Finance Interview Questions and Answers
Ques 1. What is the difference between stocks and bonds?
Stocks represent ownership in a company, while bonds represent debt. Stockholders are shareholders, and bondholders are creditors.
Example:
An example of a stock is Apple Inc. (AAPL), and an example of a bond is the U.S. Treasury Bond.
Ques 2. Explain the concept of present value and future value.
Present value is the current worth of a future sum of money, considering a specified rate of return. Future value is the value of an investment at a specific date in the future.
Example:
If you invest $1,000 at a 5% annual interest rate, the future value after one year would be $1,050.
Ques 3. What is the difference between equity and debt financing?
Equity financing involves selling shares of ownership in the company, while debt financing involves borrowing money that must be repaid with interest.
Example:
Issuing common stock is an example of equity financing, and obtaining a bank loan is an example of debt financing.
Ques 4. What are the key components of a company's financial statements?
The main components are the income statement, balance sheet, and cash flow statement. These provide a snapshot of a company's financial health.
Example:
The income statement shows revenue and expenses, the balance sheet shows assets and liabilities, and the cash flow statement details the cash inflows and outflows.
Ques 5. Define working capital and its significance.
Working capital is the difference between a company's current assets and current liabilities. It measures a company's operational liquidity and short-term financial health.
Example:
If a company has $500,000 in current assets and $300,000 in current liabilities, the working capital is $200,000.
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