KIET SCHOOL OF MANAGEMENT

FINANCE INTERVIEW QUESTIONS

Note: Most frequently asked Questions in Finance Domain Interview

1. What are the Golden Rules of Accounting?

Personal Account – Debit the receiver, Credit the giver
Real Account – Debit what comes in, Credit what goes out
Nominal Account – Debit all expenses and losses, Credit all income and gains

2. Basic and adjusted Journal Entries.

Basic Journal Entries - These are the initial entries made when a transaction occurs.
Each journal entry must include at least one debit and one credit, and the total debits must
equal the total credits. Example:
Date Particular Dr. Cr.
xxx Debtor’s A/c Dr. xxx
To Sales A/c xxx
(Being goods sold on credit)

Adjusted Journal Entries - Adjusted journal entries are made at the end of an accounting period
to update account balances before financial statements are prepared. These adjustments ensure
that revenues and expenses are recorded in the period they occur, matching the accrual basis of
accounting. Example:

Date Particular Dr. Cr.

xxx Depreciation A/c Dr. xxx
To Accumulated Dep. A/c xxx

3. How many types of Accounts are there and what are their specifications?
• Asset Accounts- Assets represent resources owned by a business that are expected
to provide future economic benefits. They are divided into current and non-current
assets.
• Liability Accounts- Liabilities represent obligations or debts that a business
needs to pay to external parties. They are also divided into current and non-current
liabilities.
• Equity Accounts- Equity represents the owner's claims on the assets of the
business after all liabilities have been paid off. It is also referred to as net assets
or owner’s equity.
• Revenue Accounts- Revenue accounts represent the income earned by the
business from its operating activities. This includes sales of goods or services.
• Expense Accounts - Expense accounts represent the costs incurred by the
business to earn revenue. These are the costs of operating the business.

Account Type Specification Examples

Cash, Accounts Receivable,
Assets Current and Non-Current
Inventory, PP&E
Accounts Payable, Short-term
Liabilities Current and Non-Current
Loans, Bonds Payable
 Common Stock, Retained
Equity Owner's Claims on Assets
Earnings, Additional Paid-In
Capital
Sales Revenue, Service
Revenue Income from Operations
Revenue, Interest Revenue
COGS, Rent Expense,
Costs Incurred to Earn
Expenses Salaries Expense, Interest
Revenue
Expense
4. What is Cash flow and Cash Account? Why we prepare both the
statements separately, although both the statement talks about cash
position of Company.
Cash Flow refers to the movement of cash into and out of a business over a specific period. It
details the inflows and outflows of cash within a company.

1. Operating Activities:
o Cash generated from or used in the core business operations.
o Examples: Cash receipts from sales, cash payments to suppliers and employees,
interest paid and received.
2. Investing Activities:
o Cash used for or generated from investments in long-term assets and other
investments.
o Examples: Purchase or sale of property, plant, and equipment (PP&E), purchase
or sale of marketable securities.
3. Financing Activities:
o Cash flows related to borrowing and repaying loans, issuing and repurchasing
stock, and paying dividends.
o Examples: Proceeds from issuing shares, repayment of debt, dividend payments.

Cash Account refers to the ledger account that records all transactions involving cash receipts
and cash payments.
• Cash Receipts- Money received from customers, loans or other sources.
• Cash Payments- Money paid out for expenses, purchases, salaries etc.

Why Both Statements are Prepared Separately

o Cash Account provides data of day-to-day record of all cash transactions. It is
useful for managing and reconciling cash on a transactional basis.
o Cash Flow Statement offers a broader view of cash movement showing and
Summarizes cash movements over a period and categorizes them into operating,
investing, and financing activities.
o Cash Account is used internally for daily cash management, ensuring all cash
transactions are accurately recorded and reconciled.
o Cash Flow Statement is used by external stakeholders (investors, creditors,
analysts) to evaluate the company's overall cash flow and financial health. It
provides insights into the company's ability to generate cash, fund operations, and
pay debts.

