Corporate Finance Interview Questions & Answers

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Corporate Finance Interview Questions & Answers

You are an expert in Corporate Finance, but you want guidance to discover the right career path, then on the wisdomjobs page you can get a compiled resource of all the jobs in corporate finance. As a trained corporate finance manager you will have to deal with all aspects of finance such as capital investment, budgeting and banking in order to increase the shareholder value of any organization. A corporate finance job in a reputed company will help you to gain specialized experience while communicating with other professionals such as researchers, lawyers and various finance providers. If you are a trained professional then a career in Corporate Finance can definitely give you high rewards. The Corporate Finance job interview questions and answers help you to prepare well for the job interview and makes the process of job hunting easier for you.

Corporate Finance Interview Questions

Corporate Finance Interview Questions
    1. Question 1. Define Corporate Finance?

      Answer :

      Corporate finance describes the financial decisions of corporations. Its main objective is to maximize corporate value while reducing financial risk. The financial manager has responsibility for corporate finance decisions.

    2. Question 2. What Are The Responsibilities Of Financial Manager?

      Answer :

      financial manager is responsible for financing the firm and acts as an intermediary between the financial system's institutions and markets, on the one hand, and the enterprise, on the other.

    3. Question 3. Define Finance?

      Answer :

      Finance is a term used to describe both the money resources available to governments, firms, or individuals, and the management of these funds.

    4. Question 4. Which Are The Interrelated Areas Finance Consists Of?

      Answer :

      • Money and capital markets, which deals with securities markets and financial institutions
      • Investments, which focuses on the decisions made by both individual and institutional investors as they choose securities for their investment portfolios
      • Financial management, or "business finance," which involves decisions within firms.

    5. Question 5. What Is Financial Management?

      Answer :

      Financial Management is the acquisition, management and financing of resources for firms by means of money, with due regard for process in the external economic markets.

    6. Question 6. What Is Profit Maximization?

      Answer :

      Another objective of Financial Managers is Profit Maximization which entreats Financial Managers to put in place measures and policies that will increase the financial position of the firm. Shareholders need to receive periodic amounts to solidify their interest in the organization. A firm that does not make and declare profits continuously will not attract investors to put their money in it.

    7. Question 7. What Are The Two Basic Problems Financial Manager Faces Nowadays?

      Answer :

      • How much money should the firm invest, and what specific assets should the firm invest in. This is the firm's investment, or capital budgeting decision.
      • How should the cash required for an investment be raised. This is the financing decision.

    8. Question 8. What Is Bank Overdraft?

      Answer :

      Businesses and individuals who have Current accounts with banks, subject to the bank's regulations, may be allowed to from time to time withdraw amounts in excess of the balance standing in such accounts. The believe that the account may be credited with some funds later after which the bank would recover the overdraft and some service charges. Overdrafts are more likely to be made available to businesses that need short-term funds for a seasonal trade or for a specific contract.

    9. Question 9. Define Balance Sheet?

      Answer :

      Balance Sheet is a position statement as it refers to a particular date. It is also referred to as Statement of Sources and Application of Funds. It informs about the various sources used by the organization which are technically known as liabilities to raise the funds which are referred as assets.

    10. Question 10. Define Profitability Statement?

      Answer :

      Profitability Statement also known as Profit and Loss Account. It is a period statement as it refers to a particular period.

    11. Question 11. Define The Cash System Of Accounting?

      Answer :

      Cash System of Accounting: This system records only cash receipts and payments. This system assumes that there are no credit transactions. In this system of accounting, expenses are considered only when they are paid and incomes are considered when they are actually received. This system is used by the organizations which are established for non profit purpose. But this system is considered to be defective in nature as it does not show the actual profits earned and the current state of affairs of the organization.

    12. Question 12. Define Capital Expenditure?

      Answer :

      Capital Expenditure is an amount incurred for acquiring the long term assets such as land, building, equipments which are continually used for the purpose of earning revenue. These are not meant for sale. These costs are recorded in accounts namely Plant, Property, Equipment. Benefits from such expenditure are spread over several accounting years.

      E.g. Interest on capital paid, Expenditure on purchase or installation of an asset, brokerage and commission paid.

    13. Question 13. Described Mercantile Or Accrual System Of Accounting?

      Answer :

      Mercantile or Accrual System of Accounting: In this system, expenses and incomes are considered during that period to which they pertain. This system of accounting is considered to be ideal but it may result into unrealized profits which might reflect in the books of the accounts on which the organization have to pay taxes too. All the company forms of organization are legally required to follow Mercantile or Accrual System of Accounting.

    14. Question 14. Define Share Capital?

      Answer :

      Share Capital is that portion of a company's equity that has been obtained by issuing share to a shareholder. The amount of share capital increases as new shares are sold to public in exchange for cash.

    15. Question 15. Define Revenue Expenditure?

      Answer :

      Revenue Expenditure is the expenditure incurred in one accounting year and the benefits from which is also enjoyed in the same period only. This expenditure does not increase the earning capacity of the business but maintains the existing earning capacity of the business. It included all the expenses which are incurred during day to day running of business. The benefits of this expenditure are for short period and are not forwarded to the next year. This expenditure is on recurring nature.

    16. Question 16. Define Reserves And Surpluses?

      Answer :

      Reserves and Surpluses indicate that portion of the earnings, receipt or other surplus of the company appropriated by the management for a general or specific purpose other than provisions for depreciation or for a known liability. Reserves are classified as: Capital Reserve and Capital Redemption Reserve.

    17. Question 17. Described Deferred Revenue Expenditure?

      Answer :

      Deferred Revenue Expenditure is a revenue expenditure which has been incurred during an accounting year but the benefit of which may be extended to a number of years. And these are charged to profit and loss account. E.g. Development expenditure, Advertisement etc.

