Interview Questions and Answers

Three financial statements used by companies to assess their financial performance.

• Income Statement: Shows a company's revenues, expenses, and profits over a specific period of time.

• Balance Sheet: Provides a snapshot of a company's financial position at a specific point in time, showing assets, liabilities, and equity.

• Cash Flow Statement: Details the cash inflows and outflows of a company, helping to assess its liquidity and financial health.

Covenant is a financial agreement between a borrower and a lender that outlines the terms and conditions of a loan.

• Covenants are designed to protect the lender by ensuring the borrower meets certain financial ratios or performance metrics.

• There are two main types of covenants: affirmative covenants (requirements the borrower must meet) and negative covenants (restrictions on the borrower's actions).

• Examples of covenants include maintaining a minimum level of cash flow, limiti...read more

Tranches are portions of debt securities that are divided based on risk and return characteristics.

• Tranches are used in structured finance to divide a pool of assets into different risk and return categories.

• Each tranche has a different level of seniority, with the most senior tranche having the highest priority for repayment.

• Tranches can be rated by credit rating agencies based on their creditworthiness.

• Investors can choose to invest in a specific tranche based on their risk...read more

Credit rating is an evaluation of the creditworthiness of an individual or entity based on their financial history and ability to repay debts.

• Credit rating is a measure of the likelihood that a borrower will default on their debt obligations.

• It is assigned by credit rating agencies such as Standard & Poor's, Moody's, and Fitch.

• Credit ratings range from AAA (highest) to D (default).

• Higher credit ratings indicate lower risk of default and vice versa.

• Credit ratings are used by l...read more

Risk can be determined by analyzing financial statements, credit history, industry trends, and economic conditions.

• Analyze financial statements to assess liquidity, profitability, and leverage ratios

• Review credit history to evaluate past payment behavior and outstanding debts

• Consider industry trends and competitive landscape to understand external risks

• Assess economic conditions such as interest rates, inflation, and GDP growth for macroeconomic risks

Operating lease is a short-term lease where the lessor retains ownership of the asset, while finance lease is a long-term lease where the lessee assumes ownership.

• Operating lease is typically used for assets with a shorter useful life, while finance lease is used for assets with a longer useful life.

• In an operating lease, the lessor is responsible for maintenance and repairs, while in a finance lease, the lessee is responsible.

• Operating lease payments are treated as operating...read more