5. What is Financial Statement and what are its components?

A financial statement is a formal record of the financial activities and position of a
business, individual or other entity.
Components:
1. Balance Sheet – Statement of financial position
2. Income Statement – Profit & Loss Statement
• Revenues
 • Expenses
• Net Income or Loss
3. Cash Flow Statement

6. What is Trial Balance and its components?

A trial balance is a bookkeeping worksheet in which the balances of all ledgers are
compiled into debit and credit account column total that are equal.
Components of trial balance:
Debit Column: contains the total of all debit balances from the ledger accounts.
Credit Column: contains all the total of all credit balances from the ledger accounts.

7. What is Dividend and its related important dates? Which date is most
important as per companies?
A dividend is a distribution of a portion of a company's earnings to its shareholders.

Important Dates Related to Dividends

1. Declaration Date:
o The date on which the board of directors announces the dividend. On this date,
the company creates a liability in its books for the dividend payment.
o Example: "The board of directors declared a dividend of $0.50 per share on July
1, 2024."
2. Ex-Dividend Date:
o The date on which the stock begins trading without the dividend included in the
stock price. To be eligible to receive the dividend, an investor must own the stock
before the ex-dividend date.
o Example: If the ex-dividend date is July 10, 2024, an investor must purchase the
stock before this date to receive the dividend.
3. Record Date:
o The date on which the company reviews its records to determine which
shareholders are eligible to receive the dividend. Only shareholders on record as
of this date will receive the dividend.
o Example: If the record date is July 11, 2024, the company checks its records on
this date to identify the shareholders eligible for the dividend.
4. Payment Date:
o The date on which the dividend is actually paid to the shareholders. This is when
the cash or stock dividend is distributed to the eligible shareholders.
o Example: If the payment date is July 20, 2024, the dividend is paid out on this
date.

Most Important Date for Companies

For companies, the declaration date is the most important. This is because:
1. Legal Obligation: The company becomes legally obligated to pay the dividend once it is
declared.
2. Financial Impact: The company records a liability for the dividend on this date, affecting
its financial statements and cash flow planning.
3. Market Signaling: Announcing a dividend can influence investor perceptions and
market reactions, impacting the company’s stock price and investor relations.

8. What are the different Types of Activities in the cash flow statement?
1.Operating Activities: Operating activities include the primary revenue-generating activities of
the business and other activities that are not investing or financing activities. This section shows
how much cash is generated from the company's core business operations.
2. Investing Activities: Investing activities include the acquisition and disposal of long-term
assets and other investments not included in cash equivalents. This section provides insights into
the company's investment in and disposal of assets and indicates the company's growth strategy.

3. Financing Activities: Financing activities include transactions that result in changes in the
size and composition of the equity and borrowings of the entity. This section shows how a
company finances its operations and growth through debt and equity.
Type of Activity Examples of Cash Inflows Examples of Cash Outflows
Cash receipts from sales, Payments to suppliers,
Operating interest received, dividends employees, interest paid,
received taxes paid
Sale of PP&E, sale of
Purchase of PP&E, purchase
Investing investments, collection of
of investments, making loans
loan principal
Repayment of borrowings,
Issuing shares, issuing
Financing repurchasing shares, paying
bonds/loans
dividends

9. What are the different Types of Ratios and what are their significance
according to their risks?
1. Liquidity Ratios: Liquidity ratios measure a company's ability to meet its short-term
obligations.
• Current Ratio: Current Assets/Current Liabilities
Significance: A ratio greater than 1 indicates that the company has more current assets
than current liabilities, suggesting good short-term financial health.

• Quick Ratio (Acid-Test Ratio): Current Assets−Inventory/Current Liabilities

Significance: A higher ratio indicates a better position to cover short-term liabilities
without relying on the sale of inventory.

2. Solvency Ratios: Solvency ratios measure a company's ability to meet its long-term
obligations.
• Debt to Equity Ratio: Total Liabilities/Shareholders’ Equity
Significance: A lower ratio indicates less leverage and potentially lower financial risk. A
higher ratio suggests more debt financing and higher financial risk.

