstanding debts, and credit utilization ratio.

• Evaluate industry trends and economic conditions to understand the company's position in the market.

• Asse...read more

Formulas for EV, FCFF, and financial statements in project management.

• EV formula: EV = Market Value of Equity + Market Value of Debt - Cash & Cash Equivalents. EV represents the total value of a company, including both equity and debt.

• FCFF formula: FCFF = EBIT(1-Tax Rate) + Depreciation & Amortization - Capital Expenditures - Change in Working Capital. FCFF represents the cash generated by a company after accounting for all expenses and investments.

• Financial statements: Under...read more

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. DCF stands for Discounted Cash Flow. Investment banks and private equity firms differ in their focus and activities.

• EBITDA is a measure of a company's profitability before accounting for interest, taxes, depreciation, and amortization expenses.

• DCF is a valuation method used to estimate the value of an investment based on its expected future cash flows.

• Investment banks primarily provide financia...read more

Operating, investing, and financing activities are three categories used in financial reporting to classify the cash flows of a business.

• Operating activities involve the day-to-day operations of the business, such as sales, production, and expenses.

• Investing activities include the purchase and sale of long-term assets, such as property, equipment, and investments.

• Financing activities involve raising capital through debt or equity, as well as repaying debt and distributing div...read more

There are two types of profits in an income statement: gross profit and net profit.

• Gross profit is the difference between revenue and the cost of goods sold.

• Net profit is the remaining amount after deducting all expenses from the gross profit.

• Both profits are important indicators of a company's financial performance.

Enterprise Value is a measure of a company's total value, calculated as market capitalization plus debt, minority interest, and preferred shares, minus total cash and cash equivalents.

• Enterprise Value = Market Capitalization + Total Debt + Minority Interest + Preferred Shares - Total Cash

• It represents the total value of a company's operations and is often used in valuation analysis.

• EV is used to compare companies with different capital structures.

• Example: If a company has a m...read more

Liquity, activity, and solvency ratios are financial metrics used to assess a company's financial health and performance.

• Liquity ratios measure a company's ability to meet short-term obligations using its liquid assets. Examples include current ratio and quick ratio.

• Activity ratios assess how efficiently a company is using its assets to generate revenue. Examples include inventory turnover ratio and accounts receivable turnover ratio.

• Solvency ratios evaluate a company's abili...read more

Improving decreasing working capital involves managing inventory, accounts receivable, and accounts payable effectively.

• Optimize inventory levels to reduce excess stock and free up cash

• Implement efficient accounts receivable processes to shorten payment cycles

• Negotiate longer payment terms with suppliers to improve cash flow

• Monitor and analyze cash flow regularly to identify areas for improvement

DSCR stands for Debt Service Coverage Ratio, a financial metric used to evaluate a company's ability to pay its debts.

• DSCR is calculated by dividing a company's operating income by its total debt service obligations.

• A DSCR of 1 or higher indicates that a company is generating enough income to cover its debt payments.

• For example, if a company has an operating income of $500,000 and total debt service obligations of $400,000, the DSCR would be 1.25.

Leverage ratio is a financial metric used to assess a company's creditworthiness by measuring its debt relative to its equity.

• Leverage ratio compares a company's debt to its equity, indicating its ability to meet financial obligations

• Higher leverage ratios suggest higher financial risk and lower creditworthiness

• Lower leverage ratios indicate a stronger financial position and higher creditworthiness

• Investors and creditors use leverage ratios to evaluate a company's financial h...read more

EPS benchmark is the standard against which a company's earnings per share are compared.

• EPS benchmark varies by industry and company size

• Common benchmarks include industry averages, historical performance, and analyst estimates

• Investors use EPS benchmarks to evaluate a company's profitability and growth potential

EV (Enterprise Value) formula is Market Cap + Debt - Cash & Cash Equivalents. It represents the total value of a company.

• EV = Market Cap + Debt - Cash & Cash Equivalents

• Market Cap is the total value of a company's outstanding shares

• Debt includes all financial obligations of the company

• Cash & Cash Equivalents are the liquid assets of the company

• EV represents the total value of a company, taking into account its debt and cash position

EBIT stands for Earnings Before Interest and Taxes, EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. Ratios are used to analyze financial performance.

• EBIT is a measure of a company's profitability before interest and taxes are taken into account.

• EBITDA is a measure of a company's profitability before interest, taxes, depreciation, and amortization are taken into account.

• Ratios like EBIT margin, EBITDA margin, and EBITDA coverage ratio are use...read more