Are you a job seeker who is looking for a career in the top and the mid-sized corporate houses as a bookkeeper. If “yes” here are the top and mostly asked interview questions for bookkeeper. These questions are asked by most of the employers all over the globe. By asking these questions it will enable the interviewer to know about what you know and what you don’t know.
What are the uses of financial ratios to the stakeholder?
This is the most important Interview questions for bookkeeper. Various stakeholders of a firm use financial ratios to analyze the financial statements for their own interests and purpose. The basic users of financial ratios are shareholders, managers, creditors, banks and financial institutions, competitors, and so on.
The uses of financial ratios to these stakeholders can be stated as follows:
- As insiders, management is more concerned about the overall financial strength and weaknesses of the firm. Therefore, management uses financial ratios to assess liquidity, assets management, debt management. And profitability of the firm for the purpose of financial decision making.
- Shareholders analyze the financial statements to have information about the earnings of the firm. They are interested to know how earnings per share, dividend per share, rate of return on equity has been growing over the years.
- They are also interested to know the value created by the company over the years so they use several financial ratios for these purposes.
Explain the phrase that ” One rupee you have in hand today is of the greater value in the coming year”
This statement is well explained by the concept of the time value of money. The time value of money is the concept to understand the value of cash flows occurred at different periods of time. This will answer your interview questions for bookkeeper.
A rupee in hand today is valued more than a rupee next year due to the following three reasons:
Money received earlier can be invested to generate a further sum of money. For example, if we receive Rs 100 today and deposit in a bank account paying 6 percent interest, we will have Rs 106 at the end of the year.
Therefore, given this investment opportunity Rs 100 today is equivalent to Rs 106 at the end of the year.
Preference toward current consumption:
Most of the people prefer current consumption to future consumption. Money in hand today makes current consumption possible.
Therefore, the Current sum of money is more valuable. This question is one of the top interview questions for bookkeeper.
Bookkeeper interview questions and answer
What do you understand by the CAPM or capital asset pricing model?
Talking about the bookkeeper interview questions and answers. This is an important one. The capital assets pricing model (CAPM) shows the relationship between risk and return of an asset. The CAPM postulates that the required rate of return on any asset is the total of risk-free rate plus the risk premium.
What do you understand by the unsystematic risk?
The method of analyzing of risk of any company is very important. Therefore, these questions in helpful for, Interview questions for bookkeeper
- Unsystematic risk is unique to a security or a company and does not affect all securities.
- This risk is independent of political or economic factors and unique to each individual firm.
- Unsystematic risk is also called diversifiable risk and can be reduced by diversification of investment. In other words, a portfolio with many assets has almost no unsystematic risk.
- This risk arises from management inefficiency, unsuccessful planning, etc.
Explain portfolio opportunity set?
The portfolio opportunity set is the set of all portfolios that can be constructed from a given set of securities, based on different levels of risk and expected returns.
Evaluating portfolio opportunity sets allows an investor to choose among the portfolios that match their level of risk tolerance.
Discuss the features of common stock.
Common stock is securities issued by corporation to raise ownership capital. Capital raised by issuing shares of common stock is used to finance major portion of the firm’s fixed assets.
Common stock certificate represents the evidence of ownership right of the holders in the corporation.
Some of the basic features of common stock are as follows:
Common stock has a stated amount of face value per share, which is called par value. The par value is generally set at Rs 100 per share of common stock.
Common stockholders have a residual claim on income and assets. Similarly, the Common stock dividend is paid after payment of interest to the creditors, tax to the government, and preferred dividend to the preferred stockholders.
Common stockholders have a residual claim on income and assets. Furthermore, the Common stock dividend is paid after payment of interest to the creditors, tax to the government, and preferred dividend to the preferred stockholders.
Therefore, these questions in helpful for, Interview questions for bookkeeper. Common stock does not have a maturity date. Hence, the company which needs fund for indefinite period issues shares of common stock. Shareholders, however, can sell their stocks in the secondary market.
Each share of common stock entitles its holder to cast one vote in the annual general meeting of shareholders. Common stockholders can attend the annual general meeting and cast vote in person or by means of a proxy.
Preemptive right gives the existing common shareholders the first right to subscribe to new issues of shares. The right allows the existing shareholders to maintain their proportionate ownership interest and control in the company.
bookkeeper job interview questions
Define stock valuation.
The valuation of common stock is difficult than the valuation of bonds due to several reasons. One reason is that expected cash flows from common stock are not known in advance as opposed to the cash flows from bond and preferred stock investment. bookkeeper job interview questions
Another reason is that expected cash flows from common stock are not known in advance as opposed to the cash flows from bond and preferred stock investment.
Moreover, Another reason is those common stock dividends are normally expected to grow and the growth rate may vary over periods.
Furthermore, the life of the investment in common stock is theoretically indefinite, since the common stock has no maturity. Similarly, Because of these complexities associated with common stock valuation.
