Question

Major concepts with which you should have some familiarity include:

FINANCE

• Financial instrument types (e.g., stocks, bonds) and pricing concepts

• Financial ratio interpretation

• Financial criteria for evaluating projects (e.g., cash flows, NPV, payback period,

  etc.)

• Valuation of stocks and bonds

• Break-even – term and applicatio

• Goals of the corporation

• Market beta and risk analysis

• Benchmarking

Answer 1

Financial instrument types and pricing concept:

A financial instrument is a way by which the investors can trade in the financial market. They may buy and sell the financial instruments in the financial markets so that they can earn more money. Some of the financial instruments are stocks, derivatives, debt instruments, bonds etc. The pricing of these instruments are based on the demand and supply of the underlying asset or commodity. The different types of financial instruments are: Cash, Debt instruments, Debt instruments and Derivative instruments.

Financial ratio interpretation

Financial ratio interpretation gives the insight about the financial performance of the company. It provides the inter-relationship between two financial components of the company. For most of the financial ratios, the acceptable standard has been set. The company can interpret the financial performance of the company by comparing with the acceptable standard.

Financial criteria for evaluating projects

Projects are evaluated based on the capital budgeting techniques. The capital budgeting techniques are based on the comparison of the investment of the company on the project and the expected returns on the project.

Some of the capital budgeting techniques are Payback period, Net Present Value, Internal Rate of Return and Profitability Index.  

Valuation of stocks and bonds

Valuation of stocks and bonds are needed to do the investors so that they can analyse and decide about their investment in the stock or bond.

Break-even

The break even point is the situation at which the costs incurred by company and the revenue generated by the company will are equal to each other. It is the situation when the company has no profit and no loss.

Goals of corporation

The goals of the corporation are to increase the profitability of the company, to increase the market share and also to improve the employee retention rates.

Market beta and risk analysis

Market beta is the volatility of the stock of the company. The higher is the beta value, the more risky is the asset. This value of beta is essential to analyse the risk involved in an asset.

Benchmarking

Benchmarking is the process in which a firm's performance is compared with the business processes of other businesses in the same business or sector.