Behavioral Business Ratios Interview Questions & Answers:

1. What is Accounts payable?

These are the amounts that are due to vendors who have supplied goods or services. The accounts payable are supported by the vendor invoices that have been approved and processed, but have not yet been paid.

2. What are Deferred revenues?

This reports the amounts that a customer has prepaid and will be earned by the company within one year of the balance sheet date. An example is a retailer's unredeemed gift cards.

3. What is Accrued compensation?

Included in this are payroll related items such as the amounts due to employees and the amounts to be remitted for payroll taxes.

4. What are the other accrued expenses or liabilities?

This reports the amounts that the company owes for items not recorded in accounts payable or accrued compensation. Examples include the interest expense that the company has incurred (but has not yet paid) and repairs that took place but the vendor's invoice has not been fully processed.

5. Described about the tax advantage when bonds are issued instead of stock?

The tax advantage of issuing bonds (or other debt) instead of stock results from the interest paid by the company being a deductible expense on its federal and state income tax returns. Dividends paid to stockholders are not a deductible expense, since dividends are a distribution of profits to the owners of the corporation.

6. Tell us are the liabilities always a bad thing?

Liabilities are obligations and are usually defined as a claim on assets. However, liabilities and stockholders' equity are also the sources of assets. Generally, liabilities are considered to have a lower cost than stockholders' equity. On the other hand, too many liabilities result in additional risk.

Some liabilities have low interest rates and some have no interest associated with them. For example, some of a company's accounts payable may allow payment in 30 days. With those payables it is better to have the liability and to keep your cash in the bank until they become due.

In our personal lives, our first house was probably purchased with a down payment and mortgage loan. That mortgage loan was a big liability, but it allowed us to upgrade our living space. I viewed my mortgage loan liability as a good thing because it allowed me to own a nice home in a beautiful neighborhood.

So some liabilities are good-especially the ones that have a very low interest rate. Too many liabilities could cause financial hardships.

7. Define debt to total assets ratio?

The debt to total assets ratio is an indicator of financial leverage. It tells you the percentage of total assets that were financed by creditors, liabilities, debt.

8. What is NOI?

NOI is the acronym for net operating income. Net operating income is also referred to as income from operations.
NOI excludes discontinued operations, extraordinary items, and nonoperating (or other) items such as interest expense, interest revenues, gains, and losses.

9. Described turnover?

Turnover is used in some countries to mean sales.
Turnover is also used in certain financial ratios. For example, the inventory turnover ratio is calculated by dividing the cost of goods sold during a year by the average inventory during the same year. The accounts receivable turnover ratio is computed by dividing the credit sales during a year by the average balance in Accounts Receivable during the same year.

10. Described financial leverage?

Financial leverage refers to the use of debt to acquire additional assets. Financial leverage is also known as trading on equity. Below are two examples to illustrate the use of financial leverage, or simply leverage.