Accounting and Finance metirial to Prepare for Interviews for any MBA/MCA Students

8/12/2019 Accounting and Finance metirial to Prepare for Interviews for any MBA/MCA Students

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Accounting and Finance MaterialGolden accounting rulesPersonal account:Debit the receiver and Credit the giver Example: Suppliers, creditorsReal account: Debit what comes in and credit what goes outExample: angibleland, buildings, machinery

ntangibleGoodwill, patents, intellectual propertiesNominal account: Debit all losses and expenses and credit all incomes and gainsExample:Salaries, rent, commission, and discount, insuranceAccounting Concepts:Accounting concepts are 81. Business Entity Concept:While preparing the financial statements the Business entity and Owners areDeferentExample:When owners are invited money in the business, then the Company has to treat that money asa liability and also, whenever owners takes money from the company, then it would be recorded as

drawings and same will be adjusted to the owners equity.2. Money Measurement Concept: While preparing the financial statements, all the transactions,classifications and summarized reports must be presented in money terms of that country. Example: ACompany has 10 acres of land, it cant show as land =10 acres in the balance sheet. Instead the same

has to be converted in money terms.3. Going concern concept: The company is continue to exit in the near future then the company andauditor have to be maintain same in annual reports.ExampleDiscontinued Operations.4. Accounting Period concept:Financial Statements must be prepared for particular time duration, Mostof the companies are preparing for 12 months but some companies are preparing for 15 months and18 months

5. Historical Cost Concept::While preparing financial statements the value of assets like land buildingetc must be recorded at purchase price including the transportation cost and installation cost etc. not at

present market price.6. Dual aspect concept:Every business transaction will have a twofold effectEvery credit has a corresponding debit. Example:Assets=liabilities+owners equity7. Revenue Recoganization concept: The company can recognize the transaction as revenue orexpenses based on the legal proof like invoice, purchase order etc.Exampleat the time of sales there are two types, credit and cash sales accrual basis and cash basis, sowe has to recognize both as revenue

8. Matching Concept:we has to deduct all the expenses form the revenue like, COGS, Depreciation&amortization expenses etc from the total revenue.

Accounting conventions:There are 4 accounting conventions,1.Convention of Full Discloser:Accounts must be honestly prepared and all material information mustbe disclosed Example: There are Contingent liabilities appearing as a note, market value of investmentsappearing as a note

2. Convention of materiality: Material and immaterial mattersExamples: Value of stock:loss of markets due to competition or government regulations, increase inwage bill


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Allocation of cost: allocated to every one of the three years3. Convention of consistency: Important conclusions regarding the working of a company over anumber of years, accounting procedures and policies should be consisting.4. Convention of conservatism: (playing sage)Considering of all prospective losses but leaves all prospective profitsExamples: Make the provision of all prospective losses but leaves all prospective profitsMake the provision for doubtful debts Examples: Valuation of stock, provision for fluctuation ofinvestments, Amortization

Rectification of errors its types:Correcting mistakes that we have made while passing entries in theaccounts. There are 4 types, Error of omission and error of principle we cont find in TB.

1. Error of omission:Wherein the full transaction is omitted from the books of accountsExample:Sold goods to Mr. Z for $100. We neither entered this transaction in sales account nor havewe entered in Mr. Z account.

2. Error of Commission:where we have entered the correct amounts but in wrong persons account. Forexample: Sales of goods to Mr. A were entered in Mr. B account3. Error of Principle:This type of error takes place when an item is entered in wrong head or class ofaccounts

Example:Purchase of fixed asset is entered in expenses account or sale of fixed asset such as building isentered in sales account

4. Error of Duplication: Error of transition can be defined as switching the sequence of digits of amountor figure of a transaction.

Example:Sales amount to $123 were entered as $321. A purchase of equipment worth $72 was enteredas $27 in equipment account and cash account respectively.

