Mohit Sardana

CA | Finance Enthusiast

TOP 25 most asked

Finance
Interview Q/As.
 What is financial modeling, and why is it
important?
Financial modeling involves creating a
quantitative representation of a company's
financial performance. It's crucial for valuation,
forecasting, and making informed financial
decisions.

Why do you want to work in finance?

Express your passion for finance, mentioning
any specific interests such as investment
analysis, financial planning, or risk management.
Discuss how your skills align with the field.

Explain the concept of (NPV).

NPV is a method used to evaluate the
profitability of an investment by discounting
future cash flows to their present value. A
positive NPV indicates a potentially profitable
investment.
 How do you calculate the WACC (Weighted
Average Cost of Capital)?
WACC is calculated by weighting the cost of
equity and the cost of debt based on a
company's capital structure. It's used to
discount cash flows in financial analysis.
What is a P/E ratio, and how is it used in
stock valuation?

The Price-to-Earnings (P/E) ratio measures a

stock's price relative to its earnings per share.
It's used to assess a stock's relative valuation
and investor sentiment..
Can you explain the difference between
equity and debt financing?
Equity financing involves raising capital by
selling ownership stakes (equity), while debt
financing involves borrowing funds that must be
repaid with interest.
 What is the role of a financial analyst in a
company?
Financial analysts assess financial data, analyze
trends, and provide recommendations to help
organizations make informed financial decisions
and achieve their goals.

How do you evaluate a company's financial

health using its financial statements?
Analyze financial statements (income statement,
balance sheet, cash flow statement) to assess
profitability, liquidity, solvency, and operational
efficiency.
What are the key components of a DCF
(Discounted Cash Flow) analysis?
DCF analysis involves forecasting future cash
flows, determining a discount rate (usually
WACC), and discounting those cash flows to
their present value to estimate a company's
intrinsic value.
 Explain the term "liquidity" in financial
terms.
Liquidity refers to a company's ability to meet
its short-term financial obligations using its
assets or easily convertible assets like cash.

What is the difference between accounting

profit and economic profit?
Accounting profit is the difference between
revenue and explicit accounting costs, while
economic profit considers both explicit and
implicit costs.

What are some key financial ratios, and

what do they measure?
Key financial ratios include the current ratio
(liquidity), debt-to-equity ratio (leverage), and
return on investment (ROI). They measure a
company's financial health, leverage, and
profitability.
 Can you explain the concept of the efficient
market hypothesis (EMH)?
EMH posits that asset prices already reflect all
available information, making it impossible to
consistently outperform the market through
stock picking or market timing..
How does compounding work in finance, and
why is it important?
Compounding is the process of earning interest
or returns on both the initial investment and any
previously earned interest. It's essential for
long-term wealth accumulation.

What is the role of the Federal Reserve,

and how does it affect the economy?
The Federal Reserve is the central bank of the
United States responsible for monetary policy. It
influences interest rates, money supply, and
economic stability.
 Can you explain the difference between
forward and futures contracts??
Forward contracts are customized agreements
between two parties to buy or sell an asset at a
future date, while futures contracts are
standardized, exchange-traded contracts with
clearinghouses acting as intermediaries.

How do you assess the risk of an investment

or portfolio?
Risk assessment involves analyzing factors such
as volatility, correlation, diversification, and
using tools like standard deviation and beta to
quantify risk.

What is diversification, and why is it

important in investment?
Diversification involves spreading investments
across different assets or asset classes to reduce
risk and potential losses.
 What is the Gordon Growth Model, and how
is it used in stock valuation?
The Gordon Growth Model, also known as the
Gordon-Shapiro Model, calculates the intrinsic
value of a stock by assuming constant dividend
growth.

Explain the concept of beta in relation to

stock analysis.
Beta measures a stock's sensitivity to market
movements. A beta of 1 indicates the stock
moves in line with the market, while a beta
greater than 1 is more volatile.

What is the difference between market risk

and specific risk?
Market risk, also known as systematic risk,
affects the overall market and cannot be
eliminated through diversification. Specific risk,
also known as unsystematic risk, is unique to a
particular asset or company.
 Can you explain the concept of the PEG
ratio and how it's used in stock analysis?
The Price/Earnings-to-Growth (PEG) ratio factors
in a company's growth rate alongside its P/E
ratio, helping investors assess if a stock is
overvalued or undervalued.

What is the role of the Securities and

Exchange Commission (SEC), and how does it
regulate financial markets?
The SEC is a regulatory agency that oversees
securities markets, enforces securities laws, and
protects investors by ensuring transparency and
fair practices.
What is the Sharpe Ratio, and how is it
used in portfolio evaluation?
The Sharpe Ratio measures the risk-adjusted
return of a portfolio by considering both return
and volatility. A higher Sharpe Ratio indicates
better risk-adjusted performance.
 Can you explain the concept of "Yield to
Maturity" (YTM) for bonds, and why is it
important for bond investors?

Yield to Maturity (YTM) represents the total

return an investor can expect to earn from a
bond if it's held until it matures. It considers the
bond's current market price, its face value,
coupon payments, and the time remaining until
maturity. YTM is crucial for bond investors as it
helps assess the attractiveness of a bond
investment and compare different bonds with
varying maturities and coupon rates.
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