Three financial statements Financial Statements Financial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). #3 – How vital are three financial statements? Can you talk briefly about them? Depending on whether the firm is struggling, I will strategize and solve the problem. They're usually salaries payable, expense payable, short term loans etc. read more by lowering the equity and enhancing the Debt, or maybe I need to take care of the company’s current liabilities Company's Current Liabilities Current Liabilities are the payables which are likely to settled within twelve months of reporting. It helps the investors determine the organization's leverage position and risk level. That’s why I may increase the debt-equity ratio Debt-equity Ratio The debt to equity ratio is a representation of the company's capital structure that determines the proportion of external liabilities to the shareholders' equity. Depending on the company’s financial condition, I may find that I need to reduce the overall cost of capital of the company. So, a CFO will work on ensuring the financial well-being of a company.) It is an integral part of the discounted valuation analysis which calculates the present value of a firm by discounting future cash flows by the expected rate of return to its equity and debt holders. read more and the cost of debt Cost Of Debt Cost of debt is the expected rate of return for the debt holder and is usually calculated as the effective interest rate applicable to a firms liability. It is a parameter for the investors to decide whether an investment is rewarding or not else, they may shift to other opportunities with higher returns. WACC Formula = + read more, which we can calculate by using the cost of equity Cost Of Equity Cost of equity is the percentage of returns payable by the company to its equity shareholders on their holdings. The Rate of return is more than the cost of capital (think about the weighted average cost of capital Weighted Average Cost Of Capital The weighted average cost of capital (WACC) is the average rate of return a company is expected to pay to all shareholders, including debt holders, equity shareholders, and preferred equity shareholders. A CFO ensures that the company has enough liquidity Liquidity Liquidity is the ease of converting assets or securities into cash. (To answer this question, first, you need to think of what a CFO does for a company. #2 – Let’s say that you’re a CFO of a company. That’s why every once in a quarter, forecasted data is updated. Forecasting is not static since it enables a company to understand what may happen shortly. read more and not usually updated for a year. Budgeting is often static Budgeting Is Often Static A static budget is one that anticipates all revenue and expenses which will occur during a particular period, with changes in the level of production/sales or any other major factor having no effect on the budgeted data.Forecasting is based on real data, historical inputs and ascertained using statistical survey methods. At the same time, forecasting is an estimate of what may happen. read more is setting up a plan for the future that the income and the expenses would be such. Budgeting Budgeting Budgeting is a method used by businesses to make precise projections of revenues and expenditure for a future specific period of time while taking into account various internal and external factors prevailing at that time.There are two main differences between budgeting and forecasting. Source: Financial Planning and Analysis (FP&A) Interview Questions () #1 – What’s the difference between budgeting and forecasting? You are free to use this image on your website, templates, etc., Please provide us with an attribution link How to Provide Attribution? Article Link to be Hyperlinked #10 – How does an inventory write-down affect the financial statements?.#9 – How would you do modeling for working capital?.#8 – How would you build a forecast model?.#7 – How would you become an excellent Financial Planning Analyst?.#6 – Can you talk about the three main challenges our company has faced for a while?.#5 – How do you know that an excel model is quite good?.#4 – How to forecast revenues for a company?.#3 – How vital are three financial statements? Can you talk briefly about them?.#2 – Let’s say that you’re a CFO of a company.#1 – What’s the difference between budgeting and forecasting?.
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