Debt Credit: Every account has two sides left side Debit and right side CreditAccounting definition:Accounting is art of recording classifying and summarizing in a sufficient mannerin terms of money, It records business transactions takes place during the accounting period with a

view to prepare financial statements

Book Keeping: Book keeping is the art of recording the financial information.Examplekeeping the record sale of goodsw tsdifference between Accounting and Book Keeping?Book keeping only involve in recording the financial information while accounting collects, records,

summarizes and communicates the financial information, Booking is just one basic phase of accounting

the recording phaseWhy should we keep Accounts?Man has been keeping accounts for thousands of years because they help to keep track of money, by

showing where did money come from and how we have spent itDifferent fields of accounting or branches of accountingFinancial accounting: It is the general accounting field engages in recording and communicatingfinancial information

Cost accounting: It is specialized field of accounting involves in controlling the cost of production anddistribution


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Management accounting: It concerns in selecting best method of accounting among variousalternatives

Government accounting:It is generally single entry system used in recording government transactionse.g. recording revenue, expenditure, taxes and preparing budgetAuditing: It is the examination of accounting records to check the fairness and accuracyStakeholders, interested parties or parties interested in accounting information

First off, the business ownerwant to know the financial position of business whether thebusiness is in profit or in loss

Investorsbecause they want to invest in the business (e.g. they purchase shares, bonds etc.) Loan provider, banks and creditorswant to know the business profitability and financial position Management of businessneeds information for the decision-making Business employeeswant to know the business stability, future prospects and business scope for

their own welfare in the business organization Government for theincome tax purpose and government agencies for various other purposes

Book keeping: Recording of business transactions by following accounting procedures, in Single entrysystem and double entry system

Single Entry:Where only one effect or aspect of a financial transaction is recordedDouble Entry:An Entry-making technique or a system of recording financial information where twoeffects or aspects of every financial transaction are recorded in accounts

Example of Double Entry: Good sold for cash. In this case, the increase in sales (revenue) willbe recorded in sales account and increase in cash will be recorded in cash account. Therefore, there aretwo aspects or effects of this transaction first one is Increase in sales or revenue and second is increase

in cash, both will be recorded.Basic Terms of AccountingBusiness:In general term any activity undertaken for purpose of earning profitCapital:Capital represents cash and resources introduced by the owner(s) of the business to set up orto run the businessDrawing:Drawing represents cash and resources withdrawn by the owner of business for personal useOwner:The person(s) who starts a business by introducing capitalTransaction

Any dealing between two persons that can be measured in money.For examplesale of good by business is a transactionAccount A record or log used to record the transactions of businessInvoice:Any written evidence of occurrence of a transaction like invoice for purchase of goods on creditTrade discount: A discount given by seller to buyer on listed price of goodCash discount:A discount for quick payment of credit.For examplea company has purchased goods on credit and if it makes payment of credit within specificperiod time, the seller would give the company cash discount on quick payment

Stock: Goods or commodities remaining unsold at the end of accounting period (Generally 1 year)Creditor/account payable:A person or an organization has purchased goods or services on creditDebtor or account receivable: A person or an organization has sold goods or services on credit


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Accounting heads or type of accounts :Every financial transaction affects at least one head ofaccounting. For example cash received from debtor, this transaction has two effects i.e increase in cash

(asset) and decrease in debtor (asset). Following are the five accounting heads

1. Assets:Assets are the tangible or intangible resources controlled or owned by the business to getfuture economic benefitsExamples of assets:Cash, A/C receivable or debtors, notes receivable, building, plant and machinery,stock of goods, bonds and share or any kind of financial securities, patents, copyrights, franchises,

goodwill, trademarks, trade names, prepaid expenses, earned or Accrued incomes etc.

2. Expenses or losses:Gross outflow of economic benefits which can be measured in money for gettingservices or goods. Technically expenses are events by which assets are decreased or liabilities

are increased.Examples of Expenses: Purchase of goods or services, rent, employee wages or salaries, factory leasesand depreciation expenses, heating and electricity expense, repair and renewal of machinery and plant,

freight and demurrage expense etc.

