1. What is the time value of money?

The concept that money available today

is worth more than the same amount in
the future due to its potential earning
capacity.

2. What is the difference between NPV

and IRR?
A: NPV is the difference between the
present value of cash inflows and
outflows. IRR is the discount rate that
makes the NPV of all cash flows from a
project zero.

3. What is CAPM?
A: The Capital Asset Pricing Model (CAPM)
calculates the expected return on an
asset based on its risk (beta) relative to
the market.
4. What is WACC?
A: The Weighted Average Cost of
Capital(WACC) is the average rate of
return a company is expected to pay its
investors,weighted by the proportion of
debt and equity.

5. What is the difference between a

balancesheet and an income
statement?
A: The balance sheet shows a company’s
assets, liabilities, and equity at a specific
point in time, while the income statement
reports revenue and expenses over a
period.

6. What is financial modeling?

A: Financial modeling involves building
abstract representations (models) of a
company's financial situation to forecast
future performance.
7. What is EBITDA?
A: EBITDA stands for Earnings Before
Interest,Taxes, Depreciation, and
Amortization. It measures a company’s
profitability before accounting for these
expenses

8. What is a DCF analysis?

A: A Discounted Cash Flow (DCF) analysis
is a valuation method that estimates the
value of an investment based on its
future cash flows,discounted back to
present value.

9. What are working capital and its

components?
A: Working capital is the difference
between current assets and current
[Link] include cash,
accounts receivable, inventory, and
accounts payable.
10. What is accrual accounting?
A: Accrual accounting records revenues
and expenses when they are incurred,
regardless of when cash is exchanged.

11. What is a liquidity ratio?

A: A liquidity ratio measures a company’s
ability to meet its short-term obligations,
with common examples being the
current ratio and quick ratio.

12. What is the debt-to-equity ratio?

A: The debt-to-equity ratio measures a
company’s financial leverage by dividing
its total liabilities by shareholders' equity.
13. What is free cash flow (FCF)?
A: Free cash flow is the cash a company
generates after accounting for capital
expenditures. It’s used to pay
dividends,reduce debt, or invest.

14. What are derivatives?

A: Derivatives are financial contracts
whose value is derived from an
underlying asset,index, or interest rate,
like options or futures.

15. What is a leveraged buyout (LBO)?

A: An LBO is when a company is acquired
using a significant amount of borrowed
money, with the acquired company’s
assets often serving as collateral.
16. What is the difference between a
merger and an acquisition?
A: In a merger, two companies combine
to forma new entity, while in an
acquisition, one company takes over
another.

17. What is beta in finance?

A: Beta measures a stock’s volatility
relative to the overall market. A beta
greater than 1indicates higher volatility,
while less than 1indicates lower volatility.

18. What is the efficient market

hypothesis(EMH)?
A: The EMH suggests that asset prices
fully reflect all available information,
meaning it's impossible to consistently
outperform the market.
19. What is a bond?
A: A bond is a debt security in which an
investor loans money to an entity that
borrows the funds for a defined period at
a fixed interest rate.

21. What is a stock option?

A: A stock option gives the holder the
right, but not the obligation, to buy or sell
a stock at a specified price before a
specified date.

20. What is the payback period?

A: The payback period is the amount of
time it takes to recover the initial
investment in a project.
22. What is the purpose of a financial
audit?
A: A financial audit provides an
independent assessment of whether a
company’s financial statements are
accurate and free from material
misstatement.

23. What are retained earnings?

A: Retained earnings are the portion of
net income that is not paid out as
dividends but reinvested in the business.

24. What is a capital structure?

A: Capital structure is the mix of a
company’s debt, equity, and other
financial instruments used to finance its
operations.
25. What is the difference between a
primary and secondary market?
A: The primary market is where new
securities are issued, while the secondary
market is where investors buy and sell
previously issued securities.

26. What is an IPO?

A: An Initial Public Offering (IPO) is when a
company offers shares to the public for
the first time.

27. What are the four main financial

statements?
A: The four main financial statements are
the balance sheet, income statement,
cash flow statement, and statement of
shareholders’ equity.
28. What is an annuity?
A: An annuity is a series of equal
payments made at regular intervals over
a period of time.

29. What is a corporate bond?

A: A corporate bond is a debt security
issued by a corporation to raise capital,
with fixed interest payments made to
bondholders.

30. What is goodwill in accounting?

A: Goodwill is an intangible asset that
arises when a company acquires another
for more than its fair market value.
31. What is financial leverage?
A: Financial leverage refers to using
borrowed funds to increase the potential
return on investment.

32. What is the DuPont analysis?

A: DuPont analysis breaks down Return on
Equity (ROE) into three components: profit
margin, asset turnover, and financial
leverage.

33. What is a dividend?

A: A dividend is a portion of a company’s
earnings paid out to shareholders.
34. What is capital expenditure (CapEx)?
A: CapEx refers to funds used by a
company to acquire or upgrade physical
assets like property, buildings, or
equipment.

35. What is ROI?

A: Return on Investment (ROI) measures
the gain or loss generated relative to the
amount of capital invested.

36. What is a hedge fund?

A: A hedge fund is an investment vehicle
that uses various strategies to earn
active returns for its investors.
37. What is a mutual fund?
A: A mutual fund pools money from
multiple investors to invest in a diversified
portfolio of securities.

38. What is alpha in investing?

A: Alpha is a measure of an investment’s
performance relative to a benchmark,
representing the excess return achieved.

39. What is arbitrage?

A: Arbitrage involves profiting from price
differences of identical or similar financial
instruments on different markets or in
different forms.
40. What is a credit default swap
(CDS)? A: A CDS is a financial derivative
that allows an investor to swap or offset
credit risk with another party.

