3 Financial Statements

What does the balance sheet show

snapshot of business’s assets, liabilities, equity at single part of time

what should assets equal to

liabilities + equity

What does equity mean

Owner's stake in company (company’s net worth)

What does an income statement show

summarize business revenues + expenses over period of time

What does assets mean

Economic resources a company owns & controls that give them positive value in the future

why does profit not equal to cash flow (why businesses need cash flow statement)

• Time of payment (e.g. give 30 day window to pay)

• Depreciation (e.g. Cars, paid sales price, but profit decrease each year)

• inventory & capital spending (e.g. spend 20K to stock warehouse in products: profit no change, cash immediately out)

What does the cash flow statement show

Company’s cash balance changes over a given period of time. It starts by looking at the cash during operational activities, followed by investment activities, then finally cash from financing activities.

What are the 2 methods of accounting and their attributes

cash method & accrual method

What’s the order in which the 3 financial statements should be read in an interview

Income → cash flow→ Balance sheet

what does retained earnings mean

company's cumulative profit that it keeps (retains) rather than paying out to shareholders as dividends

• “savings account” for reinvestment

• Carried Net income from previous year(s)

What does goodwill mean

intangible asset (company’s brand, customer loyalty, '“secrets”)

For Finance interviews, give me the overview of the Income Statement.

For Finance interviews, give me the overview of the Balance Sheet.

• Only really have the remember the main sections (assets = liabilities + shareholders’ equity)

For Finance interviews, give me the overview of the Cash Flow Statement

• Only really have the remember the main sections (Operating Cash Flow, Cash from Investing Activities, Cash from Financing Activities)

Can you walk me through what a depreciation of $10 does to the 3 financial statements

What is working capital?

• Working capital = current assets - current liabilities

  • current = “within a year”

• cash and short-term assets a company has available to run its day-to-day operations

What does accounts receivable mean?

• Money owed to a company by its customers for product/service the company has already delivered

• Revenue doesn’t equal cash —> b/c of accounts receivable and accounts payable

What’s the difference between deprecation and amortization

Deprecation: physical assets (cash)

Amortization: Intangible assests (licenses, patent, etc)

What are accounts receivable?

Payments owed to a business by its customers for products and services delivered to them

What is fair market value (FMV)

How much company worth today in the market

• what it can be reasonably sold for in the market

What is goodwill and some examples of it

Extra money buyers pays for business beyond “FMV”

• purchase price - FMV of net identifiable assets = goodwill

• company rep, loyal customers, etc

Can you name me all of the usual components under “Assets” on a B.S.

Can you name me all of the usual components under “Liabilities” on B.S

Can you name me all of the usual components under “Shareholders Equity” on B.S

How do you generally calculate APIC

What are some main points for a company stock buyback?

• pay back shareholders other than paying dividends

• Lower share outstanding → increase EPS → makes company look more profitable

• Higher ownership % to remaining shareholders

What are the 2 methods of organization for cashflow statement?

1. Direct → segmenting them off → more common

2. Indirect → cash received vs cash paid