3. Income or gains:Gross inflow of economic benefits that can be measured in money for providingservices or goods. Technically incomes are events by which assets are increased or liabilities are

decreased.Examples of incomes:Sale of goods or services, commission, discount received, profit on the sale fixedasset etc.

4. Liabilities:These are the obligations of business arisen by past transaction or eventExamples of liabilities:A/C Payable or creditor notes or bills payable, accrued interest andcommission, bank loan, mortgage loan, issued bonds, unearned income, accrued tax etc.

5. Capital or owner's equityThe investment in business to set up or to run the business either in the form of cash, cash equivalent,

assets or economic resources by the owner(s) of business

Examples of capital:Investment of cash or assets (machinery, plant, vehicle..) to start a businessTypes of Business Entities1. Profit Oriented / Commercial Entities:Profit oriented or commercial entities are thoseentities/organizations whose main aim of carrying out business is to earn profit for the owner or owners

of the business organizationSole Proprietorship: Where one person (owner) start a business and risks and returns rest with a singleownerPartnership:Where in two or more persons owned a business and all partners (owners) of afirm/business are jointly and severally liable to repay the liabilities of the firm. This implies that in case

of bankruptcy of firm/business, the personal properties of partners can be used for the repayment of

debts or liabilities of the business as well

Companies or Corporate:Companies are separate legal entities formed under the CompaniesOrdinance or law of a country. In case of a company the liability of owners (shareholders) is limited.

Limited liability implies that the personal property of shareholders or owners won't be used for the

repayment of debts or liabilities of the company even through company gets bankrupted


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2. Non Profit Oriented Entities: Non-profit oriented entities are those business entities or concernswhere the main purpose of doing business is not to earn profits for the owners / sponsors but to

provide benefits to general public or to carry out a social causeNGOs Non-Government Organizations, Trusts, Societies

accounting cycle:An accounting cycle is the sequence in which financial data is recorded until itbecomes the part of financial statements at the end of accounting period. In other words, its a

sequence of steps to record financial information in precise manners.

Exampleaccounting cycle is preparing journals, preparing ledger accounts, preparing trial balance,passing adjusting entries and at the end of accounting period preparing financial statements ( such as

Income statement, Balance sheet, Cash flow statement etc)

Accounting cycle includes these major steps:1. Identifying the financial transaction

2. Preparing the documents for transactions such a sales invoice

3. Journalizing the transactions

4. Posting the transactions from journal to ledger account

5. Preparing the trial balance to checkthe accuracy of accounts

6. Adjusting the entries if there are mistakes or omissions in recording transactions in any book of

accounts

7. Preparing financial statements such as Income statement, Balance sheet, Cash flow statement etc.

8. Posting closing entries to ledger account

9. Preparing 'after closing trial balance' to check the debit balance is equal to credit balance

Annual report: (10 K):It is an Audited document at the end of fiscal year of a public company requiredby the SEC (balance sheet, income statement, cash flow statement).Quarterly report: (10 Q):It is an Un-audited document required by the SEC of all us public companiesreporting the financial results for the quarter (financial statements, discussion from the management,

and list of material events)

Merger:two or more companies combine into one company they may form a new companyAbsorption:two or more companies combine into an existing companyConsolidation:It is a combination of 2 or more companies into a new companyAcquisition:As an act of acquiring effective control by one company over the assets or management ofanother company without any combination of companies.Take over:as obtaining of control over management of a company by anotherTypes of merger:horizontal, vertical, and conglomerateReverse acquisition:One way of a company to become publicly traded by acquiring a public companyand then installing its own management team and renaming the acquiring company.Reverse merger:The acquiring of a public company by a private company allowing the private companyto bypass the usually lengthy and complex process of going public.ADR:American depository receipts, a negotiable certificate issued by a U.S to rising of money from thepublic by issuing shares

Debt:a liability or economic obligation in the form of bonds, loansEquity:ownership interest in a company in the form of common stock or preferred stockShareholders equity: total assets total liabilities