41. What is corporate governance?

A: Corporate governance refers to the
system of rules, practices, and
processes by which a company is
directed and controlled

42. What is the cost of equity?

A: The cost of equity is the return that
equity investors expect to receive from
an investment in a company, often
estimated using CAPM.
43. What is a cash flow statement?
A: The cash flow statement shows the
inflow and outflow of cash from
operating, investing,and financing
activities over a period of time.

44. What is an equity multiplier?

A: The equity multiplier measures a
company’s financial leverage by
dividing total assets by total equity,
indicating the proportion of a company’s
assets financed by shareholders.

45. What is financial distress?

A: Financial distress occurs when a
company cannot meet or has difficulty
paying off its financial obligations, which
may lead to bankruptcy.
46. What is a variable cost?
A: A variable cost changes in proportion
to the level of output or sales, such as
raw materials or production supplies.

47. What is an economic moat?

A: An economic moat refers to a
company’s competitive advantage that
allows it to protect its market share and
profitability from competitors.

48. What is the Modigliani-Miller

theorem?
A: The Modigliani-Miller theorem states
that, in a perfect market, the value of a
firm is unaffected by how it is financed,
whether through debt or equity.
49. What is an interest rate swap?
A: An interest rate swap is a financial
derivative where two parties exchange
interest rate payments, typically
switching between fixed and floating
rates.

50. What is securitization?

A: Securitization is the process of pooling
various types of debt, like mortgages,
and selling them as securities to
investors.

51. What is venture capital?

A: Venture capital is funding provided by
investors to startups or small businesses
with long-term growth potential in
exchange for equity.
52. What is operating leverage?
A: Operating leverage refers to the extent
to which a company uses fixed costs in
its operations, which can magnify profits
as sales increase.

53. What is a credit rating?

A: A credit rating assesses the
creditworthiness of a borrower,
indicating the risk level of default for
bonds or loans.

54. What is systematic risk?

A: Systematic risk is the inherent risk that
affects the entire market or a large
segment of the market, such as interest
rate changes or recessions
55. What is unsystematic risk?
A: Unsystematic risk is the risk that is
unique to a specific company or
industry, such as management changes
or regulatory impacts.

56. What is a leveraged loan?

A: A leveraged loan is a loan extended to
companies or individuals with high levels
of debt, usually at higher interest rates
due to increased risk.

57. What is the dividend payout ratio?

A: The dividend payout ratio measures
the proportion of earnings a company
pays out to shareholders in the form of
dividends,calculated as dividends per
share divided by earnings per share.
58. What is a convertible bond?
A: A convertible bond is a bond that can
be converted into a specified number of
shares of the issuing company’s stock.

59. What is return on equity (ROE)?

A: ROE measures a company’s
profitability by showing how much profit
it generates with the money
shareholders have invested, calculated
as net income divided by shareholders'
equity.

60. What is a junk bond?

A: A junk bond is a high-yield, high-risk
security issued by companies with lower
credit ratings.
61. What is the internal rate of return
(IRR)?
A: IRR is the discount rate that makes the
net present value (NPV) of all cash flows
from an investment equal to zero.

62. What is the primary market?

A: The primary market is where new
securities are issued and sold to
investors directly, often through initial
public offerings (IPOs).

63. What is goodwill impairment?

A: Goodwill impairment occurs when the
carrying value of goodwill on a
company’s balance sheet exceeds its
fair market value,requiring a write-down.
64. What is the price-to-earnings (P/E)
ratio?
A: The P/E ratio measures a company’s
current share price relative to its per-
share earnings,used to gauge market
expectations of future earnings growth.

65. What is an earnings call?

A: An earnings call is a conference call in
which a company discusses its financial
results with investors, analysts, and the
media.

66. What is the difference between

forward and futures contracts?
A: A forward contract is a customized
agreement between two parties to buy
or sell an asset at a specific price in the
future, while a futures contract is
standardized and traded on exchanges.
67. What is portfolio diversification?
A: Portfolio diversification is the practice
of spreading investments across various
asset classes or sectors to reduce risk.

68. What is the Sharpe ratio?

A: The Sharpe ratio measures the risk-
adjusted return of an investment,
calculated by dividing the difference
between the investment return and the
risk-free rate by its standard deviation.

69. What is capital allocation?

A: Capital allocation is the process of
deciding how to distribute financial
resources across various investment
opportunities to maximize returns.
70. What is a rights issue?
A: A rights issue is an offer by a company
to existing shareholders to purchase
additional shares at a discounted price,
typically to raise capital.

71. What is inflation?

A: Inflation is the rate at which the
general price level of goods and services
rises, eroding purchasing power over
time.

72. What is a zero-coupon bond?

A: A zero-coupon bond does not pay
periodic interest; instead, it is issued at a
discount and redeemed at face value
upon maturity.
73. What is the Altman Z-score?
A: The Altman Z-score is a formula that
predicts the likelihood of a company
going bankrupt based on its financial
ratios and performance metrics.

74. What is operational risk?

A: Operational risk refers to the potential
loss resulting from inadequate or failed
internal processes, people, systems, or
external events.

75. What is asset-backed security

(ABS)?
A: An ABS is a security whose income
payments and value are derived from
and backed by a pool of underlying
assets,typically loans, leases, or credit
card debt.
76. What is quantitative easing (QE)?
A: QE is a monetary policy where a
central bank purchases government
securities or other financial assets to
inject liquidity into the economy and
encourage lending and investment.

77. What is book value?

A: Book value is the value of a company's
assets as reported on the balance
sheet,calculated as total assets minus
liabilities.
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Pieter Slegers
Compounding Quality