1. What do you understand by the term working capital?
Working capital may be defined as the overall, generalized portrait of an organization’s assets.
Technically speaking, the working capital is the current assets minus the current liabilities.
Basically, the working capital is chiefly concerned with the estimates of cash present in the
organization.
2. Do you think it is possible that a company with an assertive cash flow can still find itself in dire
straits?
Indeed, it is possible. In fact, there is no such corresponding relationship. Specifically speaking,
a company which sells inventories and delays the concerned payables will reflect substantial
cash flow but is essentially in financial trouble. Apart from that, a company’s prospective
revenues may hint at a strenuous situation, even though the company’s present revenues are
very much kicking.
3. Can you define the meaning of goodwill?
Goodwill may be defined as the redundant value of the cost price against the essential market
value of the same. Fundamentally, goodwill qualifies in the category of intangible assets.
4. Can you highlight the meaning and purpose of a deferred tax liability?
Essentially, a deferred tax liability comes into the view when the concerned amount of tax is
shelled at a future date to the IRS. In fact, it can be summed up as the opposite of the deferred
tax asset. Generally speaking, the case for deferred tax liability arises when there is a
discrepancy between the IRS reporting and the GAAP reporting. Such subtle differences might
eventually translate to the payment of lower taxes to the IRS.
5. What do you understand by the term debentures?
A debenture is nothing but a certificate of loan agreement furnished under the company’s
stamp. Essentially, the debenture holder is mandated to receive a fixed return along with the
principal amount at the time of the maturity of the debenture.
6. Highlight the difference between real money and nominal money. Also, explain the meaning
of treasury bills.
Real money is the one which is loaded with its basic purchasing potency. Nominal money, on
the other hand, is related to the aspect of technical enumeration or counting. So it turns out the
nominal money is what reflected in the bill.
,Treasury bills may be defined as the money market instruments in order to sponsor the short
term financial requisites of the Government of India. Essentially, all treasury bills are discounted
securities which are provided at discount to face value.
7. Can you define hedging and preference capital?
Understood simply, hedging may be defined as an instrument to alleviate risks. In other words,
hedging may correspond to the essential purpose of insurance. However, what precisely marks
the difference between the two is that hedging is not concerned with augmenting profits but
alleviating risks.
Preference capital, on the other hand, may be defined as the capital which carries preference
over equity capital at the time of the payment of dividend and the winding up of the company.
8. What do you understand by the term composite cost of capital?
Simply put, the weighted average cost of capital is indicative of the composite cost of capital.
Such parameters as the debt, preferred stock and common stock are reflected in the
eventualities of the composite cost of capital. Essentially, its purpose is to highlight the cost of
each additional capital against the backdrop of the average capital cost.
9. What do you mean by the term adjustment entries?
Entries which are passed at the end of each accounting period are known as the adjustment
entries. As the name itself suggests, the chief purpose of the adjustment entries is to adjust the
nominal and other accounts in order to engender a stable account on the balance sheet. In fact,
a balance sheet is an essential component in order to decipher the fairness of a business. In
other words, it can also be said that adjustment entries act as drafts before the final entries are
passed.
10. What do you understand by the term cost accountancy?
Cost accountancy may be defined as the overall presentation of cost control and other account
figures in order to uphold the fairness of a particular venture and to aid the prospects of a
grounded managerial decision making. Apart from accounting of the costs, cost accountancy is
also concerned with reflecting profitability.
11. Walk me through the three financial statements.
The balance sheet shows a company’s assets, liabilities, and shareholders’ equity (put another
way: what it owns, what it owes, and its net worth). The income statement outlines the
company’s revenues, expenses, and net income. The cash flow statement shows cash inflows
and outflows from three areas: operating activities, investing activities, and financing activities.
, 12. If I could use only one statement to review the overall health of a company, which statement
would I use, and why?
Cash is king. The statement of cash flows gives a true picture of how much cash the company is
generating. Ironically, it often gets the least attention. You can probably pick a different answer
for this question, but you need to provide a good justification (e.g., the balance sheet because
assets are the true driver of cash flow; or the income statement because it shows the earning
power and profitability of a company on a smoothed out accrual basis).
13. If it were up to you, what would our company’s budgeting process look like?
This is somewhat subjective. A good budget is one that has buy-in from all departments in the
company, is realistic yet strives for achievement, has been risk-adjusted to allow for a margin of
error, and is tied to the company’s overall strategic plan. In order to achieve this, the budget
needs to be an iterative process that includes all departments. It can be zero-based (starting
from scratch each time) or building off the previous year, but it depends on what type of
business you’re running as to which approach is better. It’s important to have a good
budgeting/planning calendar that everyone can follow.
14. When should a company consider issuing debt instead of equity?
A company should always optimize its capital structure. If it has taxable income, then it can
benefit from the tax shield of issuing debt. If the firm has immediately steady cash flows and is
able to make the required interest payments, then it may make sense to issue debt if it lowers
the company’s weighted average cost of capital.
15. How do you calculate the WACC?
WACC (stands for Weighted Average Cost of Capital) is calculated by taking the percentage of
debt to total capital, multiplied by the debt interest rate, multiplied by one minus the effective tax
rate, plus the percentage of equity to capital, multiplied by the required return on equity. Learn
more in CFI’s free Guide to Understanding WACC.