Depression:a period during which business activity drops significantly


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Portfolio:A collection of investments allowed by the same individual or organization (equity, bonds,debentures, preferred stock)Bad debt reserve:An amount set aside as reserve for bad debts.Reserve: Some amount of profit kept aside to meet contingent expenses, put aside for future purposeMinority interest: The ownership interest in a company held by the person other than the parentcompany and its subsidiary undertakingsGeneral reserve:It can be used for any purpose including distribution of dividendCapital reserve:An amount set aside as reservefor specific purposeDividend:Shareholders will expect some return from their investments by them in the share capitalAregenerally paid in cash Dividend declared by the board of directors in the AGM.Interim dividend: Dividend declared for 6 months is called interim dividendFinal dividend: Declared at the end of the financial yearSubsidiary company:A company that is completely control by the companyHolding company:A company that has control over other companies through ownership by holdingsufficient Common stock.(A company that owns enough voting stock in another Firm to control

management)Example:CAPITLA IQ is subsidiary of S P (Standard and Poor, Credit Rating Company)S P is holding company of CAPITLA IQ.Spin off:The process of offering shares to the parent companys shareholders by the Subsidiarycompany

Stock Spilt:increasing the number of outstanding shares without changing of capital and marketcapitalization. (For retail investors) it effectson Earning per Share and Book Value per Share and it willnot effecton PE and Price to BookSell off:Selling shares to the outsiders by a Subsidiary companyCarve out:The process of offering shares to the public by the Subsidiary companyNet Interest Income Expense:The deference between interest receiving on loan and payment of Intereston Deposit is called NII.

Hedge Funds: Pooling Money from few High net worth Investors and money is invested in the all highrisky assets, these are registered as LLP.

Cash Reserve Ratio:If cash reserve ratio is increased bank has to deposit more cash with RBI.Private Equity Fund:money pooled up from the high net worth investors and that fund for used topurchase shares from unlisted companies.

Deference b/w PE and venture capital:VC is type of private equity fund and which company having ageof 5 to 10 years is called VC.

NSE Free flood capitalization: market value of all the outstanding shares and all are listed in the NSEStock exchange. To prepare index

Copy right:creative writing LogoPatent:these are issued for innovationTread mark:These are given for a particular product or service of that particular companyMcDonalds

Mutual Fund Company: It is registered as a TrustBRS:Rectification of the Deferences between bank statement and passbookContra entries:Entries posted while reconciling the bank statements


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Contra asset account:all accounts have debit balances but contra asset account have credit balance ex:accumulated depreciation and provision for bad debts

Contra liability:example: selling shares on discountContra account:its a sub ledger bring the some balance from the main accountCapital employed:long-term funds invested in the business in liabilities side: share capital+ reservesand surplus + long-term funds in assets side: total assets-current assets

ESOPs vs. Warrants:Employees can get benefits after the expiry date of ESOPs agreement; promoterscan get benefits before expiry date of warrants agreement.

Reverse Stock split:the process of reducing outstanding number of shares by increasing the face valueof share (if there is any delisting danger, if price is below certain range settlement will goes to 7days)

Profit margin:pat/net sales*100Provision Vs Reserve:Provisions are created for irrespective of profit or loss and reserves are created forfuture repayment of the company

Working capital:the way in which company is building its current assets, WC requirement can be forearning operations for one year depends on production, policy, and season etc.

Net working capital:Deferences between CA and CL (current assets current liabilities)Leverage: FixedCommitment expenses for the finance and operating activities

Example:Bank Interest, Building lease amountDegree of leverage:The relationship between sales EBITDegree of operating leverage: %Change in EBIT /%Change in SalesFinancial leverage:%Change in EPS /%Change in SalesEOQ:The minimum quantity to be ordered so that we can reduce the ordering cost and holding cost.EOQ

A-Annual Demand, H-Holding Cost, k-Ordering Cost

Reserve capital:Money received against by the canceled sharesCapital reserve:Profit from capital the operations for future specific purpose.Derivative:These are financial contracts it derived price from underlying assets ex: equity derivative,commodity derivative etc.