• Interest Coverage Ratio: EBIT (Earnings Before Interest and Taxes)/Interest Expense
Significance: A higher ratio indicates that the company is more capable of meeting its
interest obligations from operating earnings.

3. Profitability Ratios: Profitability ratios measure a company’s ability to generate earnings

relative to sales, assets, equity, and other financial metrics.

• Gross Profit Margin: Gross Profit/Net Sales

Significance: Higher margins indicate better efficiency in converting sales into actual
profit.

• Net Profit Margin: Net Income/Net Sales

Significance: Higher margins suggest better overall profitability and cost control.

• Return on Assets (ROA): Net Income/Total Assets

Significance: Higher ROA indicates more efficient use of the company’s assets to
generate profit.
 • Return on Equity (ROE): Net Income/Shareholders’ Equity
Significance: Higher ROE indicates that the company is effectively using its equity base
to generate profit.

4. Efficiency Ratios: Efficiency ratios measure how effectively a company uses its assets and
manages its liabilities.
• Asset Turnover Ratio: Net Sales/Total Assets
Significance: Higher ratios indicate efficient use of assets to generate sales.

• Inventory Turnover Ratio: Cost of Goods Sold/Average Inventory

Significance: Higher turnover indicates efficient management of inventory.

• Receivables Turnover Ratio: Net Credit Sales/Average Accounts Receivable

Significance: Higher ratios indicate efficient collection of receivables.

5. Market Ratios: Market ratios measure a company’s financial performance in relation to its
stock price.
• Earnings Per Share (EPS):
Net Income−Preferred Dividends/Weighted Average Shares Outstanding
Significance: Higher EPS indicates greater profitability and is often correlated with
higher stock prices.

• Price to Earnings Ratio (P/E Ratio): Market Price per Share/Earnings Per Share
Significance: A higher P/E ratio may indicate that the market expects future growth,
while a lower P/E may suggest the stock is undervalued or that the company is
experiencing difficulties.

• Dividend Yield: Annual Dividends Per Share/Market Price Per Share

Significance: Higher dividend yields can indicate a steady income stream for investors,
but very high yields might suggest potential risk or lower growth prospects.

10. Types of Securities Markets and their basic Trading Mechanism

The securities market is where financial instruments such as stocks, bonds, and other securities
are bought and sold.

Types of Securities Markets

1. Primary Market
The primary market, also known as the new issue market, is where securities are created and sold
for the first time. Companies, governments, or public sector institutions raise funds by issuing
new securities directly to investors.

Trading Mechanism:
• Underwriting: Investment banks or underwriters facilitate the issuance of securities,
guaranteeing to buy any unsold shares.
• Pricing: The price of new securities is determined through book-building or fixed pricing
methods.
• Allotment: Securities are allocated to investors based on demand and regulatory
guidelines.

2. Secondary Market
The secondary market is where previously issued securities are traded among investors. This
market provides liquidity and enables price discovery for securities.

Trading Mechanism:
 • Order-Driven Market: Prices are determined by buy and sell orders from investors.
Stock exchanges typically use this system.
o Limit Orders: Investors specify the maximum or minimum price at which they
are willing to buy or sell.
o Market Orders: Investors buy or sell at the best available price.
• Quote-Driven Market: Dealers provide buy and sell quotes for securities and facilitate
trades (common in the OTC market).
• Auction Market: Buyers and sellers submit orders to a central exchange, and transactions
are executed at a single price determined by supply and demand.

Market Type Features Trading Mechanism

Underwriting, pricing, and
New securities are issued
Primary Market allotment by investment
and sold for the first time.
banks.
Order-driven market (stock
Previously issued securities exchanges), quote-driven
Secondary Market
are traded among investors. market (OTC), and auction
market.