16. Which is cheaper, debt or equity?
Working capital may be defined as the overall, generalized portrait of an organization’s assets.
Technically speaking, the working capital is the current assets minus the current liabilities.
Basically, the working capital is chiefly concerned with the estimates of cash present in the
organization.
2. Do you think it is possible that a company with an assertive cash flow can still find itself in dire
straits?
Indeed, it is possible. In fact, there is no such corresponding relationship. Specifically speaking,
a company which sells inventories and delays the concerned payables will reflect substantial
cash flow but is essentially in financial trouble. Apart from that, a company’s prospective
revenues may hint at a strenuous situation, even though the company’s present revenues are
very much kicking.
3. Can you define the meaning of goodwill?
Goodwill may be defined as the redundant value of the cost price against the essential market
value of the same. Fundamentally, goodwill qualifies in the category of intangible assets.
4. Can you highlight the meaning and purpose of a deferred tax liability?
Essentially, a deferred tax liability comes into the view when the concerned amount of tax is
shelled at a future date to the IRS. In fact, it can be summed up as the opposite of the deferred
tax asset. Generally speaking, the case for deferred tax liability arises when there is a
discrepancy between the IRS reporting and the GAAP reporting. Such subtle differences might
eventually translate to the payment of lower taxes to the IRS.
5. What do you understand by the term debentures?
A debenture is nothing but a certificate of loan agreement furnished under the company’s
stamp. Essentially, the debenture holder is mandated to receive a fixed return along with the
principal amount at the time of the maturity of the debenture.
6. Highlight the difference between real money and nominal money. Also, explain the meaning
of treasury bills.
Real money is the one which is loaded with its basic purchasing potency. Nominal money, on
the other hand, is related to the aspect of technical enumeration or counting. So it turns out the
nominal money is what reflected in the bill.
,Treasury bills may be defined as the money market instruments in order to sponsor the short
term financial requisites of the Government of India. Essentially, all treasury bills are discounted
securities which are provided at discount to face value.
7. Can you define hedging and preference capital?
Understood simply, hedging may be defined as an instrument to alleviate risks. In other words,
hedging may correspond to the essential purpose of insurance. However, what precisely marks
the difference between the two is that hedging is not concerned with augmenting profits but
alleviating risks.
Preference capital, on the other hand, may be defined as the capital which carries preference
over equity capital at the time of the payment of dividend and the winding up of the company.
8. What do you understand by the term composite cost of capital?
Simply put, the weighted average cost of capital is indicative of the composite cost of capital.
Such parameters as the debt, preferred stock and common stock are reflected in the
eventualities of the composite cost of capital. Essentially, its purpose is to highlight the cost of
each additional capital against the backdrop of the average capital cost.
9. What do you mean by the term adjustment entries?
Entries which are passed at the end of each accounting period are known as the adjustment
entries. As the name itself suggests, the chief purpose of the adjustment entries is to adjust the
nominal and other accounts in order to engender a stable account on the balance sheet. In fact,
a balance sheet is an essential component in order to decipher the fairness of a business. In
other words, it can also be said that adjustment entries act as drafts before the final entries are
passed.
10. What do you understand by the term cost accountancy?
Cost accountancy may be defined as the overall presentation of cost control and other account
figures in order to uphold the fairness of a particular venture and to aid the prospects of a
grounded managerial decision making. Apart from accounting of the costs, cost accountancy is
also concerned with reflecting profitability.
11. Walk me through the three financial statements.
The balance sheet shows a company’s assets, liabilities, and shareholders’ equity (put another
way: what it owns, what it owes, and its net worth). The income statement outlines the
company’s revenues, expenses, and net income. The cash flow statement shows cash inflows
and outflows from three areas: operating activities, investing activities, and financing activities.
, 12. If I could use only one statement to review the overall health of a company, which statement
would I use, and why?
Cash is king. The statement of cash flows gives a true picture of how much cash the company is
generating. Ironically, it often gets the least attention. You can probably pick a different answer
for this question, but you need to provide a good justification (e.g., the balance sheet because
assets are the true driver of cash flow; or the income statement because it shows the earning
power and profitability of a company on a smoothed out accrual basis).
13. If it were up to you, what would our company’s budgeting process look like?
This is somewhat subjective. A good budget is one that has buy-in from all departments in the
company, is realistic yet strives for achievement, has been risk-adjusted to allow for a margin of
error, and is tied to the company’s overall strategic plan. In order to achieve this, the budget
needs to be an iterative process that includes all departments. It can be zero-based (starting
from scratch each time) or building off the previous year, but it depends on what type of
business you’re running as to which approach is better. It’s important to have a good
budgeting/planning calendar that everyone can follow.
14. When should a company consider issuing debt instead of equity?
A company should always optimize its capital structure. If it has taxable income, then it can
benefit from the tax shield of issuing debt. If the firm has immediately steady cash flows and is
able to make the required interest payments, then it may make sense to issue debt if it lowers
the company’s weighted average cost of capital.
15. How do you calculate the WACC?
WACC (stands for Weighted Average Cost of Capital) is calculated by taking the percentage of
debt to total capital, multiplied by the debt interest rate, multiplied by one minus the effective tax
rate, plus the percentage of equity to capital, multiplied by the required return on equity. Learn
more in CFI’s free Guide to Understanding WACC.
16. Which is cheaper, debt or equity?