SWAPS:These are derivatives, exchange of cash between two parties these are two Types Currencyswaps and interest rate swaps.

Securitization:Loan taken against with group of assets from third party. Example:group of car loans,group of home loans.Where can you Show the opening stock and closing stock in TB: Dr the OS and Cr the CS.Amortization:Cost allocation method for long term intangible assetsImpairment loss:If asset value is less than the purchase in present market price that deference is calledimpair mantel loss

Capital Rationing:Company has limited capital to spend on long term assets then company will followcapital rationing and choose a good project

Credit Rating:Assessing the credit worthiness of borrowing companies and indivisivals is called creditrating Example:Moodys, ICRALetter of credit:it is letter issued by the buyers bank to the seller in exports and importsSeller will get money from the buyer bank by giving Export doc. To the buyers bank Example:InvoiceInsurance of shipment.


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Cost Accounting:Planning, Budgeting, Analyzing the internal cost of the companyCost of capital:Cost of using debt capital, preference capital and equity capital in the business.Just In Time:Company order inventory only when it requireInside Trading:It is a negative activity trading by the internal employs of that company as perregulations.Implicit cost:These costs will not visible Example:Promoters Time, Opportunity cost.Explicit cost:These types of casts are clearly visible Example:Production CostSunk cost:Cost is incurred but we not recover Example: Market research cost of rejected decision.Opportunity cost:The next best opportunity cost is called Opportunity costExample: Benefits from best rejected choiceMarginal Cost:Cost of additional unit is called marginal costExample:we are produced 100 units of pens but there is a need to produce additional unit thatadditional unit of production cost is marginal cost.

Cost Center:where we cantgenerates revenues/profits but there will be a cost Example:HRDepartment

Profit Center:Where generating revenues Examples:sales and marketing departmentCost:by spending amount on product or services to get benefits in the future.Expanse:Money spent on expired benefits Example:SalariesBreakeven point:It means Recovering the fixed cost/no profit and no lossBreakeven quantity:Number of units to recover fixed costOutstanding shares:No. of Shares Sold by the company till dateSubsidiary Shares:The Company Received Full payment for selling shares is called Subsidiary sharesSubscribed capital:Received money from the subscribed sharesIssued Shares:The Company issued total number of shares to the publicForfeited Shares:Shares which are canceled by the companyForfeited Capital:Company received money from canceled sharesESOPs:Company will give facility to the most important employee to stay in the company by makingagreement.

EPS types:Basic EPS, Cash EPS and Diluted EPSTypes of dividends: Cash, Stock, Interim, Special, Liquidation.Mutual Funds:pooling money from the group of small investorsInvestment types in MF: Close ended, open-ended and IntermediaryCan tango:Future market is higher than the spot priceOperating expenses: Office salary, wages, insurance, rent, rates, taxes, stationary, printing etcSelling expenses:Sales man salary, traveling exp, advertising, Discount paid, bad debts etc.Distribution expenses:Sales traveling, wear housing rent, insuranceFinancial expenses:Bank charges, bank commission, interest on capital etc.Deferred Charge:Deferred charge is an expenditure that is paid for in one accounting period, but forwhich the underlying asset will not be entirely consumed until one or more future periods have been

completed. Consequently, a deferred charge is carried on the balance sheet as an asset until it is

consumed. Once consumed, a deferred charge is reclassified as an expense. Example:Advertisement


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Deferred Revenue or income/unearned income or revenue Itis a payment from a customer for servicesor goods that have not yet been delivered to the customer by the seller. The seller should record as a

liability until delivery is made then it will record as revenue.

For example one company is received money before providing service to the customer the company

should record that money treated as un earned revenue.Cash a/c Dr 1000 (company received money in advance)

To unearned revenue 1000 after service performed

Unearned revenue a/c Dr 800

To Cash 800

The company have Rs. 200 revenue is still unearned

Capital budgeting:Capital budgeting is the planning process of spending capital in efficient way onlongterm projects

Capital Budgeting Techniques: Discounting and Non-Discounting.Methods:NPV, IRR, ARR and Payback PeriodIRR:Is that the rate of which the sum of discounted cash inflow equals the sum of discounted cashoutflow. Where NPV is 0

Capital budgeting:Below are the steps involved in capital budgeting. Identify long-term goals of the individual or business.