11. Difference between Fixed income securities and Variable ones, and their
types?
Fixed Income Securities:
• Fixed income securities provide returns in the form of regular, fixed interest payments
and the return of principal upon maturity.
• They are considered less risky than variable income securities because they offer
predictable cash flows.

Variable Income Securities:

• Variable income securities provide returns that are not fixed and can vary based on the
performance of the underlying asset or the issuer's profitability.
• They are considered riskier because their returns are uncertain and can fluctuate.

Types of Fixed Income Securities

1. Bonds
2. Debentures
3. Certificates of Deposit (CDs)
4. Preferred Shares (with fixed dividends)
5. Treasury Bills (T-Bills)

Types of Variable Income Securities

1. Common Stocks
2. Equity Mutual Funds
3. Preferred Shares (with variable dividends)
4. Convertible Bonds

12.Situation based questions based on the basic companies’ financial

problems and their solutions accordingly.

13. Latest Budget, Taxation System and Financial Events in Business

Environment
 14. What is Performance Fees and Management Fees?
Performance Fees and Management Fees are types of fees charged by investment managers or
fund managers for managing investment portfolios or funds. They compensate the managers for
their services and are crucial components of the overall cost structure of investment funds.

Management Fees are regular fees charged by fund managers for managing the assets of a fund.
These fees are typically calculated as a percentage of the fund's average assets under management
(AUM) and are charged regardless of the fund's performance.

Performance Fees are additional fees paid to fund managers based on the fund's performance.
These fees are calculated as a percentage of the returns that exceed a predetermined benchmark
or hurdle rate. Performance fees incentivize managers to achieve superior investment returns.

15. What is Financial Portfolios and its components.

A financial portfolio is a collection of various financial assets and investments held by an
individual or institution. The purpose of a portfolio is to achieve specific financial goals, such as
growth, income, or risk management, by diversifying investments to balance risk and return.

Components of a Financial Portfolio

1. Equities (Stocks): Shares of ownership in a corporation. Stocks represent a claim on a
company's assets and earnings.
2. Fixed Income Securities: Investments that provide regular income through interest
payments and return of principal at maturity.
▪ Bonds
▪ Debentures
▪ Certificates of Deposit (CDs)
▪ Treasury Bills (T-Bills)
3. Mutual Funds: Investment vehicles that pool money from many investors to invest in a
diversified portfolio of stocks, bonds, or other securities.
4. Exchange-Traded Funds (ETFs): Investment funds traded on stock exchanges, similar
to stocks. They track indexes, commodities, or other assets.
5. Real Estate: Investment in physical properties or real estate investment trusts
6. Commodities: Physical goods or raw materials traded in the financial markets.
7. Cash and Cash Equivalents: Highly liquid assets that can be quickly converted into
cash.
▪ Cash
▪ Money Market Instruments
8. Alternative Investments: Non-traditional investment options that may offer
diversification and higher returns.
▪ Hedge Funds
▪ Private Equity
▪ Cryptocurrencies

16. As an investor what factors and strategy you will consider in construction
Portfolio.
When constructing a financial portfolio, investors should consider a variety of factors and
strategies to ensure that the portfolio aligns with their financial goals, risk tolerance, and
investment horizon. Here are key factors and strategies to consider:

Factors to Consider in Portfolio Construction

1. Investment Goals: Short-Term Goals or Long-Term Goals

2. Risk Tolerance: High Risk Tolerance or Low Risk Tolerance
 3. Investment Horizon: Short-Term Horizon or Medium-Term Horizon or Long-Term
Horizon
4. Asset Allocation:
o Diversification: Spreading investments across different asset classes (stocks,
bonds, real estate, etc.) to reduce risk.
o Correlation: Choosing assets that do not move in tandem with each other to
minimize risk.
5. Liquidity Needs:
o High Liquidity: Need for cash or easily accessible investments.
o Low Liquidity: Ability to lock up capital in less liquid assets for potentially
higher returns.
6. Income Requirements:
o Current Income Needs: Regular income through dividends or interest.
o Future Income Needs: Planning for future income through growth investments.
7. Economic and Market Conditions:
o Economic Cycles: Adapting the portfolio based on the current phase of the
economic cycle (expansion, peak, contraction, recovery).
o Market Trends: Considering prevailing market trends and potential future
movements.