A number of approaches can be used to determine the fair value of common stock. Moreover, One of the most popular models to determine common stock value is the dividend discount model.
Thus, the value of the common stock, in this case, is the sum of the present value of future dividend payments plus the present value of the price of the stock at the end of the period.
If the investors expect to hold the common stock forever, they expect an infinite stream of dividends from the common stock. In this case, the value of common stock is the sum of the present values of the infinite stream of dividend payments.
What factors affecting the cost of capital?
Various factors affect a firm’s cost of capital. They are discussed as follows:
General economic conditions:
The general condition affects the demand and supply of capital in the economy. If the demand for capital increases, without a corresponding increase in supply, the cost of capital increases, and vice versa.
The marketability of the securities also affects the cost of capital. For example, investors require a higher rate of return from investment in less marketable securities which pushes up the cost of capital.
The higher the number of financing needs of a firm higher will be the weighted average cost of capital. For example, a higher amount of financing leads to higher flotation costs, underpricing of the security, discount, and so on, thus increases the cost of capital.
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Operating and financial risk:
Operating risk is the variability in returns on assets, which is affected by the company’s investment decisions. Financial risk is the increased variability in returns to common stockholders resulted from using fixed charge bearing sources of financing.
As these risks increase, cost of capital also increases.
Besides above, other factors such as tax rate, capital structure, and dividend policy also affect the cost of capital. For example, a higher tax rate reduces the cost of debt, which ultimately reduces the cost of capital.
For example, a higher tax rate reduces the cost of debt, which ultimately reduces the cost of capital. The uses of more debt decrease WACC for given level of cost of equity.
A higher dividend payout ratio increases the amount of external equity financing and ultimately increases the WACC.
interview questions for bookkeeper position
What are the various ways the cost of retained earnings can be estimated?
The cost of retained earnings is the minimum required rate of return that a firm must earn on its internal equity. Retained earnings are created by forgoing dividend payment to stockholders.
There is no direct explicit cost associated to the use of retained earnings. The cost of retained earnings is implicit. It is the opportunity cost of dividend income foregone by stockholders.
The cost of retained earnings can be estimated in the following ways: interview questions for bookkeeper position
Discounted cash flow method:
According to this method, the cost of retained earnings is the sum of the expected dividend yield and growth rate. But if the growth rate is not constant, the trial-and-error approach is used to compute the cost of retained.
Capital asset pricing method (CAPM):
The CAPM model describes the relationship between the non-diversifiable risk of the firm and the cost of common stock. According to this model, the cost of internal equity is equal to the risk-free rate plus the appropriate risk premium for the level of risk involved.
Briefly explain relative merits and demerits of different methods of evaluating capital budgeting projects.
Merits/advantages of payback period:
This method is very simple to understand. In the case of the projects, where technological obsolescence is more frequent, investors pay more attention to the quick recovery of investment.
Thus, PBP is considered a better project evaluation criterion for such projects.
Demerits/Disadvantages of Pay Back Period:
In spite of its simplicity, the PBP has following drawbacks;
- It ignores the cash flows after the recovery of project investment.
- Furthermore, It does not recognize the concept of the time value of money.
- Similarly, It does not consider the level of risk associated with the project.
interview questions for bookkeeper position
What is the discounted payback period:
This technique is a slightly modified version of the regular payback period. Where the payback period, where the payback period is calculated using discounted cash flows.
In other words, this technique discounts all cash flows at the appropriate cost of capital. Further, it uses the discounted cash flows to work out the payback period. According to this method also the project with shorter discounted PBP is considered better.
Merits/Advantages of discounted payback period:
While the payback period does not consider the time value of the money, and risk involved in the project, the discounted PBP considered better.
Demerits/Disadvantages of discounted payback period:
This method also does not consider cash flows beyond the payback year and also does not tell us how much wealth a project adds to the wealth of the shareholders.
Demerits/Disadvantages of NPV(Net present value)
However, NPV also suffers from following disadvantages:
- NPV is sensitive to the discount rate and the selection of the appropriate discount rate is a difficult task under this method.
- It does not give the appropriate ranking of the projects with unequal lives and unequal sizes of investments.
Merits/Advantages of IRR(Internal Rate of Return):
Some merits of IRR methods are as follows:
- This method is based on cash flows rather than accounting profits.
- It also recognizes the concept of the time value of money.
- Above all, It also takes into account of all cash flows over the life of the project.
- Similarly, It considers the level of risk associated with the project as IRR is compared against the cost of capital.
- Furthermore, It is also consistent with the shareholder’s wealth maximization objectives.
- IRR is easy to understand and communicate to the management because it is expressed in percent rather than in terms of money.
Summing it up,
In conclusion, Interview questions for bookkeeper this answer all your queries that an interviewer can ask in an interview. Therefore, Read well before your interview. Good Luck !.
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