Identify potential investment proposals for meeting the long-term goals identified in Step 1.

Estimate and analyze the relevant cash flows of the investment proposal identified in Step 2.

Determine financial feasibility of each of the investment proposals in Step 3

By using the capital budgeting methods outlined below. Choose the projects to implement from among the investment proposals outlined in Step 4.

Implement the projects chosen in Step 5.

Monitor the projects implemented in Step 6 as to how they meet the capital budgeting

projections and make adjustments where needed.

There are several capital budgeting analysis methods that can be used to determine the economic

feasibility of a capital investment. They include the Payback Period, Discounted Payment Period, Net

Present Value, Profitability Index, Internal Rate of Return, and Modified Internal Rate of Return.

Payback Period: A simple method of capital budgeting is the Payback Period. It represents the amountof time required for the cash flows generated by the investment to repay the cost of the original

investment. For example, assume that an investment of $600 will generate annual cash flows of $100

per year for 10 years. The number of years required to recoup the investment is six years.

Inventory:Raw material + Work in progress + Finished goodsInventory Methods:LIFO, FIFO, Weighted Average Method and Specific Identification Method


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Good will calculation Methods:1. Average profit method, 2. Super profit method, 3. Capitalization method.

Depreciation Methods:1. Straight line method,

2 declaiming balancing methodDouble Declaiming

And Triple Declaiming

3. Sinking fund method

4. Depletion method

Translation reserve:The Company having oversees subsidiaries reserve raising the money in the form ofdebt.

Comprehensive income: Adding direct to the share holders equityComprehensive income = net income + other comprehensive incomeVariable cost:A cost that varies with changes in the level of an activity, when other factors are heldconstant. The cost of material handling to an activity, for example, varies according to the number of

material deliveries and pickups to and from that activity.

Fixed Cost:A cost that does not vary in the short term with the volume of activity. Fixed costInformation is useful for cost savings by adjusting existing capacity, or by eliminating idle

facilities. Also called Non-Variable Cost or Constant Cost.

Variance - The amount, rate, extent, or degree of change, or the divergence from a desiredCharacteristic or state.

Activity-Based Costing - A cost accounting method that measures the cost and performanceof process related activities and cost objects. It assigns cost to cost objects, such as productsor customers, based on their use of activities. It recognizes the causal relationship of cost drivers to

activities.

Prime Cost: A business's expenses for the materials and labor it uses in production. Prime cost is a wayof measuring the total cost of the production inputs needed to create a given output.

Mixed/Semi-variable cost: Semi-variable cost is an expense which contains both a fixed-costcomponent and a variable-cost component.Direct Cost-The cost of resources directly consumed by an activity. Direct costs are assignedto activities by direct tracing of units of resources consumed by individual activities. A cost that

is specifically identified with a single cost object.Financial analysis: It is the process of identifying the financial strength and weakness of the firm byproperly establishing relationship between the items of the balance sheet and the profit and loss a/cFundamental analysis:Estimating the future values of assets by analyzing past financial statements, Itcontains economic analysis, industry analysis, and company analysis.

Technical analysis:Estimating the stock price by analyzing data from previous priceMovements

BVPS:To know your share in the total equity. Total Equity/No. of outstanding sharesPE Ratio:market price per share/EPSEPS: PATPD/No. of outstanding sharesExceptional items:sale of fixed assets


