Finance Q&A


What is ‘financial modelling’?
It is a quantitative analysis commonly used for either asset pricing or general corporate finance.

What is a ‘cash flow statement’?
Yes, lets start with the net income and go line by line explaining all major adjustments to arrive at cash flow from operating activities. Here try to mention all the necessary parts that are associated with it.

What is a ‘working capital’?
It's the best defined as current assets minus current liabilities.


Is there a possibility for a company to have positive cash flow but still be in serious financial trouble?
Yes. There are two examples to understand this:
A company will show positive cash flow for a while even though it is in trouble that is selling off inventory but delaying payables.
A company has strong revenues for the period but the future forecasts show something else.

What difference do a journal and a ledger hold?
The journal is a book which records all the financial transactions for the first time. While, the ledger is one which has particular accounts taken from the original journal.


Give at least one difference between a p&l statement and a balance sheet?
The financial position of a company is summarised for a specific point in time in a balance sheet. The P&L i.e. profit and loss statement shows revenues and expenses during a set period of time.

Do you know what is npv? where is it used?
Net Present Value is abbreviated as NPV, it is the difference between the present value of cash inflows and the present value of cash outflows. In capital budgeting to analyse the profitability of a projected investment or project NPV is used.

What is a ‘composite cost of capital’?
Also known as the weighted average cost of capital abbreviated as WACC, a composite cost of capital is a company’s cost to borrow money given the proportional amounts of each type of debt and equity a company has taken on.
WACC= Wd (cost of debt) + Ws (cost of stock/RE) + Wp (cost of pf. Stock)

What is a ‘capital structure’?
A firm finances its overall operations and growth by using different sources of funds, this whole thing is known as the Capital structure.

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