10+ L&T Finance Interview Questions and Answers

The reserve replacement ratio is a key ratio to evaluate the ability of upstream companies to replace the reserves they produce.

• The reserve replacement ratio compares the amount of reserves added to the amount of reserves produced in a given period.

• A ratio above 100% indicates that the company is replacing more reserves than it is producing.

• A ratio below 100% indicates that the company is producing more reserves than it is replacing.

• The reserve replacement ratio is important ...read more

Compare ROE of 2 IT companies to determine undervalued and overvalued.

• Calculate the average ROE for the industry to use as a benchmark

• Compare the ROE of the two companies to the industry average

• Consider other factors such as growth potential, debt levels, and market share

• Use valuation methods such as P/E ratio and discounted cash flow analysis

• Undervalued company will have lower ROE than industry average and lower valuation metrics

• Overvalued company will have higher ROE than i...read more

True. Fiscal deficit leads to higher interest rates, reducing private investment.

• Fiscal deficit leads to higher government borrowing, increasing demand for credit

• Higher demand for credit leads to higher interest rates

• Higher interest rates make borrowing expensive for private investors

• Expensive borrowing reduces private investment

• Examples: India's fiscal deficit led to high interest rates, reducing private investment in 2013-14

Increase in fiscal deficit leads to depreciation of exchange rate.

• Fiscal deficit means government spending exceeds revenue, leading to increased borrowing.

• This increases the supply of domestic currency, leading to depreciation.

• Investors may demand higher interest rates to compensate for increased risk, further depreciating the exchange rate.

• Examples include India's rupee depreciation due to high fiscal deficit in 2013 and Argentina's peso depreciation in 2018.

Yes, change in working capital can be negative.

• A negative change in working capital means that current liabilities have increased more than current assets.

• This can happen when a company pays off short-term debt or reduces its inventory levels.

• Negative working capital can also indicate that a company is experiencing financial difficulties.

• However, it is important to analyze the reasons behind the negative change in working capital before drawing conclusions.

• Negative working ca...read more

Companies go for share buyback to increase shareholder value and improve financial ratios.

• To return excess cash to shareholders

• To increase earnings per share by reducing the number of outstanding shares

• To improve financial ratios such as return on equity and earnings per share

• To signal to the market that the company believes its shares are undervalued

• To prevent hostile takeovers by reducing the number of outstanding shares

• Examples: Apple, Microsoft, IBM

WACC stands for Weighted Average Cost of Capital. It is the average cost of all the capital used by a company.

• WACC is used to determine the minimum return a company must earn on its investments to satisfy its investors.

• It takes into account the cost of debt and equity, as well as the proportion of each in the company's capital structure.

• The formula for WACC is: (Cost of Equity x % Equity) + (Cost of Debt x % Debt) + (Cost of Preferred Stock x % Preferred Stock)

• For example, if...read more

Company evaluation methods are techniques used to assess the financial health and performance of a company.

• Financial ratio analysis

• Discounted cash flow analysis

• Comparable company analysis

• Asset-based valuation

• Earnings multiples

• Scenario analysis

• Market capitalization

• Dividend discount model

Derivatives are financial contracts that derive their value from an underlying asset or security.

• Derivatives can be used for hedging or speculation.

• Common types of derivatives include futures, options, and swaps.

• Futures contracts obligate the buyer to purchase an asset at a predetermined price and time.

• Options contracts give the buyer the right, but not the obligation, to buy or sell an asset at a predetermined price and time.

• Swaps involve exchanging cash flows based on diffe...read more