Strategies for Portfolio Construction

1. Strategic Asset Allocation: Establishing a long-term asset mix based on risk tolerance,
investment goals, and market expectations.
o Approach: Set target allocations for various asset classes and periodically
rebalance the portfolio to maintain these targets.
2. Tactical Asset Allocation: Making short-term adjustments to asset allocations based on
current market conditions or economic outlook.
o Approach: Actively shifting allocations to capitalize on perceived market
opportunities or mitigate risks.
3. Diversification: Spreading investments across various asset classes, sectors, and
geographic regions.
o Approach: Invest in a mix of equities, bonds, real estate, and other asset classes
to reduce overall portfolio risk.
4. Rebalancing: Periodically adjusting the portfolio to maintain the desired asset allocation.
o Approach: Sell assets that have grown beyond target percentages and buy those
that have underperformed to bring the portfolio back to its original allocation.
5. Risk Management: Implementing strategies to manage and mitigate risk.
o Approach: Use of stop-loss orders, options, or diversification to protect against
significant losses.
6. Income Generation: Focusing on investments that provide regular income.
o Approach: Include dividend-paying stocks, bonds, or real estate investment trusts
(REITs) in the portfolio.
7. Tax Efficiency: Structuring the portfolio to minimize tax liabilities.
o Approach: Invest in tax-deferred accounts like IRAs or 401(k)s and use tax-
efficient funds.

17. Financial Management and its significance

Financial Management is the process of planning, organizing, directing, and controlling an
organization's financial activities with the goal of achieving its financial objectives. It involves
making strategic decisions about how to allocate resources, manage investments, and ensure the
company’s financial stability and growth.

Key Components of Financial Management

 1. Financial Planning
2. Financial Analysis
3. Investment Decisions
4. Financial Control
5. Liquidity Management
6. Risk Management

Significance of Financial Management

1. Achieving Financial Goals: Helps organizations achieve short-term and long-term
financial goals, such as profitability, growth, and sustainability and ensures resources are
allocated efficiently to support business objectives.
2. Ensuring Financial Stability: Maintains solvency by managing debt and ensures
liquidity to meet short-term obligations and provides tools and strategies to navigate
financial crises and stabilize the organization.
3. Maximizing Shareholder Value: Focuses on increasing profitability and ensuring a
good return on investments for shareholders and enhances the company’s market value
through strategic financial decisions and effective management.
4. Effective Resource Management: Optimizes the allocation of capital to various projects
and investments to generate the highest returns and controls and reduces costs to improve
operational efficiency and profitability.
5. Strategic Decision Making: Provides a framework for making informed financial
decisions based on data analysis and forecasting and assists in selecting the most
beneficial investments and funding options.
6. Compliance and Reporting: Ensures adherence to financial regulations and standards
and provides accurate and timely financial reports to stakeholders, including investors,
creditors, and regulators.
7. Risk Mitigation: Identifies and assesses financial risks that could impact the
organization’s performance and develops strategies to mitigate or manage identified risks.

18. Any software experience and its mechanism (especially accounting

software).
19. Brief and basic terminologies and practices from your professional
certifications like Financial Modelling, Financial Analyst etc.

20. Finance related formulas in excel and other technical software like
Power BI and Oracle.
1. Future Value (FV)
• Formula: =FV(rate, nper, pmt, [pv], [type])
• Description: Calculates the future value of an investment based on periodic, constant
payments and a constant interest rate.
• Parameters:
o rate: Interest rate per period.
o nper: Total number of payment periods.
o pmt: Payment amount each period.
o pv: Present value (optional, defaults to 0).
o type: When payments are due (0 for end of period, 1 for beginning, optional).
Example: =FV(0.05, 10, -200, -1000)