    18. Question 18. Define Proprietary Firms Easy Formation?

      Answer :

      Proprietary firm is easiest and economic form to create and operate as it can be started by any person without any legal formalities. Also there is no set limit of minimum or maximum number of persons to start the business as it can be started by a single person.

    19. Question 19. Define Proprietary Firms Better Control?

      Answer :

      As the owner is the single person so he has full control over his business. His total authority over his business gives him the power to plan, organize, co-ordinate the various activities. The sizes of such firm are generally small which also makes it better to control.

    20. Question 20. Define Proprietary Firms Quick Decision Making?

      Answer :

      Being the only owner of the business the sole trader takes all the decisions himself. He evaluates all the opportunities available and finds the solution to problems which makes decision making quick.

    21. Question 21. Define Proprietary Firms Creation Of Employment?

      Answer :

      Proprietor firm facilitates self employment and also employment for many others. It promotes entrepreneurial skill among the individuals.

    22. Question 22. Define Proprietary Firms Personal Attention To Customer Needs?

      Answer :

      Due to the small geographical area it becomes easy for the sole proprietor deal with all its customers personally and knows their needs. Thus it makes easy for him to pay special attention to consumer needs.

    23. Question 23. Define Proprietary Firms Equal Distribution Of Wealth?

      Answer :

      Proprietary firm is generally a small scale business. Hence there are many opportunities for individuals to start their own business enabling widespread dispersion of economic wealth.

    24. Question 24. Define Proprietary Firms No Legal Formalities Required?

      Answer :

      Proprietary firm is not required to comply with all the legal and procedural formality.

    25. Question 25. List The Disadvantages Of Proprietary Firms?

      Answer :

      Disadvantages of Proprietary Firms:

      • Unlimited Liability
      • Limited Financial Resources
      • No Legal Status
      • Limited Capacity of Individual
      • Higher Taxes

    26. Question 26. Define The Disadvantages Of Unlimited Liability In Proprietary Firms?

      Answer :

      In such firms the liability of the owner is unlimited as the owner takes more risk to earn more profits and increase the volume of his business by supplying his personal assets to the business.

    27. Question 27. Define The Disadvantages Of Limited Financial Resources In Proprietary Firms?

      Answer :

      Being the single owner of the business, the availability of funds from various sources is limited.

    28. Question 28. Define The Disadvantages Of No Legal Status In Proprietary Firms?

      Answer :

      The existence of business is due to the existence of sole proprietor. Death or insolvency of the sole proprietor brings an end to the business.

    29. Question 29. Define The Disadvantages Of Higher Taxes In Proprietary Firms?

      Answer :

      As the sole proprietor is the direct person enjoying the profits thus he needs to pay higher taxes.

    30. Question 30. Define The Disadvantages Of Limited Capacity Of Individual In Proprietary Firms?

      Answer :

      An individual has limited knowledge, set of skills due to which his capacity to undertake responsibilities, his capacity to take quick decisions and bear risks are also limited.

    31. Question 31. What Are The Two Most Basics Financial Statements Prepared By The Companies?

      Answer :

      Financial statements are prepared in two forms:

      • Balance Sheet is a position statement as it refers to a particular date. It is also referred to as Statement of Sources and Application of Funds. It informs about the various sources used by the organization which are technically known as liabilities to raise the funds which are referred as assets.
      • Profitability Statement also known as Profit and Loss Account. It is a period statement as it refers to a particular period.

    32. Question 32. Define Cash System Of Accounting?

      Answer :

      This system records only cash receipts and payments. This system assumes that there are no credit transactions. In this system of accounting, expenses are considered only when they are paid and incomes are considered when they are actually received. This system is used by the organizations which are established for non profit purpose. But this system is considered to be defective in nature as it does not show the actual profits earned and the current state of affairs of the organization.

    33. Question 33. Described Capital Expenditure?

      Answer :

      Capital Expenditure is an amount incurred for acquiring the long term assets such as land, building, equipments which are continually used for the purpose of earning revenue. These are not meant for sale. These costs are recorded in accounts namely Plant, Property, Equipment. Benefits from such expenditure are spread over several accounting years.

    34. Question 34. Described Revenue Expenditure?

      Answer :

      Revenue Expenditure is the expenditure incurred in one accounting year and the benefits from which is also enjoyed in the same period only. This expenditure does not increase the earning capacity of the business but maintains the existing earning capacity of the business. It included all the expenses which are incurred during day to day running of business. The benefits of this expenditure are for short period and are not forwarded to the next year. This expenditure is on recurring nature.

    35. Question 35. Define Mercantile Or Accrual System Of Accounting?

      Answer :

      In this system, expenses and incomes are considered during that period to which they pertain. This system of accounting is considered to be ideal but it may result into unrealized profits which might reflect in the books of the accounts on which the organization have to pay taxes too. All the company forms of organization are legally required to follow Mercantile or Accrual System of Accounting.

    36. Question 36. Can You Please Explain The Difference Between Share Capital & Reserves And Surpluses?

      Answer :

      Share Capital is that portion of a company's equity that has been obtained by issuing share to a shareholder. The amount of share capital increases as new shares are sold to public in exchange for cash.

      Reserves and Surpluses indicate that portion of the earnings, receipt or other surplus of the company appropriated by the management for a general or specific purpose other than provisions for depreciation or for a known liability. Reserves are classified as: Capital Reserve and Capital Redemption Reserve.

    37. Question 37. List The Advantages Of Proprietary Firms?

      Answer :

      Advantages of proprietary firms:

      • Easy Formation
      • Better Control
      • Quick Decision Making
      • Flexibility in Operations
      • Personal attention to customer needs
      • Creation of Employment
      • Equal Distribution of Wealth
      • No Legal Formalities required

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