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Extraordinary Items:miningsCash Flow activities:Operating activity, investing activities, financing activityEPS:To estimate per share earnings PAT-PD/No. outstanding sharesBridge Finance:Taking Short term loans for working capital.Restricted Shares: No. of shares held by the insidersFloating Shares:No. of shares held by the publicLiquidity ratios:To know the ability of a company to pay the short-term liabilities.Solvency ratios:To know the ability of the company to pay the long-term liabilitiesLeverage ratios:To know the ability of company to pay the long-term principle debit amountCoverage ratios:To know the ability of company to pay interest for the long-term debitAsset utilization ratios:To know the efficiency of asset utilization of the companyProfitability Ratios:To know the ability of the company generating profits to the investorsGPM=GP/Net Sales, OPM=OP/Net Sales, NPM=NP/Net SalesLeases:Operating Lease:If lease asset lifetime is less than 75% it is called operating lease.Financial Lease:If lease asset life time is more than 75% it will become financial lease.Backwardazition:Future market is less than the spot marketPari passu:while liquidating the company all are not having equal rightsTypes of debenturesA debenture is a debt instrument similar to a bond. But bonds are secured while debentures are not.However, many people use both the terms interchangeably.Zero Coupon Debentures: Does not have a specified interest rate, thereby to compensate,they are issued at a substantial discount. Interest: Difference in face value and issue price.

Specific Coupon rate Debentures: Debentures are normally issued with an interest ratewhich is nothing but the coupon rate. It can be fixed or floating. Floating is associated with

the bank rates.

Convertible Debentures (Fully/ Partly convertible): Debentures which can be converted to either equityshares or preference shares by the company or debenture holders at a specified rate 1after a certain

period. A company can also issue Partly Convertible Debentures whereby only a part of the amount canbe converted to equity/preference shares.

Non Convertible Debentures (NCDs): These cant be converted into equity/preference shares.Primary market: Companies are issuing new shares to the public for the first time or secondtime example: IPO, FPOSecondary Market: Where the investors purchases securities from another investors rather thanthe issuerissuing companies.Current ratio: Current Assets/ Current liabilities

Quick ratio: Current assetsInventories/ Current liabilities

Cash ratio: Cash + Marketable Securities/ Current liabilities

Internal measure: Current assets Inventory/ Average Daily Operating ExpensesTotal operating expenses/360

A firms ability to meet its regular cash expenses is internal measure

Arbitrage: The simultaneous purchase and sale of related products in tw o different markets in orderto profit froma discrepancy between the purchase price (undervalued) and the sale price (overvalued),i.e. risklessProfit


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At-the-money Option:An option with strike price equal or very close to the current price of theunderlying asset. Theseoptions have the most time value.

Average Price (Asian) Option: Options that allow the buyer to buy (or sell) the underlying asset at theaverage price instead of thespot price. The payoff is the difference between the strike price and the

average price of the underlyingasset over a certain time period.Average Rate Cap/Floor: Consists of a string of caplets (floor lets). The additional feature is thatinstead of the rate being basedon one single reset rate, the caplet rate is the average of two or morereset rates.

At-the-money optionAn option w hose strike price is the same as, or closest to, the current market price of the underlyingshare. For example, if the share Price is Rs.260, an option w ith a strike price of Rs.260 w ould beprecisely at-the-moneyBackwardation:A futures market w here further dated delivery months trade at a discount to the near month. Also, where a bid is higher than an offer.Bid/offer spread: The difference between quoted bid and offer prices.

Clearing House: The organization which guarantees the performance and settlement of exchangetraded contracts to its membersNSCCL

Financial markets: It is used to refer just to the markets that are used to raise finance for long term.

Capita l markets:A capital market is a market for financial assets which have a long or indefinitematurity. Generally it deals with long term securities which have a maturity period of above one year.Like, stock markets, bond markets, commodity markets, money markets, derivative markets, future

markets, insurance markets, and foreign exchange markets.Stock markets: which provide financing through the issuance of shares or common stock, and enablethe subsequent trading thereof.Bond markets: It provides financing through the issuance of bonds, and enables the subsequenttrading.Commodity markets:It facilitates the trading of commodities like, gold etcMoney markets:Money market is a market for dealing with financial assets and securities which havea maturity period of up to one year. In other words, its a market for purely short term funds.Derivatives markets:It provides instruments for the management of financial risk.Futures markets: It provides standardized forward contracts for trading products at some future date.Insurance markets: It facilitates the redistribution of various risks