2. Present Value (PV)

• Formula: =PV(rate, nper, pmt, [fv], [type])
• Description: Calculates the present value of an investment based on periodic, constant
payments and a constant interest rate.
• Parameters:
 orate: Interest rate per period.
onper: Total number of payment periods.
opmt: Payment amount each period.
ofv: Future value (optional, defaults to 0).
otype: When payments are due (0 for end of period, 1 for beginning, optional).
Example: =PV(0.05, 10, -200, 1000)

3. Net Present Value (NPV)

• Formula: =NPV(rate, value1, [value2], ...)
• Description: Calculates the net present value of an investment based on a series of cash
flows and a discount rate.
• Parameters:
o rate: Discount rate.
o value1, value2, ...: Cash flows for each period.
Example: =NPV(0.05, -1000, 300, 400, 500)

4. Internal Rate of Return (IRR)

• Formula: =IRR(values, [guess])
• Description: Calculates the internal rate of return for a series of cash flows.
• Parameters:
o values: Array or range of cash flows.
o guess: An estimate of the IRR (optional).
Example: =IRR(A1:A5)

5. Rate of Return (ROR)

• Formula: =(Ending Value - Beginning Value) / Beginning Value
• Description: Calculates the rate of return on an investment.
• Example: =(B2 - B1) / B1

6. Loan Payment (PMT)

• Formula: =PMT(rate, nper, pv, [fv], [type])
• Description: Calculates the payment for a loan based on constant payments and a
constant interest rate.
• Parameters:
o rate: Interest rate per period.
o nper: Total number of payment periods.
o pv: Present value (loan amount).
o fv: Future value (optional, defaults to 0).
o type: When payments are due (0 for end of period, 1 for beginning, optional).
Example: =PMT(0.05/12, 360, -200000)

7. Depreciation (SLN)
• Formula: =SLN(cost, salvage, life)
• Description: Calculates the straight-line depreciation of an asset over its useful life.
• Parameters:
o cost: Initial cost of the asset.
o salvage: Salvage value of the asset.
o life: Useful life of the asset.
Example: =SLN(10000, 1000, 5)

8. Depreciation (DB)
• Formula: =DB(cost, salvage, life, period, [month])
 • Description: Calculates the depreciation of an asset for a specified period using the
declining balance method.
• Parameters:
o cost: Initial cost of the asset.
o salvage: Salvage value of the asset.
o life: Useful life of the asset.
o period: Period for which to calculate the depreciation.
o month: Number of months in the first year (optional).
Example: =DB(10000, 1000, 5, 1)

9. Annual Percentage Rate (APR)

• Formula: =RATE(nper, pmt, pv, [fv], [type]) * periods_per_year
• Description: Calculates the annual percentage rate of an investment or loan.
• Parameters:
o nper: Total number of payment periods.
o pmt: Payment amount each period.
o pv: Present value.
o fv: Future value (optional).
o type: When payments are due (0 for end of period, 1 for beginning, optional).
Example: =RATE(12, -100, 1000) * 12

10. Yield to Maturity (YTM)

• Formula: =YIELD(settlement, maturity, rate, pr, redemption, frequency, [basis])
• Description: Calculates the yield to maturity for a bond.
• Parameters:
o settlement: The bond's settlement date.
o maturity: The bond's maturity date.
o rate: The bond’s annual coupon rate.
o pr: The bond’s price.
o redemption: The bond’s redemption value.
o frequency: Number of coupon payments per year (1, 2, or 4).
o basis: Day count basis (optional).

Example: =YIELD("2024-01-01", "2029-01-01", 0.05, 98, 100, 2)

Internship experience, learnings and the practical exposure or assignment done
during your internship as well as If you have any work experience also.
• Be prepared with your internship and work experience Projects in a
detailed manner
Note: Please do not mention and tell the recruiter any fake experience or projects
because it will create problems in delineating the same to recruiter, and he will
easily identify the same. So, if you are mentioning anything in your CV then
make sure that you have enough knowledge about the same and you can
convince the Recruiter.