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FINANCE ORAL EXAM QUESTIONS AND ANSWERS WITH SOLUTIONS 2024
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FINANCE ORAL EXAM QUESTIONS AND ANSWERS WITH SOLUTIONS 2024
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FINANCE ORAL EXAM QUESTIONS ANDANSWERS WITH SOLUTIONS 2024
Walk me through a typical income statement/ cash flow statement / balance sheet - ANSWER IS:
- revenues
- Cost of goods sold ( direct expenses of sales)
= Gross Profit
- SG&A (operating expenses not directly linked to sales)
- R&D expenses
= EBIT (earnings before interest and tax)
- depreciation and amortization
= EBITDA (EBIT less depreciation and amortization)
- interest expense
= pre tax income
- income taxes
= net income
CF:
- Net income
- add back depreciation (non cash exp)
- find changes in AR, AP, Inv (working capital accounts) and make adjustments
- = cash from operations
- subtract cash from investing and financing
- Investing activities: capex, purchase/sale of inv, net cash from inv activities
- Financing activities: net issuance, issuing loan, issuing more equtiy (stocks), dividends, repurchase
shares, pay off debt
BS:
- snapshot in time
- assets: cash, acc rec, inventory
- liabilities: acc payable, debt
- shareholders equity: stock and retained earnings
, - assets = liability + SE
If you have to pick one financial statement to look at the overall health of the company, which one would
you pick and why? - ANSWER Cash flow statement. Shows cash in and out flow. No assumptions or
estimates. What you get is reflected on the statement. Need cash to pay for operations / investments in
company.
Is it bad if a company has negative operating cash flows? - ANSWER Not necessarily. Start ups are not
expected to have positive cash flows, over time it will improve. If mature, then it is bad because they do
not have enough cash to pay for expenses, business model is in trouble.
Walk me through how a $100 increase in depreciation would affect the three financial statements?
Assume a 25% tax rate. - ANSWER IS: taxable income down 25 dollars, net income down 75 only because
paying less tax
CF: net income down 75, add back dep which up 100 so net cash up 25
BS: cash goes up 25, PPE goes down 100, so assets down by 75. Retained earnings down 75.
What financial ratios would you look at to evaluate a company if you are an investor? What ratios would
you use if you are a lender? Which ones if you are the management team? - ANSWER Investor:
profitability (gross margin) , solvency (debt to equity) , risk, growth (PE ratio)
Lender: liquidity, current, solvency
Management: All operating ratios, profitability
Walk me through the DCF - ANSWER Intuitions: price of any asset = pv of all future cash flows
need 1. cash flows 2. discount rates
to predict cf: get historical data and make projections of future cash flows (5-10 years)
need to get terminal value at the end
once have CF and TV use WACC to discount them to PV
PV is enterprise value, which used to estimate equity value and estimate price per share
can go into more detail
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