Foreign exchange markets: It is a place to trading of foreign exchangeCapital markets are divided in two types: Primary market and Secondary marketPrimary market:Newly issued securities are bought or sold in primary ex: IPOSecondary market: Secondary markets allow investors to buy and sell existing securities.Equity markets:A market where ownership of securities are issued and subscribed is known as equitymarket. An example of a secondary equity market for shares is the Bombay stock exchange.Commonsize analysis(also called vertical analysis) expresses each line item on a single year'sfinancial statement as a percent of one line itemVariable costsare costs that change in proportion to the good or service that a business produces.

Variable costs are also the sum ofmarginal costsover all units produced. They can also be considerednormal costs.Fixed costsand variable costs make up the two components oftotal cost.Direct Costs,
http://en.wikipedia.org/wiki/Marginal_costhttp://en.wikipedia.org/wiki/Marginal_costhttp://en.wikipedia.org/wiki/Marginal_costhttp://en.wikipedia.org/wiki/Fixed_costhttp://en.wikipedia.org/wiki/Fixed_costhttp://en.wikipedia.org/wiki/Fixed_costhttp://en.wikipedia.org/wiki/Total_costhttp://en.wikipedia.org/wiki/Total_costhttp://en.wikipedia.org/wiki/Total_costhttp://en.wikipedia.org/wiki/Total_costhttp://en.wikipedia.org/wiki/Fixed_costhttp://en.wikipedia.org/wiki/Marginal_cost


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Capital budgeting:Below are the steps involved in capital budgeting.

Identify long-term goals of the individual or business. Identify potential investment proposals for meeting the long-term goals identified in Step 1. Estimate and analyze the relevant cash flows of the investment proposal identified in Step 2.

Determine financial feasibility of each of the investment proposals in Step 3

By using the capital budgeting methods outlined below.

Choose the projects to implement from among the investment proposals outlined in Step 4. Implement the projects chosen in Step 5. Monitor the projects implemented in Step 6 as to how they meet the capital budgeting

projections and make adjustments where needed.

There are several capital budgeting analysis methods that can be used to determine the economicfeasibility of a capital investment. They include the Payback Period, Discounted Payment Period, Net

Present Value, Profitability Index, Internal Rate of Return, and Modified Internal Rate of Return.

Payback Period:A simple method of capital budgeting is the Payback Period. It represents theamount of time required for the cash flows generated by the investment to repay the cost of the originalinvestment. For example, assume that an investment of $600 will generate annual cash flows of$100per year for 10 years. The number of years required to recoup the investment is six years.

Government BondsIn general, fixed-income securities are classified according to the length of time before maturity. Theseare the three main categories:Bills - Debt securities maturing in less than one year.Notes -Debt securities maturing in one to 10 years.Bonds -Debt securities maturing in more than 10 years.

What is a mutual fund: A mutual fund is a pool of money from group of investors who wish to save

Professional Management.Each fund's investments are chosen and monitored by qualifiedprofessionals who use this money to create a portfolio. That portfolio could consist of stocks, bonds,money market instruments or a combination of those.

Balanced funds: A combination of growth and incomefunds, also known as balanced funds.

Closed-End Funds:A closed-end fund has a fixed number of shares outstanding and operates for afixed duration (generally ranging from 3 to 15 years) its listed in stock exchange.

Open-End Funds:An open-end fund is one that is available for subscription all through the year and isnot listed on the stock exchanges. The majority of mutual funds are open-end funds. Investors have theflexibility to buy or sell any part of their investment at any time at a price linked to the fund's Net AssetValue

What is hedging: Risk reducing mechanism

Arbitrage:

Arbitrage is the simultaneous purchase and sale of the same instrument in different markets to profit

from price discrepancies. It is the ability to take advantage of different rates, prices and/or conditionsbetween different markets.

Accounting and Finance metirial to Prepare for Interviews for any MBA/MCA Students

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